How to Outcompete Chinese State Capitalism

1. 72

   Ken Burgessposted 20 hours ago

   Years from now, the summer of 2025 may be remembered as a turning point in U.S. industrial policy, with President Donald Trump’s deals with Intel, Nvidia, and MP Materials marking the beginning of a new era of direct state investment in key industries.
   
   As the United States competes over the technologies and industries of tomorrow, Washington is now experimenting with state-centric investment strategies that resemble those of Beijing. But because the U.S. federal government is constrained by a debt-to-GDP ratio above 120 percent and a budget deficit exceeding seven percent, U.S. policymakers will have to channel more private capital toward strategically important sectors. Doing so will not be easy. To ensure a successful industrial strategy, the Trump administration must set clear criteria for what qualifies as a strategic industry, marshal the necessary public resources, and incentivize private investment in those industries.
   
   The global battleground spans a wide variety of industries, including artificial intelligence and related digital infrastructure, critical minerals, and advanced manufacturing. Both China and the United States have advantages and disadvantages in this strategic competition. In China, the government plays a central role as a source, allocator, and user of capital, directly resourcing strategic priorities but creating significant waste and inefficiency in the process. Chinese companies get much of their financing from state-owned banks, with capital markets providing only 14 percent of their financing.
   
   In the United States, by contrast, a market-led approach struggles to support less lucrative areas of strategic importance, such as basic infrastructure, but excels at directing capital toward areas with the highest perceived returns, such as artificial intelligence. And with integration across all 50 states, U.S. capital markets are the largest globally and provide nearly three-quarters of all equity and debt financing for U.S. companies outside the financial sector.
   
   In both countries, investment outcomes depend heavily on national conditions, including the strength of capital markets, workforce, infrastructure, and the judiciousness of laws and regulations. When these conditions are strong, countries become magnets for foreign capital and talent. As U.S. policymakers work to scale investments for strategically important technologies and industries, they may improve underlying conditions over time, but they should not bet on overnight transformations.
   
   THE VISIBLE HAND
   The Chinese government has an extensive toolkit for supporting investments at home and for launching into global markets. State-owned banks provide most of the financing to companies in China, which is home to the world’s four largest banks, all of which are state-owned. The government is also the dominant investor in venture capital and private equity, supplying six times more funding than private investors. Chinese companies can draw from a wide array of state-backed sources, including funds, banks, enterprises, and sovereign wealth vehicles.
   
   Beijing also shields firms from foreign competition, facilitates technology transfer, and supports them with cheap land, electricity, and credit. Abroad, Beijing extends financing and diplomatic backing to Chinese companies through the Belt and Road Initiative, helping them to secure mineral rights and logistics networks.
   
   The rise of China’s largest shipping company, COSCO, illustrates the power of this support. In 2009, COSCO operated three overseas terminals. Today it manages a dozen. In that same period, the company increased the amount of overseas cargo it handled tenfold. Many other Chinese firms have profited from COSCO’s success, including manufacturers of tankers and liquefied natural gas carriers, financial-technology and mining companies, and entrepreneurs developing AI applications for maritime operations. This broader Chinese ecosystem of beneficiaries allows the state to rationalize its continued support for a national champion.
   
   When all else fails, the Chinese government can move capital from profitable state-owned enterprises to keep their struggling counterparts afloat. The relative success of Beijing’s Made in China 2025 initiative, which Chinese President Xi Jinping launched in 2015, is telling. Displaying a degree of focus that Washington has lacked, Beijing aimed to upgrade not just industry in general but ten specific sectors. Within those sectors, Beijing has achieved global leadership in five of 13 key technologies and is making headway in seven others.
   
   Yet this approach carries costs. China’s subsidies, which are far larger than those of other countries, have created overcapacity in automobiles, solar panels, and semiconductors. Correcting this will be difficult as growth slows, the Chinese population ages, and reliance on foreign energy rises. In addition to draining resources from competing sectors, Chinese subsidies have provoked other countries to respond with their own measures, as evidenced by Trump’s tariff policy.
   
   The heavy hand of the state is also driving investors away. Foreign capital, especially venture funding, has collapsed amid higher risks and lower returns. Beijing has tried to lure investors with regulatory flexibility and even a $138 billion public venture capital fund, but domestic private firms still prefer private sources, and government-owned investment firms perform worse than private ones. Still, when strategic priorities are at stake, Beijing values control over efficiency.
   
   THE NEW DEALS
   Trump’s recent deals with Intel, Nvidia, and MP Materials may represent a significant escalation of a nearly decadelong shift toward experimenting with industrial policy. In his first term, Trump fired the opening salvo with his “America first” strategy based on a mix of tariffs, import substitution policies, and attempts to improve infrastructure. President Joe Biden increased some tariffs on China and worked with Congress on landmark programs to rebuild the United States’ aging infrastructure, invest in clean energy, and develop semiconductors and related technologies.
   
