China’s Socialist Market Economy versus American System of Assets
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China’s economic system represents a direct challenge to the model that has dominated the West since the late nineteenth century, and it continues to produce outcomes that unsettle the assumptions of policymakers and academics in Europe and the United States. Jonathan Levy of the University of Chicago describes the American model as asset appreciation capitalism, a system in which wealth is increasingly generated through the rising value of financial assets, real estate, and speculative instruments rather than through the expansion of productive industry. Levy’s work shows that since the Gilded Age the United States has relied less on direct industrial output and more on mechanisms that inflate asset values, a pattern that was intensified by financial deregulation in the late twentieth century and reinforced by the dominance of shareholder value ideology in corporate governance. Peter Thiel, one of the most prominent investors in Silicon Valley, has described this financialised system as both a sign of technological stagnation and as an inevitable outcome of elite interests, since it rewards capital holders even when productive innovation slows.
China has developed a model in which production rather than asset inflation remains central, and the institutional mechanisms supporting this path are not accidental but designed through deliberate state policy. Zhang Weiwei of Fudan University argues that the Chinese political economy is structured around the pursuit of balance among political power, social power, and capital, with capital explicitly subordinated to the interests of the majority population. Zhang’s account of the Chinese system emphasises that it is neither a replication of Soviet central planning nor a copy of Western financial capitalism but a hybrid model he describes as a socialist market economy, where the state owns land and the commanding heights of finance and infrastructure while private firms operate competitively under conditions established by state planning.
The World Bank has documented that since the 1980s China has lifted more than 800 million people out of extreme poverty, accounting for the vast majority of global poverty reduction during that period, an outcome achieved without adopting Western prescriptions of liberalisation and financialisation. The Organisation for Economic Co-operation and Development has noted that Chinese growth strategies have relied heavily on state-directed investment in infrastructure, education, and industrial upgrading, with the private sector flourishing in sectors where competition drives efficiency but remaining bounded by state oversight in finance, energy, and strategic industries. This pattern demonstrates a clear divergence from the American model, where asset markets dominate both household wealth and elite fortunes, and where productive industry has often been hollowed out by offshoring and financial engineering.
Levy explains that American capitalism shifted decisively away from Hamiltonian industrial policy during the late nineteenth century, when protective tariffs and public works once served to build national capacity. By the late twentieth century the dominant paradigm was financial deregulation, global capital mobility, and an emphasis on rising stock prices as the primary indicator of national prosperity. This was reinforced by corporate practices such as share buybacks, which diverted profits away from productive investment and towards shareholder enrichment. Thiel has argued that outside of information technology and digital platforms, genuine technological breakthroughs have slowed in the United States, with energy, transportation, and infrastructure seeing little fundamental change, while financial innovation in derivatives and asset securitisation has far outpaced advances in physical production.
China has explicitly rejected this trajectory and has pursued long-term industrial policy through five-year plans and state-backed sectoral strategies. Barry Naughton, an American economist specialising in Chinese development, has shown how the Chinese state mobilises investment through state-owned banks and guides technological upgrading through subsidies and procurement. The result has been dominance in sectors such as electric vehicles, renewable energy, and telecommunications infrastructure, where Chinese firms have achieved global leadership. The contrast with Western economies is particularly visible in the field of electric vehicles, where China has already implemented large-scale adoption supported by consistent state planning over two decades, while Western countries continue to struggle with fragmented strategies and dependence on legacy automotive industries.
Zhang stresses that Chinese governance legitimacy derives from competence and outcomes rather than electoral cycles dominated by capital. The Communist Party leadership is selected through a system of promotion that tests administrators at municipal, provincial, and regional levels, with many managing populations larger than most countries before reaching national leadership. This process produces leaders with decades of governance experience rather than individuals elevated through electoral marketing funded by private donors. In Zhang’s view this system constitutes a form of meritocracy that ensures higher competence in governance, and he argues that its legitimacy derives from performance rather than procedure.
This governance structure enables the state to undertake projects requiring consistent investment and planning beyond the reach of Western systems. Infrastructure achievements such as the national high-speed rail network, now the largest in the world, illustrate the capacity for state coordination of resources at scale. In the digital economy, state investment in broadband and mobile networks created universal access, enabling private firms such as Alibaba and Tencent to build globally competitive platforms. Zhang notes that these successes are the product of interaction between state-owned infrastructure and private entrepreneurship, with competition among firms driving innovation while state provision ensures universal access.
