China’s Xi Is Building an Economic Fortress Against U.S. Pressure
As Trump turns up the heat on Beijing, China is trying to become more technologically self-sufficient, but its efforts have a significant cost
A day in China could easily start like this: Roll out of bed and swipe through WeChat messages on your Huawei smartphone. Hop into a BYD electric car and drive to the railroad station, where a high-speed train from a state-run factory whisks you to your destination. Chinese-designed nuclear plants, solar farms and wind turbines power the city’s lights.
China is racing to make itself less reliant on the outside world’s products and technology—part of a yearslong effort by leader Xi Jinping to make China more self-sufficient and impervious to Western pressure as tensions with the U.S. rise. Beijing has poured hundreds of billions of dollars into favored industries, especially in high-end manufacturing, while exhorting business leaders to fall in line with the government’s priorities.
In many ways, the effort is succeeding.
Instead of relying on foreign firms for robots and medical devices, China is now making more of its own. Chinese-made solar panels are replacing some of the country’s need for imported energy. The success of China’s electric-vehicle makers and artificial-intelligence upstart DeepSeek has ignited fears that China may even eclipse the West in some cutting-edge sectors.
Beneath those wins, however, Xi’s industrial policy is hugely expensive, eating up state resources as government revenues are stagnating. One estimate by the Washington-based Center for Strategic and International Studies put China’s annual spending on industrial policy at around $250 billion as of 2019.
Large sums have been wasted on projects that failed, especially in areas such as advanced semiconductors.
The flood of investment pouring into Chinese factories is also causing problems for China abroad, as it leads to enormous quantities of Chinese goods that are being pushed onto foreign markets at cut-rate prices, exacerbating trade tensions. Western countries have already sought to block advanced chips from flowing to the country, and China’s growing manufacturing dominance in some high-value sectors is set to be a flashpoint in renewed trade frictions as President Trump turns up the heat on Beijing.
China needs to find new growth levers right now, to offset the drag on its economy from a languishing real-estate sector and a darkening global backdrop for trade. Many economists say China should be building out its threadbare social safety net to drive a durable pickup in consumer spending, rather than throwing more money at its already vast industrial base, racking up more debt with no guarantee on future returns.
But Beijing believes that channeling huge resources into advanced manufacturing and technology will boost national security by making the country less susceptible to Western pressure. If that means some economic problems are neglected or adds to tensions with the West, Chinese leaders are signaling that the risks are worth it.
The cost of China’s effort “has been a lot of burnt capital,” said Alfredo Montufar-Helu, head of the China Center at research group The Conference Board in Beijing. “Is China going to be able to bear the cost? In the eyes of the Chinese government, they are being forced to bear this cost.”
China’s State Council Information Office didn’t reply to a request for comment.
“Self-reliance in science and technology is the basis of our national strength and prosperity, and necessary for our security,” an anchor with China’s state broadcaster CCTV said this month.
Flying solo
Xi formalized his ambitions to make the country more self-reliant in 2015, when he unveiled an initiative dubbed “Made in China 2025.”
A government document that laid out the program’s goals stressed that the world was on the cusp of a new technological revolution and that China would only succeed by investing in a more advanced manufacturing base.
While the initiative sought to elevate Chinese manufacturing across the board, it highlighted 10 sectors such as robotics, aerospace and new-energy vehicles as priorities.
It also set explicit goals for raising the domestic content of core components and basic materials. A gusher of state subsidies and other financial support would help China achieve its goals.
U.S. officials criticized the program for aiming to shut out foreign firms, a rift that only worsened after Trump took office in 2017. By 2019, under pressure from the U.S., Beijing was dropping references to “Made in China 2025” from official reports and signaling that it planned to give a bigger role to foreign companies in supplying China.
Yet as relations with the U.S. further deteriorated, China’s bid at self-sufficiency only intensified. The world was growing more turbulent, the government said in its latest five-year economic plan published in 2021, and “self-reliance” in science and technology was paramount.
Success stories
In EVs, one of the 10 sectors identified in “Made in China 2025,” industrial support surged from $15 billion in 2019 to more than $45 billion in 2023, according to estimates by CSIS. More than 100 brands raced into the market.
As the cars’ quality has improved, they have been thrashing foreign rivals in China and making rapid inroads overseas.
Last year, electric and plug-in hybrid cars accounted for 48% of passenger-car sales in China, up from 41% from a year earlier, or nearly 11 million vehicles, data from the China Passenger Car Association showed. Most of those electric cars were made by Chinese brands, such as BYD and Geely. BYD recently surpassed Volkswagen to become China’s bestselling carmaker, while sales of American automakers such as General Motors, which recently said it would take more than $5 billion in charges linked to its weak China business, have tanked.
A similar story has emerged in shipbuilding, as the government poured an estimated $132 billion of support into the shipping and shipbuilding sector between 2010 and 2018, according to CSIS. That has made China more self-sufficient and transformed Chinese firms into the world’s dominant shipbuilders, controlling more than half of global production based on merchant tonnage compared with 5% in 1999, Matthew Funaiole, a senior fellow at CSIS, said last year.
For years, China was a net importer of chemicals, especially from the Middle East, Europe and the U.S., as domestic production wasn’t enough to provide all the plastics, fibers and other chemicals consumed by its growing economy. Since 2021, however, that deficit has flipped to a surplus, as rising domestic production pushes out imports.
China in 2024 recorded an export surplus of $34 billion in chemicals, compared with a $40 billion deficit in 2020.
Obstacles ahead
In other ways, however, Xi’s self-sufficiency drive continues to face hurdles.
In aerospace, China’s C919 jetliner entered commercial service in 2023, a feat celebrated by the government after years of setbacks. But the plane, built by state-owned manufacturer Comac to rival the workhorse passenger jets of Boeing and Airbus, is chock-full of foreign systems and components, including landing gear from Germany and engines from the U.S. and France.
Beyond technology, a push to boost China’s self-reliance in its food supply is constrained by a lack of arable land and water. In 2024, China imported 105 million tons of soybeans—up 21% since 2019—with a large portion coming from the U.S., while meat imports have risen 55% over the same period.
In semiconductors, Western countries are actively working to make sure China doesn’t catch up soon, which has only reinforced Beijing’s determination for self-reliance.
Policymakers a decade ago said they wanted 70% of China’s chip demand to be met by domestic production by 2025. By the end of this year, domestic production will supply only around 30% of Chinese chip demand, though that’s up from around 20% in 2024, according to estimates from International Business Strategies, a consultancy. Chip imports last year were close to $400 billion, according to Chinese customs data.
China doesn’t have homegrown technology to produce the most advanced chip-making tools, which are currently made by a handful of suppliers in the Netherlands, Japan and the U.S. American and other export control measures block China from obtaining those most-advanced tools. Without them, fabricating the most-advanced chips has proven very difficult for China.
Still, Chinese players have made breakthroughs that surprised U.S. officials. In 2023, Huawei Technologies released the Mate 60 smartphone, which contained an integrated circuit that was a step closer to the technology level of advanced chips in Apple’s iPhones, though industry experts have raised questions about the production yield of these chips and whether Huawei can efficiently mass-produce them. Huawei hasn’t commented on the details of the chip.
Huawei also succeeded in developing its own operating system after it was restricted from using Google’s Android system.
The case of AI newcomer DeepSeek provides a counterexample to China’s state-led strategy. Rather than emerging out of a government lab, DeepSeek was built by a Chinese math geek who had founded a hedge fund. Many economists have argued that China could better rev up its economy by easing controls on its private sector, strengthening the country as it competes with the U.S., without many of the downsides of its state-led model.