China's Strategic Model: An Executive's Guide to AI, Industry, and Governance (An Andrea Viliotti Analysis)
- Andrea Viliotti
- 1 giorno fa
- Tempo di lettura: 26 min
For C-suite leaders, contemporary China is one of the most complex and urgent case studies. Often viewed with a mix of admiration for its speed of execution and concern over its geopolitical trajectory, its transformation offers strategic lessons that go far beyond simple market competition. Understanding its driving dynamics isn't about analyzing a rival; it's about decoding an alternative model of governance, innovation, and social engineering. For an executive, studying this paradigm provides the critical perspective needed to navigate complexity, manage change, and define a coherent strategy for adopting complex technologies like artificial intelligence.
The Confucian Ethic: The Cultural Roots of China's Strategic Model
Cultural Engineering: How China's Strategic Model Aligns Objectives
Governance and Control: The Digital Panopticon in China's Strategic Model
Super-Apps and Data: The Social Contract at the Heart of China's Strategic Model
Long-Term Planning: The Competitive Advantage of China's Strategic Model
Technological Sovereignty: AI and China's Strategic Innovation Model
Made in China 2025: The Qualitative Leap of the Strategic Industrial Model
Beyond the Car: The EV as a 'Software-First' Strategic Model
Guochao: How Cultural Nationalism Reinforces China's Strategic Model
The 'Pivot to the South': The Geopolitics of China's New Strategic Model
Competition and Influence: The (Sun Tzu) Philosophy of China's Strategic Model
The Property Crisis: The Forced Rebalancing of China's Strategic Model
China's Strategic Model vs. The West: A Confrontation on AI Governance
"Embodied AI": The Practical Execution of China's Strategic Model
Executive Summary: What's Changing, Why Now, What to Do
What's Changing: China is no longer competing on cost. It's competing on strategic coherence. Its industrial policy (MiC-25, AI Plus) (17), cultural push (Guochao), and data governance (6, 8) are all aligned to create a self-sufficient tech ecosystem.
Why Now: Two factors make this analysis urgent: the acceleration of "Embodied AI" (EVs, Robotics, V2G) (1, 2, 4, 5) and the EU AI Act's compliance deadlines (9), which force European and global companies to make immediate strategic choices about their own data governance and vendors.
What to Do (Next 6 Months): 1. Map your supply chain dependencies on China's high-tech sectors (EVs, batteries (3), AI). 2. Initiate an EU AI Act (9) compliance audit (obligations are now active). 3. Evaluate the ROI of internal AI and automation pilot projects to defend margins against competitive "involution" (14).
1. The Confucian Ethic: The Cultural Roots of China's Strategic Model
To understand the strategic decisions, corporate culture, and resilience of the Chinese model, one must start with its philosophical "software": Confucian ethics. Unlike the Western tradition, which has centered on individual reason and autonomy as the foundation of the person, Confucian thought offers a radically different view. In this perspective, identity is not an intrinsic essence but a result defined exclusively through social roles and interdependent relationships. One is not an individual in the abstract; one "becomes" a person within a family, a company, and a community. This shifts the ethical goal from self-actualization to social harmony (shèhuì héxié), an equilibrium achieved by practicing cardinal virtues designed to regulate human interaction.
These virtues include Rén (Benevolence), a shared humanity and compassion for others, seen as the foundation of a flourishing community; Yì (Righteousness), the moral obligation to act justly, even at personal cost; Lǐ (Propriety/Rites), the set of social norms and rituals that maintain order; Zhì (Wisdom), understood as moral discernment; and Xìn (Integrity), the trustworthiness essential for building lasting bonds. The core of this system is the family, seen as a microcosm of the state. It's here that one learns filial piety (xiào), a respect that extends to all societal relationships: the ruler-subject relationship is modeled on the father-son relationship. For a business leader, ignoring this cultural matrix means failing to understand the motivations of a Chinese employee, partner, or consumer. It generates an idea of intrinsically collective success. Individual triumph is inseparable from the group's well-being. This isn't about submission, but a shared understanding that every action creates a dense web of mutual responsibilities. This ideological "software," actively promoted by the state today, provides the cultural foundation for long-term strategies, individual sacrifices for national goals, and a different approach to privacy.
2. Cultural Engineering: How China's Strategic Model Aligns Objectives
If Confucian ethics is the software, cultural engineering is the deployment method. The observation that contemporary Chinese cinema celebrates the triumph of the community over the individual is not accidental; it is a pillar of a precise social policy aimed at aligning individual ambition with national objectives. These narratives are not mere entertainment; they are powerful tools designed to build consensus. Academic studies identify a specific genre, "main melody" films, whose explicit purpose is to disseminate state-approved values. These films systematically construct heroic figures whose success stems from community support, family sacrifice, and duty to the nation. This tradition dates back to the 1930s, cementing cinema's role as a moral and political vehicle.
