The CCP and China are even more competent (and fragmented) than you think.
Why the CCP's competence is more distributed than you think, and why the West is copying the wrong half of what it thinks it sees
Why does Jiangsu build and California can’t?
In November 2013, six months after Xi Jinping announced the Belt and Road Initiative at a podium in Astana, the Jiangsu Provincial Development and Reform Commission stood up a dedicated leading small group to handle implementation. The group had a budget and full-time staff. Within three years, Jiangsu had launched 47 infrastructure projects across partner countries worth USD 8.3 billion, formed 23 international partnerships, and sent its senior leadership on 15 overseas promotional trips. The province’s 13th Five-Year Plan, adopted in 2016, treated the initiative not as a directive from Beijing but as an opportunity Jiangsu intended to shape around its own industrial priorities.
In January 2008, five years before Jiangsu even heard of BRI, California voters approved Proposition 1A, a $9.95 billion bond issue to build a high-speed rail line connecting San Francisco to Los Angeles. Governor Schwarzenegger signed the authorizing legislation the following year. The line was projected to open in 2020 at a total cost of $33 billion. As of February 2026, not a single train operates on any portion of the California High-Speed Rail system. The projected cost has risen to approximately $135 billion. The current governor, Gavin Newsom, announced in 2019 that the full line would not be built, pivoted to a partial segment in the Central Valley, and then in 2025 claimed credit for entering the “track-laying phase” of that reduced segment. In the same state, over the same period, over $37 billion has been spent on homelessness programs; California now has more unhoused residents than any other state in the country. Newsom ran for governor in 2018 promising 3.5 million new housing units by 2025. The actual total is 640,873 homes built across seven years, less than a fifth of his target.
Both of these happened. Both are the work of senior sub-national officials in major economies, operating under democratic or authoritarian institutions as the case may be, given large budgets and clear mandates.
One set of officials built things. The other set did not.
Which half is the West copying?
The misdiagnosis of why this gap exists is already shaping Western policy, and the policies being produced will make Western economies worse rather than better.
In September 2024, former European Central Bank president Mario Draghi delivered his report on European competitiveness to the European Commission. The report is now the official economic doctrine of the EU, endorsed by every member state and the European Parliament, with Renew Europe minister Stéphane Séjourné declaring that “everything proposed since has been aligned with it.” Draghi’s diagnosis: Europe is falling dangerously behind the United States and China, its productivity growth has collapsed, its firms are too small to compete at global scale, its fragmented markets prevent the emergence of European champions. Draghi’s prescription: relaxed merger rules, industrial consolidation, capital market integration, the construction of “European champions” in key sectors, €800 billion per year of investment partly financed by joint EU borrowing.
Consider how specific this gets. The EU currently has 34 mobile network operators compared with 3 in the United States and 4 in China. Draghi treats this as a self-evident problem, blaming “overly cautious competition authorities” for the “plurality of players.” The Commission’s Competitiveness Compass, released in January 2025, goes further than Draghi himself in loosening merger rules to support European champion creation. The telecoms sector is the first target. Defense is next. Automotive is in the queue.
American commentators make the same pattern-match. Jennifer Lind’s Foreign Affairs essay from February 2026, drawn from her book Autocracy 2.0, frames China’s rise as a story of “smart authoritarianism” in which the CCP adapted its tools of control to foster innovation while preserving central command. The Washington Monthly in October 2025 praised China’s “state-managed capitalism” for combining “political repression with a coherent economic plan.” The American Compass, on the right, characterizes China as a state-controlled economy whose successes flow from CCP direction over industry. The implicit lesson across these accounts, regardless of whether the author approves or disapproves, is that China is winning because of central command, and that Western states must therefore either copy the command or wall themselves off from its results.
Chinese centralization is real, and in specific domains it is valuable. Beijing directs state bank credit into strategic sectors at scales the West has never matched. Beijing holds industrial electricity prices below market through state-set benchmark tariffs. Beijing disciplines its own billionaires when they step out of line, most famously when Jack Ma criticized financial regulators in October 2020 and saw Ant Financial’s IPO suspended within weeks. These are desirable uses of state power. A Western observer who looks at Chinese success and concludes that the center’s strategic capacity matters is not wrong.
