Why China will the 21st Century: an output-driven economy.

By Robin Rivaton

November 5, 2019. Paper lanterns, a tea ceremony, a moonlit stroll. Chinese President Xi Jinping, accompanied by his wife, the singer Peng Liyuan, hosts an intimate dinner for President and Mrs. Macron. The French President is the guest of honor at the second China International Import Expo. The previous year, in Djibouti, European and Chinese naval forces had held a joint exercise.

The tone has changed radically since then. Since Covid, ties between China and the West have frayed considerably. In Washington, Paris, and Berlin, the same refrains are repeated ad nauseam: protectionism, imitation, overbuilding, demographics, all allegedly pointing to an economic development model that has in fact been obsolete for one or even two decades. I decided to dissect China’s economic development model in a book entitled Why China Will Run the 21st Century [1], a deliberate nod to Why Europe Will Run the 21st Century, published in 2005, and a reminder of how hazardous predictions of supremacy can be.

China’s model is a syncretism, combining interventionism with maximal competition, the rationality of planning with the irrationality of bubbles. Economies of scale sit at its core. For Chinese decision-makers, market unification is not a secondary objective but a central achievement of economic policy. The contrast with the European Union’s single market is striking. What remains of Marx in China is not the theorist of class struggle, but a tightened version of historical materialism: the primacy of the productive forces.

Long derided, this model is now becoming attractive. Watching the U.S. government invest in companies such as Intel, Vulcan Elements, and ReElement Technologies in the name of strategic interest amounts to an industrial policy directly inspired by the Chinese approach. The fixation on reindustrialization and on strategic materiality, ships, energy, minerals, follows largely from the same logic.

The productivist movement, reinvented under the banner of abundance, also draws from it. Europe, still steeped in the principles of free trade and reciprocity in the terms of trade that underpinned its success, seems unable to digest this new model of development.

More than a technocracy, in Dan Wang’s well-known formulation, meaning a system where decision-making authority is primarily entrusted to technical experts, the defining feature of China’s economy is productivism. A productivist economy is a system whose central objective is to continuously increase output volumes and gross domestic product, prioritizing productivity, economies of scale, and unit-cost reductions driven by innovation.

To cross coastal China by train, by car, or to fly over it, is to encounter an almost uninterrupted sequence of urban territories, 20-storey residential buildings, factories, warehouses, and roads, repeating over several thousand kilometers. This physical reality reflects the scale, both geographically and in terms of the population involved, and the speed of an economic takeoff without historical precedent.

Lifting the masses, the Marxist ideological ambition, takes on a material form. The construction of the Three Gorges Dam shifted the Earth’s axis by 2 centimeters and slowed the planet by 0.060 microseconds. Anecdotal, but amusing to have such leverage over our planet. To compare this to what has been done in the West, China produces 2 billion tonnes of cement per year, while the United States consumed 4.5 billion tonnes over the entire twentieth century.

China produces 1 billion tonnes of steel per year, while Europe has produced 15 billion tonnes since coke-smelted pig iron was developed in 1709.

Origins

This takeoff did not begin in 1978. It is the legacy of the three preceding decades. China has been a productivist country for a long time. In the Maoist phase, the struggle between “reds” and experts led to episodes where technocracy retreated in favor of ideology, the Great Leap Forward, backyard steel, the Cultural Revolution. Yet it would be absurd to overlook the blast furnaces, cement plants, literacy, railways, and electrical grid that period left behind.

Consider a 2015 NBER study that concluded that abolishing China’s private sector and returning to a command economy would still deliver average annual GDP growth of 4 to 5 percent through 2050. That figure is only one percentage point below China’s average growth rate under market reforms.

Why is this society productivist? Because it experienced scarcity and deprivation. 

The descriptions of the material misery that marked three quarters of the twentieth century, when low production coincided with rapid population growth, should not be forgotten in the face of current prosperity. In 1990, China’s GDP per capita stood at $319, compared with $728 in sub-Saharan Africa. According to the FAO, 289 million people, roughly a quarter of the population, still suffered from malnutrition. Food ration coupons were not abolished until 1993, after four decades of use.

Control of Resources

China is deeply influenced by Marxist economic theory: the instruments of labor (tools, factories, infrastructure) and the objects of labor (natural resources and raw materials) combine with the workforce to produce.

If China is now the seventh-highest country in daily per capita protein consumption (128 grams versus 121 grams for the United States), it achieved this through the maximal use of agricultural land to feed its population. Between 1949 and 2024, Chinese agriculture underwent a dramatic transformation.