This narrative strategy is supported by intellectual currents like "post-new Confucianism," which shifts the focus from individual moral cultivation to social ethics and the practical application of Confucian theories to the collective sphere. As a result, the concept of success being promoted is not the Western one of individual luck and skill, but a victory achieved through hard work, discipline, and dedication to the common good. A direct functional relationship exists between this cultural engineering and China's economic model, which relies on massive, long-term, state-directed investment. To execute such ambitious plans, the state requires a citizenry that believes in the value of collective effort and deferred gratification. Media becomes a primary tool for instilling this value system. For a business leader, the lesson is profound and maps directly to change management: a transformation strategy, like adopting AI, fails on culture, not technology. It's not enough to tell people the benefits; you must show and narrate a "collective hero's journey" where the company's success and the employee's success are aligned.
3. Governance and Control: The Digital Panopticon in China's Strategic Model
The image many visitors have of Chinese megacities is one of a clean, safe, and orderly environment where extreme poverty is largely invisible. This "orderly society" is a carefully engineered product that rests on two interconnected mechanisms: a system of managed social welfare and a pervasive social control apparatus. On one hand, the state actively pursues "universal access to public services" and has completed massive social housing projects. However, this facade of inclusion conceals the precarious reality of millions of migrant workers. The hukou (household registration) system ties social rights (like healthcare and pensions) to one's place of origin, effectively barring internal migrants from accessing full services in the cities where they work. The "enormous dormitories" are less a solution to poverty and more a tool to manage and contain a vast, rights-limited urban workforce.
On the other hand, this visible order is maintained by an unparalleled surveillance infrastructure. Projects like the "Golden Shield" aim to create a centralized database linking all surveillance systems. This architecture feeds the controversial Social Credit System (SCS). It's critical to understand that the SCS is not (just) a financial rating system; it's a mechanism designed to "promote state-approved morality" through rewards and punishments. Crucially, a single, national social score for all citizens does not exist; the system is a mosaic of lists and administrative registries, with a strong component aimed at corporate regulation (the Corporate SCS) (8). This creates a "Digital Panopticon": the constant perception of being watched encourages self-censorship and conformity. For a company operating in this environment, "welfare" and "control" are a single governance system. The state provides order in exchange for data transparency and behavioral compliance. On the Western front, the EU AI Act now bans social scoring systems, and China itself scores 76/180 (with a score of 43/100) on the latest Transparency International CPI (10), a useful proxy for regulatory risk in JVs.
4. Super-Apps and Data: The Social Contract at the Heart of China's Strategic Model
The most visible interface of the Chinese model is the "digital convenience paradise." This frictionless user experience is powered by a vast, data-rich ecosystem dominated by super-apps like WeChat (Tencent) and Alipay (Ant Group). These platforms have become the de facto operating system of Chinese society. The mobile payments market remains hyper-concentrated: 2024 estimates place Alipay and WeChat Pay's shares at ~54% and ~42%, respectively, covering almost the entire volume (6). These are not just apps; they are integrated "ecosystems." WeChat, born from messaging, seamlessly absorbed services from utility payments to booking doctor's appointments. Their power is so total that any foreign company wishing to access the Chinese market must integrate these payment methods. In parallel, Beijing has expanded pilots of the e-CNY (digital yuan) to Hong Kong (as of May 2024), signaling ambitions to internationalize the system (7).
The state strategically allowed this private duopoly to build the foundational infrastructure of daily life because it serves a dual purpose. For the citizen, it offers unparalleled convenience. For the state, it creates a centralized, real-time ledger of nearly every economic and social transaction. This data stream is an invaluable asset for economic planning, social monitoring, and feeding the Social Credit System. The "frictionless life" is, therefore, the result of a grand social contract: in exchange for convenience, citizens provide a constant flow of personal data. This turns private companies into quasi-state utilities and the act of consumption into an act of participation in the state's governance model. For executives, the lesson is clear: service integration and removing friction are powerful competitive levers. But it also raises a strategic question about the use of large language models and generative AI: are we using these tools to create genuine customer value, or merely to extract more data? For Europe, the regulatory perimeter is set: as of February 2, 2025, social scoring is banned in the EU, and as of August 2, 2025, obligations for GPAI models are in effect (9). Trust, once lost, is nearly impossible to regain.
