China’s Industrial System
Photo by Jerry Wang
China has transformed from a poverty-stricken mass of peasants and workers with a lifespan of less than 44 years in 1950 into the only country in the world with a complete industrial system. It has not only abolished poverty for a significant portion of the Earth’s population, but it now has raw materials and supply chains and can make finished products of literally everything, from kindergarten toys to space stations and hypersonic missiles. Scholars, soldiers and poets will be trying to get their minds around this for the next hundred years.
Just as the US has four times more people than Great Britian, the world power it replaced, China has more than four times as many people as the US. There are now over 6 million millionaires in China, and their inequality index is rising, but the wealth has been widely spread. For over a decade, China built an average of 25 million new homes each year in a vast relocation of countryside peasants into cities. In the wake of the 2008 financial crisis China spent trillions of yuan building infrastructure. It poured more concrete in 2011-2013 than the US did in the entire 20th Century, including the interstate freeway system. The purchasing power parity of its citizens is very close to those in the US and continues to improve; its economy grew more than 5% in the first half of 2025.
This spectacular rise is a vindication of the Chinese Communist Party (CCP) technocrats that have ruled China in this millennium; in 2001, all seven members of the Standing Committee of the 15th Central Committee were trained as engineers. They’ve blended Communism with traditional Chinese culture, minus the feudalism and scorn for merchants. Cultural capital is very real; Germany and Japan were leveled to the ground after WWII, but with loans from the US, they rapidly rebuilt their factories with the very latest equipment. The notion of an educated class of Mandarins directing traffic all over the country based on mandates from the Center is not at all new to the Chinese.
China’s non-phonetic writing system of characters writing is difficult to learn, but it has enabled it to remain a single country for millennia, despite being as large as Europe with many different cultures and spoken languages. The characters for “horse” or “tax” would be read as such by any literate person in China, regardless of spoken language, for more than two millennia. Thus, the central government of the Tang Dynasty in Chang An in 775 CE sent dispatches over a very efficient mail delivery system (for government employees only) that could be read by bureaucrats all over China. Without such a writing system, it is doubtful that any dynasty could extend its reign across China for centuries, as many dynasties have done.
Communism is also real in China, despite the capitalist trappings. The CCP can and does issue ultimatums directed to the most powerful corporations, as it did in 2022 to Tencent and Ali Baba, that gain immediate compliance. There is no comparable state power in Europe or the US, where ultimate power is either wielded by bankers and money managers or corporate chiefs. Although most economic activity takes place at the private, state and local level, it is the CCP that owns the most land, that allocates capital and formulates the broad plans driving China’s development.
Meanwhile, the US has behaved precisely as expected by Marxist textbooks. After developing the greatest industrial system the world had yet seen, it abandoned industry because more money was to be made by shifting production to low-cost areas. Companies like Nike do the design and the marketing and the creation of a brand but leave the work of actually making its shoes to wherever in the world labor costs are cheapest. This financialization process, where business is “laser-focused” on making the most money possible at every turn, is how capitalism has always worked.
Factories and communities that had thrived around the Great Lakes and in the Northeast since the 19th century were moved to the South and then overseas, leaving bewildered communities behind with nothing to do, and nowhere to go. New factories built in Los Angeles and Oakland in the 20th century were also abandoned, leaving splintered communities behind.
Prior to the 1980s, US investment was primarily into factories, land, and tangible “real” parts of the economy. The Dow Jones, a rather provincial stock market index of interest mainly to specialists after the crash of 1929, had only briefly been over 1000 and was at 850 after an increase in interest rates to over 18% in late 1981 pushed a wavering industrial system over the edge. Financialization began in earnest – and the stock market began to move. From late 1981 to August of 2025, with a few breathtaking dips along the way, it rose by a factor of more than 50, to 44,000 in August of 2025. Money from around the world noticed, and poured into the US stock market to take advantage of this flight upwards. The market value of US stocks as of July 1, 2025, was 62.8 trillion dollars. The value of marketable treasury debt as of the same date was over 27 trillion dollars, as compared to about 600 billion in 1980, or 45 times as much.
The Market has become the arbiter of whether US political decisions are good or bad. Money managers are consulted now on social and cultural as well as political issues. The honorific of “billionaire,” i.e., “billionaire Bill Ackman,” is routinely applied to the “experts” charged with defining and making sense of current events on TV and the internet. The financialization of the US is very far advanced.
Just as China is the world’s leading industrial power, the US is now the world’s leading financial power. The dollar, despite efforts to dethrone it, remains the world’s de facto currency. No matter how different, i.e., with his random lurches and overt racism, Donald Trump’s approach to governance is, his strategic goal is identical to that of all previous US governments since the end of World War II: to maintain the hegemony of the US. That hegemony arose from the industrial system mobilized by the US in World War II, a system capable of making a ship in a matter of days. Industrial strength has determined the outcome of all modern wars. Today, American politicians are hoping to restore that dominant industrial position. They have nearly infinite amounts of money, but the reconstruction of an industrial system has never been done before. Can they do it?
