“An industrial power has never lost when challenged by a financial power — even when that financial power happened to be the reigning global hegemon.”
Thomas des Garets Geddes, Ailsa Brown 白艾栩, and Kyle Chan
Jun 19, 2025
Today’s edition opens with an introduction by Kyle Chan, a Postdoctoral Researcher at Princeton University whose work focuses on China’s industrial policy. He writes an excellent newsletter on related topics called High Capacity, which I’ve recommended before. — Thomas
Lu Feng (路风) is a renowned professor at Peking University’s School of Government, specialising in industrial policy, technological innovation, and development. Lu’s influential theories of industrialisation and development make him a modern-day Friedrich List or Alexander Hamilton.
In a recent interview (summarised below), Lu Feng presents a theory of what I call “Chinese industrial maximalism”. At a time when China is already the world’s manufacturing superpower and faces accusations of “overcapacity” from the US and EU, Lu Feng argues that what China needs is more industrial development, not less. There are two main reasons for this.
Industrial capacity as a driver of technology
The first is that having a large and diverse industrial base is a key precondition for scientific and technological innovation. He argues that “only after becoming an industrial power can a country become a scientific power.” Lu Feng points to the historical examples of the US and Japan, which began by mass-producing goods that were invented elsewhere, like cars. The industrial capacity that emerged later generated both the demand and resources needed for scientific innovation, including the creation of entirely new industries, such as semiconductors, computers, and software.
Lu Feng argues that the larger and more diverse a country’s “industrial system” (工业体系)—which includes not just different sectors but also supporting factors such as education and financing—the faster its technological advancement. “Complementary relationships” (互补关系) within the industrial system allow technological advancements in one sector to drive progress in others. For example, China’s advances in lithium batteries and lidar sensors empower its EV, drone and robotics industries through what I call “overlapping tech-industrial ecosystems”. In a similar manner, Lu Feng believes China’s vast industrial base will give it an edge in AI through a positive feedback loop between real-world industrial applications and foundational AI models.
China’s overlapping tech-industrial ecosystems
Industrial capacity as a source of power
The second reason for doubling down on industrial development is the geopolitical value of China’s industrial base. Lu Feng argues that China’s industrial base is its “greatest source of strength” (中国最大力量源泉) and a “strategic asset” (战略性资产) akin to US dollar hegemony or Russian oil and gas. The fact that the whole world relies on China’s manufacturing capabilities and finds it nearly impossible to replicate this elsewhere makes China an indispensable part of the global economy.
This gives China geopolitical leverage, a point made clear in the trade war with the US. President Trump’s escalation of tariffs on China backfired by revealing how dependent the US was on Chinese manufactured goods, such as smartphones and batteries. The White House was forced to quickly follow up with tariff exemptions for these very categories (China also quietly put out its own list of tariff exemptions). Over time, China has sought to decrease its reliance on foreign technology, especially American technology, while increasing the rest of the world’s reliance on China, as Ryan Hass at Brookings has pointed out.
A contest between two systems
Lu Feng argues that China’s industrial development is more important than ever in the face of intensifying US-China competition. Rather than caving into notions of “overcapacity” coming from “foreign influences” (外人之风) and “tying our own hands” (自缚手脚) by limiting industrial capacity, Lu says China should forge ahead in both traditional and high-tech industries. This is especially critical now as he believes the “US is gearing up for a showdown with China” (美国拉开架势要与中国对决).
Lu Feng sees the US-China rivalry ultimately as a contest between two systems: China’s “industrial socialism” (工业社会主义) and America’s “financial capitalism” (金融资本主义). The US was once an industrial powerhouse like China today with half of global production and an “arsenal of democracy” that changed the course of World War II. But, in a critique with strong political resonance within the US, Lu Feng says the US economy became increasingly “financialised” (金融化), dominated by the short-term interests of Wall Street investors, causing America’s industrial base to atrophy. In contrast, China’s socialist system ensured that financial resources would be directed toward supporting the “real economy” (实体经济) and steer China away from the standard path of deindustrialisation.
Lu Feng ends with a bold statement: “The past 500 years of world history show that an industrial power has never lost when challenged by a financial power, even when the financial power is also a global hegemon.” For Lu, the answer to China’s core challenges—strategic rivalry with the US, sustaining technological progress, an economic slowdown, employment—is even greater industrial strength in every form.
- Kyle Chan
Key Points
China's recent economic slowdown reflects policy missteps rather than fundamental structural problems. The country’s long-term growth potential remains strong.
The slowdown has been driven in large part by restrictions since the 2010s on traditional industries. Under government directives, these sectors were forced to cut capacity and limit output.
Current economic challenges are largely the result of “binary thinking” and restrictive production policies promoted by liberal Chinese economists.
Preserving the integrity of China’s industrial system should be regarded as a fundamental national priority.
Technological progress is inseparable from industrial development. China’s broad manufacturing base provides it with a lasting advantage in the AI competition with the US.
The current geopolitical struggle reflects a deeper systemic contest between financial capitalism in the US and industrial socialism in China.
Reindustrialisation is not a feasible path for the United States, whose industrial decline was self-inflicted.
Trump aims to rebuild American hegemony, yet it is impossible to sustain global hegemony while attempting reindustrialisation.
By imposing tariffs, Trump sought to break the existing global economic system and offload the consequences onto other nations, including America’s allies.
The golden age of China’s economic growth lies ahead — provided the leadership discards “binary thinking” and fully activates the potential of its industrial system.
The Scholar
Name: Lu Feng (路风)
Born: Dec. 1955 (age: 69)
Position: Professor, Department of Political Economy, School of Government, Peking University (since 2003)
Previously: Director, Institute of Enterprise and Government, School of Public Policy and Management, Tsinghua University
Other: Civil-service decade in Beijing, serving successively in the General Office of the Beijing Municipal People’s Government, Financial and Trade Office of the Beijing Municipal Government, State Economic Commission and State Planning Commission (1982-1991)
Research focus: Political economy of industrial development; Technological innovation and industrial competitiveness; Enterprise and organisational theory, with a focus on SOE governance reform
Education: BA Minzu University of China (1982); MA-PhD Columbia University (1991-1998)
Experience abroad: United States (1991-1999)
First published as and by
THE UNITED STATES HAS INITIATED A SHOWDOWN — WHAT CAN CHINA RELY ON TO OVERCOME THE CHALLENGE OF THE CENTURY?Lu Feng (路风)
Published by Guancha.cn on 29 May 2025
This post was put together by Ailsa Brown(Illustration by OpenAI’s DALL·E 3)