Total grain output rose from 113 million tonnes in 1949 to 700 million tonnes in 2024, even as arable land per capita fell from 0.18 hectares in the 1950s to less than 0.1 hectares today.

China claims a 95 percent food self-sufficiency rate, despite representing 18.3 percent of humanity while holding only 8.5 percent of the world’s arable land.

The country is convinced it must control industrial raw materials and key inputs. The best-known case is rare earths. China’s dominance is comprehensive: 61 percent of global extraction, 90 percent of refining, and 93 percent of magnet sintering. Many commentators cite Deng Xiaoping’s remark, during a visit to the Shanghai Volkswagen plant on February 6, 1991: “An American friend told me: you have this treasure, just as the Middle East has oil.”

But production began as early as 1957 at the Bayan Obo iron mine in Inner Mongolia, now the largest rare earth mine in the world. Beyond rare earths, other materials where China holds dominant positions include gallium (94 percent), magnesium (91 percent), tungsten (86 percent), germanium (83 percent), phosphorus (79 percent), bismuth (70 percent), graphite (67 percent), vanadium (62 percent), antimony (56 percent), and fluorspar (56 percent).

With the exception of gallium and tungsten, where China holds 83 percent and 58 percent of reserves, this dominance is primarily linked to the effectiveness of its refining apparatus and to its willingness to accept the pollution it generates.

This focus on inputs also helps explain the explosive growth in electricity generation, and, because oil and gas resources are limited, at 1.5 percent and 2.7 percent of global reserves, the explosive growth of coal extraction. China currently produces roughly 4.8 billion tonnes of coal per year, 54 percent of global output.

The Chinese are fully aware of the negative externalities of coal-fired power plants, greenhouse gases and fine particulates. Nevertheless, electrification remains a priority. Per capita electricity production is 7,100 kWh per year in China versus 6,000 in the European Union. Electricity is treated as an essential input for industry and for households, who pay 7 cents per kWh versus 29 cents per kWh in the European Union. Things are changing, but coal will remain present. In 2024, China added a record 429 GW of net new capacity to the grid, of which combined wind and solar accounted for 83 percent. Total renewable capacity stands at 1,966 GW, including 1,482 GW of wind and solar photovoltaic, exceeding total thermal capacity estimated at roughly 1,451 GW.

Nuclear is growing quickly, but remains a minority, with capacity projected at 110 GW by 2030.

Strategic Autonomy

In 2023, the value of China’s raw-material imports reached $810 billion, of which around 45 percent was crude oil and natural gas and just over 30 percent was industrial metals. Import diversification initially followed an economic logic.

In the mid-2000s, faced with soaring costs for high-grade nickel from Russia or Canada, Chinese steelmakers developed nickel pig iron produced from low-grade laterites imported from Indonesia. This desire to shield the economy from supply shocks also explains strategic stockpiling policies, for example the pork reserve, which releases inventory as soon as the pork-to-grain price ratio rises above 6.

Over time, the importance attached to natural resources has taken on a sovereignty dimension, aiming to reduce dependence on strategic imports within value chains. Three recent examples are helium, quartz, and neon. China achieved a breakthrough in ultra-pure helium derived from natural gas, enabling it to become more than 50 percent self-sufficient by 2028, whereas it previously depended on the United States.

For quartz, the only known deposit of very high purity is located in North Carolina, but in April 2025 China discovered two domestic deposits. And when a neon shortage alarmed the semiconductor industry after Russia’s invasion of Ukraine, which affected roughly half of the global market, China increased its output by 150 percent in three years.

U.S. export controls in the semiconductor sector triggered an extremely rapid move up the value chain. China’s visceral response to deprivation was to produce. Companies like OpenAI rent servers from data-center operators such as Amazon or Microsoft, which buy chips designed by Nvidia. Those chips include memory supplied by South Korea’s Samsung Electronics and SK Hynix.

They are manufactured by Taiwan’s foundry TSMC using lithography machines whose leading supplier is the Dutch firm ASML. Until recently, each of these players sat in a monopoly or duopoly position. Now, however, ChangXin Memory Technologies (CXMT), founded in 2016, is close to closing the gap with the memory leaders. Huawei’s Ascend chip, on which DeepSeek runs its AI models, is manufactured by SMIC using a 7-nanometer process. Shanghai Micro Electronics Equipment (SMEE) and Shenzhen Xinkailai Technology (SiCarrier), a Huawei subsidiary, are developing their own lithography equipment.