What that observer is wrong about is which uses of central power the West will actually copy.
The EU is not about to cap industrial electricity prices. It has spent the last five years deliberately raising them. The IEA’s 2025 analysis shows EU industrial electricity prices at roughly twice US levels and 50% above China’s in 2025, up from 50% above the US and 20% above China in 2019. The gap doubled in half a decade, driven by EU ETS carbon pricing, deliberate phase-out of domestic generation, and LNG dependence. Germany shut down its last operational nuclear reactors in April 2023 while importing LNG at roughly three times pre-2022 prices. By country, industrial rates run roughly 18 US cents per kWh in Germany, 16 in Japan, 12 in France, and 7 in China. The EU has the formal authority to hold industrial electricity prices low through state aid, cross-subsidization, or domestic production mandates. It refuses to use it.
The United States, which has the world’s largest shale gas reserves, imposed a moratorium on new federal oil and gas leases in January 2021 through Executive Order 14008. A Louisiana federal judge ruled the moratorium exceeded presidential authority, but lease sales kept falling by orders of magnitude through the rest of the term. The blocked Q1 2021 Wyoming sale covered 476,000 acres across 383 parcels; the Q1 2024 sale covered 13,417 acres across 30 parcels.
The leasing freeze was the visible half; the financial architecture was worse. The Net-Zero Banking Alliance launched in April 2021 under UN auspices with JPMorgan, Citigroup, Bank of America, Morgan Stanley, Wells Fargo, and Goldman Sachs as founding members committed to align lending portfolios with a 1.5°C pathway by 2050. Reserve-based lending to small and mid-cap independents dried up. Institutional LPs backed away from oil and gas private equity under ESG pressure. When Russia invaded Ukraine and WTI peaked near $130 in March 2022, US producers with breakevens around $60 still could not grow. The Dallas Fed Q1 2022 Energy Survey found nearly 60% of executives cited investor pressure to maintain capital discipline as the primary reason they were not drilling; 29% said growth was not dependent on oil price at any level. Big integrated producers returned cash to shareholders. Biden’s response was historic SPR releases, pressure on OPEC to pump more, and Russia sanctions that pushed prices higher.
Four years later the pattern repeats with the rhetoric inverted. The 2026 Iran war closed the Strait of Hormuz on March 4, pushing Brent past $120 and OPEC production down a record 7.56 million barrels per day that month. Trump’s response is the same playbook: SPR release structured as a loan from a reserve still at 58% of capacity a year after he pledged to fill it to the top, pressure on Saudi Arabia and OPEC to ramp output, and deregulation of LNG export terminals whose first shipments arrive in 2029-2030. Small and mid-cap producers remain capital-starved. Marshall Adkins of Raymond James says Trump’s push for lower prices is bad for US producers; the EIA now predicts US production will fall to 13.5 million barrels per day in 2026, the first annual contraction since 2020. The Net-Zero Banking Alliance dissolved in November 2025; institutional capital remains absent anyway, because the alliance was the visible surface of allocation preferences that persist without it.
Biden had $130 oil, a producer base with $60 breakevens, and the full federal toolkit: Defense Production Act loans, Treasury loan guarantees, SPR floor-price purchases, bank regulator guidance. He deployed none of it. Trump inherited the same toolkit, inverted the rhetoric toward deregulation, and is producing the same outcome: falling domestic production during a price shock, capital-starved small and mid-cap producers, strategic dependence on OPEC goodwill. When Beijing’s strategic sectors need capital, state banks lend and municipal guidance funds take equity. When American producers needed capital during two separate price shocks in four years, the federal response across both parties has been to release the emergency reserve and ask OPEC for help.
These are not limits on Western central authority. These are exercises of Western central authority, in directions opposite to what Beijing chose. Both Berlin and Washington possessed the formal tools to do what Beijing did and refused. The EU could direct state aid at industrial energy costs; it preferred carbon pricing that raises them. The US could have directed capital to domestic producers through multiple price shocks across two administrations; it preferred emergency reserve releases and calls to OPEC.