   In his second term, Trump has deployed a variety of tools to attract more capital to strategic areas. He has used executive orders to relax regulatory barriers, continued to provide financial incentives—such as tax benefits, grants, loans, and guarantees—for semiconductors through the CHIPS and Science Act, and blocked or raised the cost of foreign alternatives, including through aggressive import controls and tariffs. His administration has also taken dramatic steps to leverage the U.S. government’s power as a customer and regulator to strike deals with private companies. Some of these measures are reminiscent of the New Deal, when the federal government actively invested in the economy.
   
   In April, the leading AI-chip maker Nvidia announced that it would spend $500 billion to build AI supercomputers and infrastructure in the United States, including new manufacturing and testing facilities in Arizona and Texas. In return, Trump committed to speeding up permits for Nvidia’s expansion. Then, in July, the Department of Defense launched a partnership with MP Materials, the rare-earth miner, to build a fully domestic rare-earth magnet supply chain, with the aim of reducing U.S. reliance on China for critical defense inputs. The deal includes a $400 million equity investment by Washington (making the Department of Defense the company’s largest shareholder), a $150 million public loan to expand heavy rare-earth separation, and a ten-year price floor on a rare-earth compound that is a key ingredient for powerful magnets. This combination of incentives has already mobilized $1 billion in financing from JPMorgan Chase and Goldman Sachs, as well as a pledge from MP Materials to contribute $600 million to the project. The real test will be whether the partnership can meaningfully scale up production and create a self-sustaining market over the next decade.
   
   The strategic case for more recent deals is less clear. In August, Washington announced that it would allow Nvidia and Advanced Micro Devices (AMD), another leading semiconductor company, to export certain AI chips to China in exchange for 15 percent of top-line revenues generated from these sales. The Trump administration has not clarified how it plans to use these funds, which makes it impossible to weigh the revenue gained against the potential costs to national security. In an unprecedented move, the administration also recently announced that it would use $5.7 billion in previously awarded grants to the chipmaker Intel to purchase a ten-percent equity stake in the company. By converting a grant to an equity stake, taxpayers may benefit from future returns—but Intel may be at a disadvantage, since its competitors will likely continue receiving grants and other less demanding support.
   
   These actions can be interpreted in two ways. First, they reflect Trump’s transactional style of policymaking. Second, they could signal the start of a more sustained industrial policy focused on supporting strategic sectors, both at home and abroad. The first does not preclude the second. But an ad hoc approach risks failing to achieve the scale and consistency necessary for long-term success.
   
   FOR THE LONG HAUL
   The long-term nature of industrial policy is perhaps the greatest challenge for the United States, where elections carry the risk of erasing a previous administration’s policy initiatives. An effective industrial policy for strategic competition across multiple technologies and industries—including those that have yet to be discovered—may have to be extended for decades. Moreover, whatever policy takes shape over the coming years, U.S. public resources are limited and risk being spread too thin over too many priorities. It is critical that policymakers continue to identify strategic industries that require targeted state support and ensure that the United States has the capabilities, either domestically or through its network of partners and allies, to defend its vital interests under various scenarios.
   
   To that end, policymakers should ask several essential questions before making investments. Does this industry require support that capital markets cannot provide? If so, what form of support should it take? If financial support is truly required, which tool will have the greatest likelihood of success at the most reasonable cost? Should the state intervene directly in private capital markets or merely provide incentives? The government has a number of incentives from which to choose—tax benefits, grants, loans, and guarantees, as well as its own purchasing power—and each comes with tradeoffs. These questions should be standardized and addressed systematically through an investment vehicle, such as a sovereign fund, with rules that insulate decisions from political interference.
   
   A related challenge is identifying the critical ancillary requirements that strategic industries need. For example, AI requires massive data centers, which in turn depend on reliable power generation, water resources, and permits at both the local and federal levels. States cannot fund these requirements alone. The 2021 infrastructure bill, for example, was almost entirely funded by federal and state governments, with minimal incentives for the private sector. A realistic industrial policy must also consider the supporting investments—in research, infrastructure, and workforce development—that are necessary for strategic industries to succeed.
   
   Policymakers should also continue nurturing the United States’ underlying advantages. Capital markets could be further strengthened by lowering the tax burden on foreign capital from trusted sources seeking minority stakes in U.S. infrastructure and other priorities. And comprehensive immigration reform is essential to ensure that the United States has the human capital required for industry and for maximizing the odds that the next strategically important innovation happens at home.
   