(This has always been the uncomfortable truth behind all the talk about “abundance.” China is able to deliver these results because it operates under a socialist political economy. The people pushing the abundance narrative don’t have a serious answer for that)
American firms such as Apple and Microsoft capture a majority of global profits from their products, but Chinese workers and firms capture increasing value by moving up the production chain. Zhang observes that when Apple sells a phone in China, local workers may capture only five to ten percent of the value, but this nonetheless raises incomes and builds capacity. Over time the state has invested heavily in education, producing more engineers and scientists annually than the United States, Europe, and Japan combined, a foundation for technological self-reliance. The result is that while the American model accumulates financial wealth concentrated in elites, the Chinese model generates material improvements in living standards and industrial capacity across society. This system extends beyond education and labour participation, encompassing the broader architecture of state ownership, planning, and market guidance. A detailed examination of the Chinese economic system reveals that attributing its success solely to market capitalism misrepresents its structural foundations. Key elements of the economy remain firmly under state ownership and control, shaping both the allocation of resources and the dynamics of production. Land is publicly owned throughout the country, and the state retains ownership of essential natural resources, energy infrastructure, and strategic industries. Major financial institutions, including commercial banks and policy banks, operate under state direction, and monetary policy is centrally coordinated rather than delegated to independent private entities. This structure ensures that capital flows in alignment with national economic priorities, enabling long-term industrial and technological development that would be difficult to achieve in a purely market-driven system.
State-owned enterprises dominate sectors critical to the national economy, including energy, telecommunications, mining, transportation, and finance. Even in areas that appear dominated by private firms, such as e-commerce, logistics, and digital services, companies rely heavily on state-provided infrastructure, policy support, and regulatory oversight. Firms such as Alibaba, Tencent, and ByteDance operate in highly competitive domestic markets, yet their capacity to innovate and scale internationally is directly facilitated by state investment in broadband networks, data centres, and mobile telecommunications coverage. The government mandates universal access to digital infrastructure, including 4G and 5G networks in rural and remote areas, creating conditions for market actors to exploit technological opportunities while ensuring national development objectives are achieved.
Economic planning in China is structured around multi-year frameworks, typically five-year plans, which coordinate industrial upgrading, energy transition, technological innovation, and social development. These plans provide clear strategic direction while allowing competition among enterprises to foster efficiency and innovation. The private sector, although significant, is strategically bounded; its operations contribute to economic growth, employment, and technological advancement but remain subordinate to state-defined priorities. Even highly successful private companies are integrated into the state’s long-term planning apparatus, ensuring that national objectives such as industrial self-reliance, green transition, and technological leadership are not compromised.
This combination of state ownership, long-term planning, and competitive market dynamics demonstrates that China’s economic achievements derive from a unique synthesis rather than conventional capitalism. Wealth creation is generated through productive capacity, industrial upgrading, and coordinated technological development rather than the financial speculation and asset appreciation characteristic of the United States. The system balances the incentives of private enterprise with overarching state goals, producing high rates of poverty reduction, rapid industrialisation, and technological advancement while retaining strategic national control over critical resources and sectors. This integrated approach explains why China has achieved sustained economic growth at scale, lifting hundreds of millions from poverty and creating a globally competitive industrial and technological base. These structural characteristics clarify why China’s growth cannot be explained solely through market mechanisms, highlighting a system fundamentally distinct from American financial capitalism.
Western criticism often frames the Chinese system as authoritarian, but Zhang proposes a distinction between good governance and bad governance rather than between authoritarian and democratic forms. He points to China’s practice of circulating draft laws through grassroots consultation centres, where citizen feedback can alter the text of legislation. The anti-domestic violence law was amended to include provisions for protecting elderly citizens after such consultation. Zhang describes this as whole-process people’s democracy, a system judged by outcomes rather than procedures, and he argues that its legitimacy rests on responsiveness and performance.
The capacity to conduct long-term industrial planning is reinforced by this governance model. China’s leadership in electric vehicles is the product of twenty years of policy consistency, a timescale unavailable in electoral democracies where industrial strategies often shift with each administration. Zhang contrasts this with Western failures to implement large-scale energy transitions, noting that despite extensive rhetoric about decarbonisation, Western countries have achieved limited results. Chinese policy, by contrast, has delivered measurable change in energy mix and industrial production.