Now consider capital direction. Beijing routes strategic capital through state banks and guidance funds into semiconductors, batteries, renewables, and EVs at scales the West has never matched. The CHIPS Act of 2022 authorized $52 billion in US semiconductor funding; Chinese state guidance funds deployed around $1.52 trillion into strategic sectors between 2015 and 2021 alone, with state-bank lending pushing the total substantially higher. The EU’s Important Projects of Common European Interest framework has cumulatively spent less than €40 billion since 2018, compared with €190 billion in uncoordinated national aid in 2023 alone. Scale matters. Direction matters more.
Now consider discipline of incumbents. When Jack Ma criticized regulators, Beijing suspended Ant Financial’s IPO, launched antitrust investigations against Alibaba, and ultimately extracted multi-billion-dollar fines and structural changes. Similar discipline hit the private education tutoring sector (essentially dismantled in 2021), online gaming (forced time limits and new-game approval moratoriums), and real estate speculation (forced deleveraging through the “three red lines” policy). Contrast this with the West’s relationship to its own incumbents. The EU has issued antitrust fines against US tech firms totaling well over €10 billion since 2017, and none of these have produced structural change. The US Department of Justice’s antitrust case against Google, decided in 2024, has yet to produce remedies. The political will to discipline incumbents does not exist in Western systems at the level Beijing routinely exercises.
These are the categories where Chinese central authority acts decisively against commercial incumbents on behalf of strategic priorities: cheap energy, directed capital, and disciplined platforms. These are also the categories where Western states consistently refuse to exercise their own authority. Subtract those three and look at what remains. The one category where Chinese central authority routinely fails (forced industry consolidation, as the Dongfeng-Changan merger collapse of June 2025 will show) becomes, in Western discourse, the primary lesson to copy. Draghi wants fewer telecom operators. The Competitiveness Compass wants looser merger rules to build champions. American commentators want scale through consolidation. The West is about to import the single habit that even Xi cannot fully execute, while refusing to import the habits where Beijing excels.
Western centralization without the political will to hold energy prices, direct capital at scale, or discipline billionaires will produce the costs of centralization without the benefits. It will leave the West with the worst possible combination: fewer competitors, none of them strategically directed, all of them protected.
Is China really a command system?
The monolithic picture rests on real evidence. China is a Leninist party-state. The Central Organization Department appoints every senior official in the country. Xi has spent a decade consolidating personal power: abolishing term limits, enshrining “Xi Jinping Thought” in the party constitution, purging hundreds of thousands of officials through anti-corruption. Lind is not wrong that the regime has maintained rigid control while achieving innovation. Fang, Li, and Lu’s analysis of 3.7 million policy documents confirms real recentralization after 2013: the central share of local policy portfolios rose from roughly 30% to above 40%.
The monolithic story is not wrong to identify central strategic capacity as part of what makes China hard to compete with. What it misses is that central strategic capacity does not execute itself, you still need people and subsystems. Every directive Beijing issues must be translated into operational activity by sub-national administrations. The center sets the strategic direction; the provinces and municipalities build the semiconductor fabs, finance the battery makers, run the tech regulatory investigations, and implement the benchmark industrial tariffs. Remove the deep provincial bench and Beijing’s strategic directives become press releases. This is exactly what they become in Qinghai.
The sharpest recent empirical work on the gap between central directive and provincial execution is a 2026 study by Zheng Gong and Tim David in the Journal of Chinese Political Science, Provincial Governance and Variation in China’s Belt and Road Initiative. Gong and David assemble panel data on BRI implementation across all 31 Chinese provinces from 2015 to 2019 and run a hierarchical linear model to decompose the variance in implementation effectiveness. Their finding: about 34 percent of the variation sits between provinces rather than within them over time, and provincial characteristics explain 58 percent of that between-province variance. The single strongest predictor, even after controlling for GDP per capita, population, coastal location, and distance from Beijing, is provincial bureaucratic capacity.
This is not what a pure command system produces. In a pure command system, the same directive produces comparable outcomes, with variation attributable to geography or noise. Gong and David find something else. The same directive produces radically different outcomes across provinces, tracking each province’s administrative depth. The center is the senior partner, not the sole actor. Take away provincial capacity and the center has authority with nothing to point it at.