The following discussion is deeply indebted to the work of Lu Feng, Professor of Political Economy in the School of Government at Peking University. He begins by noting that every wave of industrialization in the world started with existing products, rather than from the production of new products that did not exist before.
The most iconic product of the British Industrial Revolution is cotton textiles, but cotton textiles were not invented by the British and have existed for a long time; there were thousands of flourishing weavers in India in the 18th Century. The British innovation was to use machines to produce cotton textiles for a far cheaper price, thus making them more widely available. The “Industrial Revolution” thus started with the use of machines to produce traditional products. Its early successes in traditional products led to innovations, and new and immensely profitable products; a huge portion of the locomotives built in the 19th century were built in Glascow and shipped around the world.
When the US experienced large-scale industrialization in the late 19th century, fired by investments from Great Britain, France and Germany, the main products and technologies produced by the US, such as steel, chemicals, and automobiles, were invented by Europeans. US innovation was to adopt mass production methods, like the Ford assembly line.
Until the outbreak of World War II, although US industry had long been the largest in the world and its engineering and technical capabilities were strong, it lagged behind Europe in science. Harvard, Stanford, and MIT were not top-ranked schools, and did not compare to Oxford, Cambridge, Heidelberg, or Berlin. Hitler’s “gift” to the US after he came to power was to force a large group of the best European scientists to go into exile in the US. (It is impossible to ignore the parallel development of many top scientists in the US now being chased out of the country for racist reasons.)
The war also brought many new European inventions into the US, including nuclear fission, radar technology and the aviation jet engine. Ballistic missiles developed by the US after the war were designed by German scientists who designed the V1 and V2 rockets for Nazi Germany.
Lu Feng shows that the invention of completely new products will not appear until a country develops an industrial system. Industrialization in the US won the war and then generated the requisite demand and investment capacity for new science and technology. After the war, in the 1950s, entirely new technologies such as computers, semiconductors, and software began to proliferate. US universities ascended to the top, not just private schools but public universities, too; the University of California once had more Nobel Laureates than any other institution in the world.
The US industrial system, an intricate web of industrial, educational, cultural, financial and many other support systems along with conscious and unconscious social expectations, no longer exists. It can no more be re-created than can any spider web. The array of issues that consume the US now is in another dimension. Money cannot buy a new one. The limits of money are shown by the fate of Spain. The Spaniards profited mightily from the gold and silver their slaves produced in the New World, but since that gave them enough money to buy everything, they gradually lost the ability to make anything. When the gold stopped, Spain became and remained a backwater for centuries. As the poet Gary Snyder said, “The hand that only pushes a button will never know what a hand can do.”
Although the US has withdrawn from huge swathes of industry, It still leads in very advanced technology, like AI software and semiconductors. But its lead is tenuous, and increasingly irrelevant. AI, like semiconductors, is an intermediate product. It only gains meaning when used to make something else, like a friendly robot or an iPhone. ChatGPT can swallow all the data in the Library of Congress, but it has no access to the data being generated by China’s factories or laboratories. Like Chinese insurance companies and government agencies, they are now using DeepSeek and local Chinese AI variations almost as good as ChatGPT to continuously improve their productivity, thus distancing their products from those made by all other manufacturers. A traditional textile factory in China in now likely a place without lights because there are no humans working in it, that consists of robots guided by AI systems. ChatGPT’s superiority is slight, likely temporary, and in any event, not important.
The present Chinese system began in the 1950s and 60s; among their many well-documented mistakes, Mao Tse Dung and other founders of the present Chinese state made moves that gave birth to China’s present success. They realized that industrial development was China’s only hope to avoid the brutal domination it had experienced for a century, and they founded schools and companies which survived the tumultuous decades of the 50s, 60s and 70s and are flourishing today. This system made a huge leap forward when Deng Shao Ping and others opened the economy to the world in the 1970s. It made another “Great Leap Forward” when China gained access to the World Trade Organization in 2001, and yet another leap after the financial collapse in 2008. It only became complete after the decision to become self-reliant made around 2015 was systematically carried through to 2025.
China’s industrial system could be destroyed in the same way that all previous industrial systems have been destroyed – by chasing cheaper labor to maximize profits, moving factories away to Vietnam or Cambodia, and losing touch with the process of creating things. A proper valuation of its system, though, would mean that China will not only continue to manufacture everything, but will become the new fount of innovation, and create products that we have yet to imagine.
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