Extending Value Chains

The traditional trajectory of economies has been to move up value chains, which implies repositioning toward higher-end segments and abandoning certain productions offshored to other countries.

Yet in China’s case, classical Ricardian theories have become inoperative: China still produces 65 percent of the world’s nails and 47 percent of its textiles, while also becoming a leader in semiconductors, drones, and electric vehicles.

The best indicator of the rise of domestic supply chains is the decline of processing trade, which allows goods (raw materials, components) to be imported with suspended or exempted tariffs, transformed, and then re-exported as finished products.

This regime fell to 18 percent of trade in 2023, down from 53 percent in 1998. Until the late 2000s, China imported a large share of polysilicon from the United States and Europe and merely assembled modules, leaving value added limited. From 2006 onward, the strategy changed radically.

Domestic groups such as GCL invested massively to integrate upstream, and tariffs of 57 percent were imposed on polysilicon imports from the United States. The result is that, whereas in 2004 China’s share of global polysilicon production was close to zero while the United States dominated with 54 percent, China now dominates 80 percent of solar panels, 98 percent of wafers, and 95 percent of polysilicon.

Beyond industrial policy, there is a drive for complete vertical integration within firms themselves. BYD is the clearest illustration. Founded in 1995 as a manufacturer of mobile phone batteries, the company acquired the automaker Qinchuan in 2003 and created BYD Auto.

In 2020, BYD launched a platform integrating a battery pack, a powertrain, and electronics. BYD also internalizes power semiconductors. Upstream, BYD secures lithium through mining rights in Brazil. The company even built cargo ships to export its cars worldwide. Its competitor Geely operates no fewer than 41 low-Earth-orbit satellites intended to provide connectivity, navigation, and entertainment services.

Scale Effects

At the heart of productivism are scale effects that drive down unit costs, Wright’s law. Scale effects are first provided by the size of the domestic market. In this respect, China demonstrates what a truly unified market looks like, a lesson for the European Union and even the United States.

This unification is treated as a cornerstone of Chinese economic policy, as Xi Jinping emphasized in his July 1, 2025 speech, “Deepen the Building of a Unified National Market.”

The “five unifications” correspond to unifying foundational institutions, notably protection of property rights, fair competition, and quality standards; unifying market infrastructure, notably logistics and flows of capital and information; unifying the standards governing local government intervention; unifying market regulation and law enforcement; and unifying factors of production, promoting their free circulation and efficient allocation.

In this market, everything is designed for standardization. The national standards body (SAC), attached to the State Administration for Market Regulation (SAMR), plans, consults on, and then publishes standards. GB, GuoBiao, designates national standards, the equivalent of France’s NF standards. The objective is straightforward and industrial: make components compatible across China, streamline certification, and enable long production runs that reduce unit costs.

This standardization is also what enables highly cost-competitive infrastructure. The high-speed rail network follows principles of extreme standardization. More than 80 percent of the system runs on concrete viaducts, without ballast. Stations resemble one another because the national standard (TB 10100) and the 2024 station-city guidelines impose the same grammar: separated flows with entry above and exit below, an elevated concourse, underground exits toward urban transport modes, and modular buildings replicable everywhere.

China’s economic development model has many other facets, extremely intense competition among firms, individuals, and cities; a dense ecosystem of ultra-flexible manufacturing subcontractors; variable-geometry protectionism; a mistrust of finance; credit and investment steered by policy. But all of these are ultimately oriented toward productivism.

[1] The analysis is taken from Robin Rivaton's book Why China will run the 21st Century, China's material civilization and the primacy of productive forces, available here: https://www.amazon.com/dp/B0GF8QNPWN

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Robin Rivaton is the CEO of Stonal, a 6-year old 150-employee tech company. Stonal transforms the real estate industry with its cutting-edge, AI-powered data management platform and has successfully raised €120 million in total funding. Before joining Stonal, Robin was a venture capital investor at Eurazeo, where he focused on smart city and proptech startups. He is also the founder of Real Estech, a prominent think tank in the real estate sector, which publishes a weekly newsletter with 25,000 readers. In addition to his role at Stonal, Robin serves as an independent director on the boards of several property developers and REITs. An author of eight books on technology and real estate, he contributes as a columnist to the newspapers L’Express and Les Echos.Robin has previously worked as an economic advisor to notable figures such as Bruno Le Maire, former French Minister of the Economy, and Valérie Pécresse, Governor of the Paris Region.