The second piece of evidence is the Dongfeng-Changan merger collapse of June 2025, which reveals what happens when central direction confronts provincial resistance on a policy where Beijing itself is ambivalent. In February 2025, the State-owned Assets Supervision and Administration Commission, reporting directly to the State Council, announced a plan to merge Dongfeng Motor Group and Chongqing Changan Automobile into a single central state-owned automaker with roughly five million annual vehicle sales, a scale competitive with BYD. Xi Jinping’s Central Financial Affairs Commission had made industrial consolidation an explicit priority.
116 days later the merger collapsed. Caixin‘s reporting identified the cause as intervention from the municipal government of Chongqing and the provincial government of Hubei, each refusing to accept the terms on offer. The companies, with that political cover, walked away. Analysts had predicted this before the announcement was even official, noting that auto consolidation in China “has failed to happen due to reluctance by government stakeholders to give up control of such important contributors to their local economies.” The fiscal architecture makes the refusal rational rather than obstructionist. If Chongqing loses Changan’s headquarters, it loses the tax revenue, the employment numbers, the cadre credit, and the center’s willingness to tolerate the province’s LGFV debt. No local leader who wants promotion acquiesces to that without extraordinary compensation.
The monolithic story cannot accommodate this without contortion. The distributed-competence story explains it immediately, and it also explains why Beijing wins on some domains and loses on others. Where central strategic priorities align with provincial incentives (strategic capital allocation, cheap industrial electricity, disciplining outside-system incumbents like Alibaba), the center wins. Where central priorities cut against provincial fiscal interests (consolidating automakers means some provinces lose their local industrial base), the center loses, even to Xi. The distributed structure is not a bug in the Chinese system. It is a feature whose costs and benefits are distributed unevenly across policy domains.
What happens when three provinces get the same directive?
Three provincial cases, same directive. Gong and David study Jiangsu, Henan, and Qinghai, selected to represent high, medium, and low bureaucratic capacity respectively. All three provinces receive the same BRI directive in 2013. All three face the same central policy intensity over 2015-2019. All three are subject to the same Central Organization Department appointment system, the same nomenklatura, the same target-responsibility evaluation framework. The variable that differs is provincial administrative capacity. The outcomes track that variable with almost embarrassing clarity.
Jiangsu is the high-capacity case. Its Provincial Development and Reform Commission moved within six months to stand up the dedicated BRI leading small group mentioned at the opening of this piece. The 13th Five-Year Plan of 2016 treated BRI as an opportunity to align provincial industrial policy with overseas market expansion. Jiangsu’s execution figures cited at the opening (47 projects, $8.3B, 23 partnerships, 15 overseas promotional trips) came from a deep SOE bench in construction and engineering that allowed the province to assemble consortia for overseas tenders. The mechanism Gong and David describe is “bureaucratic entrepreneurship,” in which provincial officials do not merely implement the central directive but actively shape it around what their province is organizationally capable of delivering. Jiangsu was not told to do any of this specifically. It chose to, because its administrators could.
Henan is the medium-capacity case, and the most instructive of the three. It is inland. It has no obvious BRI advantages. Its economy is smaller and less internationally integrated than Jiangsu’s. By the logic of the monolithic story, Henan should have either followed Jiangsu’s template (if Beijing imposes uniformity) or done very little (if provincial resources determine outcomes). It did neither. Henan’s administrators negotiated. They identified aviation logistics as the province’s one potentially BRI-relevant asset, then spent three years lobbying the National Development and Reform Commission to designate the Zhengzhou Airport Economy Zone as a regional BRI hub. They drafted feasibility studies. They bargained with central agencies. They did not ask for permission to participate on standard terms; they asked to participate on terms their province could actually meet. By 2019, Henan had launched 23 BRI projects worth roughly USD 3.1 billion, less than Jiangsu but more than any low-capacity Western or interior province. The province got there through policy entrepreneurship, deployed by officials most foreign observers could not name, in a province most foreign observers could not place on a map.
Qinghai is the low-capacity case. It issued an official BRI framework in 2016. It established coordination bodies similar to those in Jiangsu and Henan. It incorporated BRI into its provincial work reports. It launched eight projects worth roughly USD 0.4 billion by 2019, less than 5 percent of Jiangsu’s volume. Gong and David document that many of these were pre-existing provincial programs relabeled as BRI initiatives without new resource commitments. The monolithic story would predict either uniform execution (which did not happen) or principled refusal (which also did not happen). What happened instead was symbolic compliance: the forms of participation, without the substance, because the substance exceeded the province’s administrative capacity.
