Its conclusion is clear: China’s model represents a strategic threat to G7 industrial competitiveness.
Our argument reaches a different conclusion from largely the same evidence. The deeper issue is not simply state intervention, subsidies or industrial policy. It is the emergence of two different forms of capitalism.
The American model monetises innovation primarily through capital markets, high margins, intellectual property and shareholder returns. The Chinese model industrialises competition through manufacturing scale, ecosystem depth, affordability, relentless execution and state-bounded private enterprise.
The Rhodium report largely interprets China through the lens of distortion: subsidies, overcapacity, import substitution, trade dominance and state-backed competitive pressure.
See also: The political economy of modern capitalism
Those risks are real. But the report may also unintentionally reveal something else:
China’s rise cannot be explained by central planning alone. In fact, many of the very conditions repeatedly highlighted in the report point to the limits of central planning itself.
No state — regardless of competence — can realistically orchestrate competitive superiority simultaneously across virtually every industrial layer, technology stack, supply chain and consumer category purely through bureaucratic direction.
See also: China’s next-generation industrial policy
Governments can successfully prioritise strategic sectors. They can direct funding, coordinate infrastructure, shape regulation, accelerate adoption and reduce national bottlenecks. But they cannot centrally plan millions of firm-level decisions:
• Pricing;
• Product iteration;
• Supply-chain optimisation;
• Manufacturing learning curves;
• Distribution efficiency;
• Consumer adaptation; and
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• Technological experimentation across an economy of China’s scale.
The evidence inside China itself reflects this reality. The same system that produces extraordinary industrial depth also repeatedly produces:
• Overcapacity;
• Margin collapse;
• Duplicated investments;
• Debt accumulation;
• Capital wastage; and
• Destructive price wars.
These are not signs of a perfectly coordinated machine.
They are signs of intensely competitive firms responding to incentives — often excessively, chaotically and brutally.
What the Rhodium report repeatedly describes — collapsing margins, rapid product diffusion, relentless cost compression and hyper-competition — looks less like traditional state monopoly behaviour and more like aggressive capitalist market dynamics operating within state-defined boundaries.
That distinction matters because it explains why Chinese products often become extraordinarily affordable domestically. Low prices are not necessarily evidence of weakness or irrationality. They are often evidence of a system optimised for industrial scale, manufacturing depth and ecosystem efficiency rather than immediate shareholder extraction.
This is also why many Chinese consumer products increasingly undercut Western competitors so dramatically. In many sectors, Chinese firms are not optimising for premium margins. They are optimising for scale, production dominance, learning curves and long-term ecosystem positioning.
A comparable product from Dyson may sell at many multiples the price of an equivalent product from Xiaomi. The difference is not merely labour cost. It reflects fundamentally different competitive systems and profit expectations.
But this model creates its own contradictions. If domestic competition permanently compresses profitability, firms eventually require overseas markets not simply for growth, but for survival of the innovation cycle itself.
Higher overseas margins, stronger global valuations and lower capital costs ultimately finance:
• Long-duration research;
• Talent acquisition;
• Technological leadership; and
• Future expansion.
In that sense, global expansion of Chinese companies becomes structurally necessary. Not necessarily because Chinese firms seek geopolitical dominance, but because the domestic system itself often struggles to generate sufficient profitability to sustain long-term capital formation.
Ironically, the same forces that create China’s manufacturing strength may also compel its firms to internationalise aggressively.
This is where the Rhodium report misread the mechanism. It interprets external expansion primarily through the lens of strategic intent and state ambition. But part of the expansion may simply reflect capitalist necessity inside a brutally competitive industrial system. The report is therefore strongest not in proving omnipotent central planning, but in documenting the sheer intensity of China’s industrial competition.
And perhaps that is the more uncomfortable conclusion for the West. China’s rise may not ultimately be the triumph of central planning over markets. It may instead be the emergence of a different form of capitalism altogether — one where the state sets the boundaries, but private firms still compete with extraordinary ferocity within them.
“Intentions are often inferred not from truth, but from the observer’s own internal world.”