The trade war initiated by the United States under Donald Trump exposed the resilience of Chinese supply chains and the weakness of American industry. Zhang predicted that tariffs would harm American firms more than Chinese ones, since manufacturing ecosystems in China’s Pearl River Delta and Yangtze River Delta provide complete supply chains within close geographic proximity. Apple and Tesla depend on these clusters, which cannot be replicated quickly elsewhere. The Peterson Institute for International Economics has also noted that tariffs failed to revive American manufacturing, instead raising costs for consumers and producers alike. The asymmetry reflects the difference between a system built upon production ecosystems and one reliant upon financial profits.
Wealth in the American system is concentrated in financial assets and real estate, which can lose value quickly in crises. China’s wealth is embodied in factories, infrastructure, supply chains, and human capital, which retain value regardless of asset price fluctuations. Zhang notes that during crises those who hold goods are in stronger positions than those who hold only money. Russia’s ability to withstand Western sanctions by converting its energy exports into alternative currency flows illustrates the relative power of goods over money in international competition. China, with its massive manufacturing base, possesses similar advantages.
Financial systems are also diverging. China has reduced holdings of US Treasuries and expanded its cross-border interbank payment system, CIPS, which offers faster and cheaper settlement than SWIFT. The People’s Bank of China has promoted yuan-denominated trade, and by March 2025 more than half of Chinese companies’ trade was settled in yuan rather than dollars. The International Monetary Fund has noted the yuan’s gradual rise in international reserves, though the dollar still dominates. Zhang envisions a dual system where the dollar remains central in finance but the yuan gains weight in goods trade, eroding the monopoly once enjoyed by the dollar.
China’s approach to global order is reformist rather than revolutionary. Zhang contrasts China’s willingness to adapt existing institutions to its advantage with Russia’s preference for overturning them outright. Multipolarity is already a reality, with China, India, Russia, and other powers asserting influence, but the task is to shape a system reflecting these balances. The United States has resisted this shift, retreating into protectionism and sanctions, but China continues to expand its role in trade, infrastructure, and digital platforms. Institutions such as the Belt and Road Initiative and BRICS cooperation demonstrate how China seeks to build alternative frameworks without dismantling existing systems outright.
The significance of the Chinese model lies in its demonstration that modernisation need not mean Westernisation. As Levy shows, American capitalism has evolved into a system dominated by asset inflation and financial speculation, while China has built a model where production, planning, and state direction remain central. Zhang insists that this model delivers tangible results in poverty reduction, industrial upgrading, and social stability, outcomes that Western democracies have struggled to replicate.
Francis Fukuyama’s declaration of the end of history, with liberal democracy as the final form of government, has been undermined by the persistence and success of the Chinese model. Zhang predicted over a decade ago that populism would destabilise Western systems while China’s governance would prove resilient, and developments since have supported his view. The failures of the Arab Spring, the rise of populism in Europe and the United States, and the erosion of public trust in Western institutions all illustrate the fragility of procedural democracies. In contrast the Chinese system has delivered consistent governance and rising living standards.
The Chinese economic model faces its own pressures, including inequality, demographic ageing, and environmental limits, and its evolution remains uncertain. Yet its underlying logic differs fundamentally from asset appreciation capitalism. Production takes precedence over speculation, state direction constrains finance, and capital is subordinated to political and social objectives. Whether the model moves towards greater socialism or towards new hybrids, it will remain distinct from the financialised path that defines the American system.
The global contest between asset appreciation capitalism and production-based state capitalism will shape the coming decades. The American system rests upon asset markets and dollar primacy, generating financial wealth for elites but leaving industrial capacity weakened. The Chinese system rests upon factories, infrastructure, supply chains, and human capital, delivering material goods and raising mass living standards. One system is fragile in the face of crisis, the other is grounded in productive capacity. The divergence between the two explains why China continues to expand influence in trade, technology, and infrastructure, while the United States defends its position through financial dominance and military power.
The Chinese model demonstrates that prosperity can be built without replicating Western liberal capitalism. It shows that sustained development can be achieved through production, planning, and state guidance rather than through asset inflation and financial markets. The divergence between American financialised capitalism and Chinese production-based capitalism illustrates the consequences of two distinct logics of development. For the foreseeable future the global order will be defined by the tension between these models, one rooted in speculation and assets, the other rooted in production and goods.
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