Same directive. Same national context. Same five-year window. Three outcomes, each tracking the administrative capacity of the receiving province rather than the intensity of the central directive. I don’t know about you, but this clearly does not look like the centralized command system we were told.
The point becomes sharper in Gong and David’s cross-level interaction analysis. The authors estimate that central policy intensity interacts with provincial bureaucratic capacity at γ = 0.187, p < 0.01. When Beijing pushes harder on BRI, high-capacity provinces deliver substantially more, while low-capacity provinces barely respond. A one-standard-deviation increase in central pressure produces a 0.44-unit change in implementation effectiveness in high-capacity provinces and only a 0.09-unit change in low-capacity ones. Central pressure is an amplifier of provincial capacity, not a substitute for it. When Beijing leans on Jiangsu, Jiangsu builds more. When Beijing leans on Qinghai, Qinghai issues more press releases.
Beijing’s willingness to hold electricity prices low means nothing without provincial grid operators executing the tariff structure; state-bank credit directed to semiconductors means nothing without municipal guidance funds co-investing and local SOE managers building the fabs; discipline of Alibaba means nothing without provincial and municipal regulators who can run the investigations and enforce the remedies. The center is the senior partner, not a substitute.
Who actually writes Chinese industrial policy?
The BRI case is not an anomaly. It is the operating system.
Fang, Li, and Lu’s 2025 NBER analysis, summarized accessibly by VoxDev, identifies 768,000 documents as industrial policy, roughly a quarter of all government policy output. Of these, 13 percent come from the central government. 45 percent come from provinces. 39 percent come from cities. 3 percent come from counties and townships. Eighty-seven percent of Chinese industrial policy, by document count, originates below Beijing. A 2025 Stanford SCCEI brief puts the figure for Chinese policy overall at more than 80 percent originating locally. The authors attribute this to tournament competition among officials seeking promotion through growth-oriented policy innovation, the same incentive structure that Li and Zhou described in their 2005 analysis of political turnover and economic performance.
Provincial capacity drives not just policy volume but policy quality. Wang and colleagues, writing in Management and Organization Review in 2024, examine industrial specialization choices by all 31 provincial governments and find that provinces with greater organizational efficacy, measured by access to better-resourced local SOEs in their focal industries, make smarter specialization decisions. The finding mirrors Gong and David’s finding for BRI: capacity predicts both the quantity and the intelligence of provincial policy output.
The theoretical framework that organizes all of this is Chenggang Xu’s 2011 Journal of Economic Literature article, which names the Chinese system “regionally decentralized authoritarian.” Xu’s formulation: the center controls personnel and sets strategic direction, subnational governments run the bulk of economic execution. The personnel pipeline is centralized. The policy machinery is not. What looks from the outside like a single commanding intelligence is actually several thousand provincial, municipal, and county-level administrations running their own industrial strategies, competing with each other for growth, and negotiating with Beijing over the terms on which they participate in centrally-branded initiatives.
The same pattern appears in finance. The 1994 tax-sharing reform centralized most tax revenue with Beijing but left local governments responsible for the bulk of public expenditure. Local revenue fell below 40 percent of the national total; local expenditure now approaches 85 percent. The instruments developed to bridge that gap are themselves evidence of distributed administrative sophistication. The Local Government Financing Vehicle, pioneered in Wuhu, Anhui in 1998, became ubiquitous after 2008. By 2023, total LGFV debt reached roughly 50 trillion yuan, or 41 percent of GDP; Victor Shih’s UCSD analysis puts the total including shadow credit at 75 to 91 percent of GDP. More than twelve provinces now carry LGFV debt exceeding half their own provincial GDP. Revealingly, CKGSB reportingconfirms that LGFV financial distress is concentrated precisely where Gong and David’s paper identifies low-capacity provinces: Guizhou, Inner Mongolia, Ningxia, Liaoning, Qinghai.