   The United States can lead in tomorrow’s technologies and industries by leveraging its unparalleled capital markets, fostering public-private collaboration, and aligning policy incentives with long-term strategic goals. But success will require disciplined prioritization and a commitment to creating conditions that attract both domestic and international private capital. As global competition intensifies, Washington’s ability to mobilize private capital will be central to safeguarding U.S. strategic interests.
   
   https://www.foreignaffairs.com/united-s … -advantage
   
   America’s Private-Capital Advantage
   Sadek Wahba and Jonathan E. Hillman
   September 4, 2025
   
   Interesting Article... thought it was worth sharing.

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      Credence2posted 16 hours agoin reply to this

      Yes, it is a well written article. The gist of it is that akin to Chinese economics, the government is going to take a greater role in development of strategic industries, government investment in anticipation of a return from recipients. So, aspects of China’s command economy techniques and neutralizing the advantages of key Chinese industries being financed by their government, the US proposes to get into the game. So, the idea of laissez faire in regard to the time honored idea or government staying away from much of the private sector business interests is to be a thing of the past.
      
      Interesting, but for Trump’s sake he is going to have to deliver visible progress and do it soon.

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      1. 72

         Ken Burgessposted 3 hours agoin reply to this

         That article... along with some research I have done on China's current economic conditions... and watching this for a few moments:
         
         https://www.youtube.com/watch?v=aFKtxcImgAs
         
         Actually... I wanted to show the actual parade (which I had watched) but this breakdown is more informative.
         
         America has a serious problem... separate from our party politics, social issues, etc.  because of how open America is... we have had years, decades, of interference in our education, politics, policies... China, Russia, Saudi Arabia, individuals like Soros and most recently Musk.
         
         We have poo-pooed the fact that Hunter Biden's financial firm received 1.5 Billion from one of China's banks for investments or going much further back that Bill Clinton got billions from Chinese businessmen when he was running for President...
         
         Americans are barely aware of how influential/involved China became in many Universities until there was a recent halt to those activities... or how much of technology (computers, cell-phones, Apps) China has built backdoor spying capabilities into.
         
         China is a closed and very controlled nation compared to us... the ability for them to transform themselves from nothing... literally 35 years ago British controlled Hong Kong had a greater GDP than ALL of China... and today China has 10 Hong Kongs and has a greater GDP than any other nation in the world... has more Industrial capabilities than any other nation in the world... and has positioned itself to be more important to the majority of the world than America is today.
         
         If we are going to be able to survive... to have some semblance of the economic prosperity we have long enjoyed... and for too many years now borrowed against... serious changes need to be made...
         
         That is why we are more divided than ever I believe... the Nation's enemies are using our weaknesses against us... from Social Media to corrupt Politicians... financially supporting any group or activity that will further divide the American people and have them fighting one another.
         
         This was never possible in the past... technology has allowed the worst we have to offer to be upfront and present... in our faces... at all times. Unless you tune it out, it will consume you.
         
         China doesn't allow its Social Media or Internet to be used in such a way.
         
         China has kept its people united and focused on surpassing America at all costs.

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   2. 71

      tsmogposted 8 hours agoin reply to this

      Information (Keyword) is powerful. Thanks for the opportunity to 'learn'. I have enough of a base in business / finances to gain enough insight that what was offered was just a taste, a morsel of a feast perhaps discovered in the books authored by the two contributors to the article. Those book titles alone offer clues.
      
      For now, two things stick out in my mind as I reflect. They are the two opening paragraphs following:
      
      THE NEW DEALS
      Trump’s recent deals with Intel, Nvidia, and MP Materials may represent a significant escalation of a nearly decadelong shift toward experimenting with industrial policy. In his first term, Trump fired the opening salvo with his “America first” strategy based on a mix of tariffs, import substitution policies, and attempts to improve infrastructure. President Joe Biden increased some tariffs on China and worked with Congress on landmark programs to rebuild the United States’ aging infrastructure, invest in clean energy, and develop semiconductors and related technologies.
      
      and,
      
      FOR THE LONG HAUL
      The long-term nature of industrial policy is perhaps the greatest challenge for the United States, where elections carry the risk of erasing a previous administration’s policy initiatives. An effective industrial policy for strategic competition across multiple technologies and industries—including those that have yet to be discovered—may have to be extended for decades. Moreover, whatever policy takes shape over the coming years, U.S. public resources are limited and risk being spread too thin over too many priorities. It is critical that policymakers continue to identify strategic industries that require targeted state support and ensure that the United States has the capabilities, either domestically or through its network of partners and allies, to defend its vital interests under various scenarios.
      
      Time to make my coffee to kick start the day while I allow what was read to linger gracefully as I listen to the percolating Mr. Coffee do its job.

      replyreport