China’s System of Helping Its People, Not Creating Stock Behemoths

A reader shared a very interesting article with us yesterday. It’s actually an article from July of 2024, but it has long-term relevance. The article seems to be in response to an article from The Economist, but it’s more broadly a critique of common American and European perspectives on Chinese economic policy and business success.

One key point is that China is supporting producers broadly and on a large scale in order to grow the market and thus increase competition. It’s the competition — hyper competition — that then really drives down costs. It’s not just about providing consumer benefits, and it’s not about giving one company a lot of support, it’s about providing incentives for many, many players to enter the market and compete with each other for customers. Having many players leads to innovation, cost cutting, and better and better options for buyers.

Eventually, less competitive companies in the market will go away, but as the market is quickly expanding, it can support many startups as well as efforts from large legacy companies. Competition increases, and consumers benefit. This is the idealistic “Invisible Hand” that Adam Smith was obsessed with. This is capitalism doing its work for an ideal outcome — quick innovation, lower costs, and better products for the people.

“What China has done in industry after industry is to flatten the supply curve by subsidizing hordes of producers. This spurs innovation, increases output and crushes margins. Value is not being destroyed; it’s accruing to consumers as lower prices, higher quality and/or more innovative products and services,” Han Feizi of Asia Times writes.

That quote touches on what the writers see is an overhyped problem. They note that there are, naturally, low margins in this cutthroat environment. Yes, that’s what happens. The problem many in the West have is that this doesn’t lend itself to picking an easy, monopolistic company with high margins as a stock to invest in. It’s all about the stock market and wanting companies with huge moats that keep out the competition. But how does that actually benefit consumers? How do monopolistic companies with high margins help consumers? The obvious answer is they don’t.

I think it’s pretty clear which system provides a broader net benefit to society. In the US, the wealth gap keeps growing and growing. Yes, people who have millions or billions of dollars to invest in big tech stocks have benefitted, but most of our society has suffered. The people running the show may think things are going well, but most people recognize they themselves haven’t been. Unfortunately, efforts to follow China’s model and stimulate a better market and economy are getting smashed in the knees. Democrats and the Biden administration set up big support structures for EV factories, EV battery cell and pack factories, EV battery mineral mines and refineries, solar panel factories, etc. However, despite the fact that they benefit Republican-controlled states and even districts more than Democrat-controlled ones, they apparently don’t benefit the right people (billionaire buddies in the fossil fuel industry) and are under attack. We’re heavily in crony capitalism territory at the moment, and that is not going to help consumers.

Longer term, what happens in these currently fast growing markets like China has stimulated? Eventually, things will consolidate and there will be big winners. That’s a natural tendency of markets. Betting on who will survive and who will benefit in 10 years is hard work, and I definitely offer no advice in that regard. However, that’s not the point. The point is that society benefits — the people benefit — for years due to faster innovation, lower prices, and a hyper-competitive market.

Compared to a year ago, fully electric vehicle share in China has risen from 26% (April 2024) to 32% (April 2025). EV share in the US has gone from 7.2% (Q1 2024) to 7.5% (Q1 2025). Which market is innovating faster, cutting costs more, and benefiting consumers more?

The summary point from the Asia Times writer: “Nearly 250 years after the publication of Adam Smith’s ‘The Wealth of Nations’ and the West has lost the economic plot.” Tesla’s market cap is almost 10 times higher than BYD’s despite the fact that BYD’s sales have been soaring, Tesla’s sales have been declining, BYD’s profits have been increasing, Tesla’s profits have been declining, and BYD employs about as many R&D engineers as Tesla employees people in general.

“To celebrate Tesla’s US$788 billion market cap in comparison to BYD’s $93 billion is to confuse incentives with outcomes. Both companies receive generous tax breaks and other government goodies. That Tesla is far more profitable than BYD while EVs have far less market penetration in the US is evidence of policy failure, not Elon Musk’s brilliance. Tesla pocketed the incentives while BYD (and competitors) delivered outcomes,” Han Feizi wrote a year ago. “What China wants from BYD and Jinko Solar (and the US from Tesla and First Solar) should be affordable EVs and solar panels, not trillion-dollar market-cap stocks. In fact, mega-cap valuations indicate that something has gone seriously awry. Do we really want tech billionaires or do we really want tech?”

Indeed. The US business obsession with stocks over products is not benefiting society. In fact, what has changed in the past year is Tesla has become less competitive globally and BYD has become more competitive globally. Somehow, despite that, Tesla’s stock has risen. It is delivering fewer vehicles to people, but the obsession with the stock is still super high. Success, according to many fans, is the stock price rising, no matter if vehicle sales are declining or not. And it’s not as though there’s any sign that just around the corner sales will skyrocket again.

Personally, I think I’d like China’s system a bit more — 200 more models, much more EV choice on the market, much cheaper EVs, and rapidly growing EV sales that clean up our cities. However, to many rich people in the US, who cares about that — as long as the price of their favorite stock is rising, what more could they want? Who cares about the broader costs and benefits to society at large?