Since around 2014, Chinese industrial policy financing has also flowed through Government Guidance Funds, public-private investment vehicles combining state capital with private VC and PE expertise. Georgetown’s CSET reportprovides the authoritative English-language overview. Between 2015 and 2021, roughly 2,000 guidance funds deployed around £850 billion; they now account for about 30 percent of all PE and VC capital raised in China. The architecture is deliberately tiered, as Boston University’s Global Development Policy Center explains. Beijing sets broad strategic priorities. Provincial and municipal authorities refine them with local specificity. Sub-funds typically invest primarily within their own jurisdictions.
The Hefei municipal guidance fund apparatus is the case that best illustrates the pattern. Hefei, the capital of Anhui province, is not a Tier-1 Chinese city. It does not have the fiscal resources of Shanghai or Shenzhen. Its guidance fund nevertheless took early equity stakes in both NIO and BOE Technology before either was a dominant firm, and helped transform Hefei into a national center for electric vehicles and display technology. It was not Beijing that picked NIO. It was municipal officials in Anhui, making allocation decisions with enough sophistication to pick winners that national-level funds had passed on, operating within a strategic framework Beijing had set but Beijing had not executed.
The answer has two parts. The center sets strategic direction, holds input costs low through state-set tariffs, directs credit at scale toward priority sectors, and disciplines incumbent commercial interests that threaten strategic coherence. The provinces and municipalities execute, competing with each other under a tournament incentive structure, financed through a tiered capital-allocation system that places real decision-making at the sub-national level. Remove either half and the system stops working. What looks like authoritarian command is the interaction of strategic central authority and deep distributed execution.
What makes it hold together?
The architecture that sustains this pattern is not a conspiracy and does not require anyone in it to be virtuous. It is a set of incentive structures that make both strong strategic center and distributed provincial competence the rational equilibrium.
Start with personnel. The Central Organization Department controls appointment and promotion for every senior cadre in the country. Pierre Landry’s 2008 book Decentralized Authoritarianism in China documents the core mechanism: officials are selected young, rotated deliberately across jurisdictions and functional portfolios, and promoted on the basis of measurable performance in their current posts. Li and Zhou’s 2005 Journal of Public Economics article shows that provincial leaders’ promotion probabilities track GDP growth in their provinces, creating a tournament in which officials compete for advancement by delivering measurable outcomes. Jia, Kudamatsu, and Seim (2015) find that competence and factional connections operate as complements rather than substitutes. Both performance and political reliability are rewarded, but the performance component is real.
Forty years of rotation-and-promotion tournament, operated at continental scale with real career consequences, produces a population of senior administrators who have run multiple jurisdictions, handled multiple portfolios, and been selected repeatedly for their ability to deliver results. The system’s pathologies are real: statistical falsification (Wallace 2014), anti-corruption purges that disproportionately target factional rivals, metrics gaming that produces visible outputs while obscuring substantive failure. But even the pathologies operate within a machine that has built administrative capacity at the provincial level. That is why Jiangsu can stand up a BRI leading small group in six months and why Hefei can pick NIO before anyone else does.
The fiscal architecture reinforces this. The 1994 tax reform created a structural imbalance between local revenue (below 40 percent of national) and local expenditure (now approaching 85 percent). Local governments had to develop financing mechanisms or default on their obligations. The LGFV system layered on top of state-bank lending is essentially a parallel municipal-bond market routed through land collateral, land-use-rights capitalization, and implicit central guarantees. It is not elegant. It has produced the distressed-LGFV crisis concentrated in the lowest-capacity provinces. But it works because the incentives reward local governments that can finance and deliver infrastructure, and punish those that cannot. The guidance-fund system layered on after 2014 does the same for industrial equity: reward provincial and municipal administrations that can identify and back winners, disadvantage those that cannot.
Put together, the deep provincial bench plus strategic central authority willing to act against incumbents is what produces results. Western attempts to copy Chinese centralization consistently pick the wrong half.
The United States consolidated its auto industry decades ago into the Big Three (GM, Ford, Chrysler) and has spent forty years losing global market share, punctuated by repeated bailouts, the most recent in 2008-2009 when two of the three required federal rescue. Japan, by contrast, kept its industry fragmented. Toyota, Honda, Nissan, Mazda, Subaru, Suzuki, Mitsubishi, Daihatsu, and Isuzu all still operate as independent firms, with cross-shareholdings but no merger pressure from Tokyo. Japan has dominated global auto markets for most of the last fifty years. China’s current EV industry structure (BYD, Geely, NIO, Xpeng, Li Auto, Zeekr, all operating as distinct competitors backed by different provincial coalitions) looks structurally closer to Japan than to Detroit.
