SUMMARY
The Real China Story: Beyond the Trade War
While U.S.–China trade tensions dominate headlines, the article argues that the real long-term
story is China’s systematic economic transformation. Business leaders overly focused on tariff
conflicts may miss deeper structural shifts that have redefined China’s global strategy. The
country’s economic blueprint is rooted in reducing reliance on foreign technology, fostering
strong domestic firms, and achieving global competitiveness—goals largely pursued through
non-tariff actions.
China’s Strategic Objectives: Three-Fold Vision
According to Professor Allen J. Morrison, China’s economic transformation hinges on three core
objectives:
1. Reduce dependence on foreign technology and products.
2. Promote domestic firms to dominate the local market.
3. Leverage that dominance to gain global market competitiveness.
This transformation is evident in the Made in China 2025 (MIC25) initiative, which targeted 10
high-tech industries with over 250 goals. As of 2025:
Objective 1: China reduced external dependence from 70% to below 30% in 8 out of 10
sectors. The exceptions are high-end semiconductors and commercial aircraft.
Objective 2: Domestic dominance is strong. Chinese firms now lead in sectors like 5G,
electric vehicles (EVs), pharmaceuticals, medical devices, wind turbines, and
industrial robots.
Objective 3: Global competitiveness is uneven. Successes include solar panels, lithium
batteries, high-speed rail, shipbuilding, and drones. Challenges remain due to
structural and talent limitations.
Challenges to Global Success
Two main barriers limit Chinese firms’ global reach:
No influence abroad: Unlike within China, the government can’t tilt foreign markets in
favor of its firms.
Lack of global leadership experience: Chinese companies often lack senior
international executives who understand foreign markets.
Implications for Western Executives
Western business leaders should avoid viewing tariffs as the main issue. Instead, the key is
understanding China's strategic playbook and adjusting accordingly. Morrison outlines five
strategic implications:
1. MIC25's core tools are non-tariff: Tariffs are not central to China’s industrial strategy,
which depends more on forced joint ventures, tech transfer, and industrial policy.
2. No reentry for foreign dominance: In MIC25 sectors, China will not create space for
foreign resurgence.
3. Foreign dependence reduction will expand: China is likely to extend its self-reliance
goals into more sectors beyond the MIC25 list.
4. ICFC model is vulnerable: “In China, For China” strategies may face new risks due to
non-tariff tools like sanctions and arbitrary regulatory enforcement.
5. China's ecosystem is unmatched: With double the global production share of the U.S.,
China’s logistics, infrastructure, and supplier networks are irreplaceable in the short term.
No country, including India or Vietnam, can fully substitute China.
Executive Strategy: Hedging and Realignment
Executives have increasingly adopted hedging strategies:
China +1: Diversifying production to include at least one non-China location.
Revenue diversification: Targeting markets outside China to reduce dependency.
This shift is visible in U.S. foreign direct investment (FDI) trends:
FDI to China fell by ~14% in 2022 and again in 2023.
Preliminary 2024 data suggests an even sharper decline.
Why Executives Missed the Signal
Many executives underestimated China’s ability to close the technology and capability gap,
citing:
Belief that China's goals were too ambitious to succeed in 10 years.
Underappreciation of China’s “Enterprise China” model—far stronger than “Japan Inc.”
or “Korea Inc.” due to direct state ownership and control over vast parts of the economy.
Misaligned incentives: As long as China depended on foreign firms, Western executives
saw it as a lucrative market and downplayed risks.
Limited exposure: For most Fortune 500 companies, China wasn’t a large enough share
of their value chains to warrant deeper strategic shifts—unlike Apple, Tesla, or
Qualcomm.
What CEOs Should Do Now
The article concludes with three critical actions for executives:
1. Understand China's enduring objectives—and where they have succeeded or failed.
2. Stress-test long-term strategies against various scenarios instead of reacting to
immediate political changes.
3. Be proactive in policy influence rather than waiting for changes and scrambling to
adapt.