The EU’s response to Chinese EV dominance is to propose consolidating its own fragmented auto sector into fewer, larger European champions. This is moving from the Japan model toward the Detroit model while citing Chinese success as the justification. The direction is inverted. China is not winning because of consolidation. China is winning because its center holds strategic input costs low, directs capital to strategic sectors, disciplines platforms that threaten strategic priorities, and its provinces compete intensely on execution within that strategic framework. Remove the provincial competition and you do not have China. You have Detroit in the 1970s, plus some extra paperwork.
The American side of the misreading is worse, because it is domestic. US commentators across the ideological spectrum praise Chinese centralization while their own sub-national governments are visibly failing. California is governed by Gavin Newsom, whose record includes the high-speed rail debacle described at the opening, $37 billion spent on homelessness while California’s unhoused population remains the largest in the nation, and an Employment Development Department that lost $33 billion to unemployment fraud during the pandemic. Texas is governed by Greg Abbott, whose tenure includes the February 2021 power grid failure that killed hundreds after the Public Utility Commission under Abbott’s appointees dismantled oversight mechanisms that could have required winterization, followed by a years-long political posture of claiming to have fixed a grid that independent assessments still find vulnerable. These are not minor officials. California is the world’s fifth-largest economy. Texas is the second-largest US state by GDP.
Compare this to the governors of Jiangsu and Guangdong. You almost certainly cannot name them. They run provincial economies larger than most OECD countries, coordinate tens of billions of dollars annually in guidance-fund equity, anchor overseas infrastructure initiatives that span continents, and do so within a tournament structure that would remove them from office if they failed to deliver. The anonymity is the tell. The American system does not produce provincial executives of comparable depth, and the commentators praising Chinese centralization are praising the theater visible to foreign observers while ignoring the machinery that actually does the work.
What is the West getting wrong?
China’s industrial performance comes from two machines running in combination, not one. The first is a personnel and fiscal architecture that produces a deep provincial administrative bench: rotation across jurisdictions, promotion by tournament on measurable outcomes, local fiscal autonomy routed through LGFVs and guidance funds. The second is a political economy in which central authority is willing to use its power against powerful domestic commercial interests when strategic priorities require it: industrial electricity prices held below market, state-bank credit directed to strategic sectors at scale, billionaires disciplined when they step out of line. The 87% of Chinese industrial policy that originates below Beijing implements the 13% that originates at the center, and neither half works without the other.
The Western mirror lacks both halves. It lacks deep provincial and municipal competence not because it needs a CCP-style cadre tournament (it doesn’t), but because Western parties reward factional politics over governing results. A party that actually wanted to deliver housing, trains, and grid capacity would produce competent provincial executives within a decade. None has tried in a generation. It lacks the central strategic will because its incumbent commercial interests are wired into the political coalitions that make central authority legitimate. US oil majors and European Green coalitions each hold veto power over their respective energy policies. The formal toolkit exists; the political economy prevents its deployment.
The inversion matters. When the West “centralizes” in response to Chinese success, it centralizes in the one category where even Xi regularly fails (forced consolidation, champion-building, merger liberalization), while refusing to centralize in the categories where Chinese centralization actually delivers. The EU’s Competitiveness Compass wants to consolidate 34 mobile operators into fewer champions while industrial electricity prices have widened to nearly double US levels and Apple and Google remain untouched. American industrial policy advocates want national champions while the US has not passed serious antitrust reform in a generation and has reduced rather than expanded domestic hydrocarbon production across two administrations.
The Western failure is not a missing Xi. Centralizing without both halves produces only protected inefficient monopolies like the American car industry, a political class slightly more empowered to defend them, and an industrial electricity bill that keeps going up. If you want the benefits of centralization, you need to govern and focus on cutting energy prices and the costs of capital. If you will not do those things, centralization will make you weaker, not stronger. This is what the West is about to learn, and the learning is going to be expensive.