5. Long-Term Planning: The Competitive Advantage of China's Strategic Model
One of the starkest differences from Western economic and political cycles is China's capacity for centralized, long-term planning. This is a true pillar of the Chinese strategic model. This governance system can be described as "Centralized Directive, Decentralized Execution." The central government sets the strategic vision via Five-Year Plans (FYPs). For example, the 14th FYP (2021-2025) focused on building a "moderately prosperous society" and shifting to an innovation-driven model. The upcoming 15th FYP (2026-2030) is expected to sharpen the focus on industry and technology to counter geopolitical pressures. Once the directive is set, local governments are given broad autonomy and incentives (often career advancement tied to GDP targets) to execute it rapidly.
The electric vehicle (EV) sector is the quintessential case study. The state's push began not last year, but in 2009. The central government set the directive, and local governments like Shenzhen's executed it, turning the city into an innovation hub. Today, the strategy is so advanced it includes concepts like Vehicle-to-Grid (V2G) technology, which aims to turn millions of EVs into mobile batteries to stabilize the national power grid—a perfect example of long-term, integrated planning. However, this model is not without significant risks. The autonomy granted to local officials to ensure rapid execution, combined with immense pressure to hit targets, creates fertile ground for corruption. As mentioned, China's CPI 2024 score is a low 43/100 (ranking 76/180) (10). This data is essential for calibrating vendor due diligence and JV risks. Corruption and rapid execution are causally linked. For an entrepreneur, this scenario offers two insights: first, the necessity of a long-term strategic vision that outlasts quarterly results; second, the importance of establishing clear KPIs and governance mechanisms to ensure that "decentralized execution" (departmental autonomy) doesn't devolve into high-risk or unaligned behavior.
6. Technological Sovereignty: AI and China's Strategic Innovation Model
China's current tech explosion is not a spontaneous, market-led boom; it is a national mobilization campaign. China's tech strategy is fundamentally geopolitical, aimed at achieving "technological sovereignty." To do this, the state is mobilizing staggering amounts of capital. In 2025, the State Council launched the "AI Plus" guidelines, cementing AI integration in manufacturing and healthcare as a national priority (17). Earlier plans, like the "AI Initiative+," projected investments around $220 billion. This push is backed by colossal R&D spending: in 2024, R&D expenditure topped 3.6 trillion RMB (growing +8.3% year-over-year), or about 2.68-2.69% of China's GDP (18). Cities are active participants: Shenzhen alone launched a 10 billion yuan fund for AI and robotics, offering compute vouchers that can cover up to 60% of a company's training costs (up to 10 million RMB) (15). The operating model is similar to the US DARPA: the state acts as the primary funder and, crucially, the first customer. By purchasing technology at key development milestones, it dramatically de-risks innovation for startups.
The objectives are not vague; they are specific and quantifiable. For example, one plan aimed for 70% of large manufacturing enterprises to use AI by 2025. In the urban domain, Hangzhou's "City Brain" (by Alibaba Cloud) has become the emblem of infrastructural AI. Piloted in 2016 for traffic, it led to a +15% average speed increase at intersections and a 4.6-minute reduction in travel time on a 22km axis in its pilot district (16). This provides a useful ROI case study for AI-of-Things projects in logistics and energy grids. The ultimate goal is not just economic growth, but building a self-sufficient ecosystem to insulate the country from sanctions and control key future technologies. For a Western CEO, this state-driven de-risking model seems unattainable. However, the principle of lowering barriers to entry is universal. Adopting an agile approach, like the Rhythm Blues AI method, allows companies to start their AI journey with a low-risk initial audit, validating the potential before committing massive capital, effectively replicating the logic of de-risking on a corporate scale.
7. Made in China 2025: The Qualitative Leap of the Strategic Industrial Model
For decades, the "Made in China" label was synonymous with low-cost, low-quality production. That era is over. The statement "quality, not price, is the new weapon" perfectly captures the essence of the Chinese strategic model, codified in the "Made in China 2025" (MiC-25) plan. Launched in 2015, this 10-year plan aims to transform China from a "big" manufacturer to a "strong" one, shifting the focus from quantity to quality and moving up the value chain. The goal is to move from "Made in China" to "Made by China" by developing national brands. This shift is fueled by a massive investment in automation. With over one million industrial robots installed, China is systematically replacing its dwindling labor-cost advantage with a new advantage in high-tech, automated production. The plan includes quantifiable targets, such as achieving 70% domestic production of key components by 2025.
As a result, it is now Chinese companies themselves that delocalize low-end manufacturing to countries like Vietnam, reserving high-value, automated production for their domestic factories. This push, however, is creating a critical collateral effect: a global crisis of industrial overcapacity. Chinese production, backed by state subsidies, is flooding global markets with high-quality, low-cost goods. Authoritative sources warn of a dangerous "overproduction" in the robotics sector, with over 1,000 active companies in the country, similar to what happened in the solar panel industry. To absorb this overcapacity, China must export aggressively. For Western executives, this is no longer a low-cost competition; it's a quality and scale competition, fueled by a state-directed industrial strategy. The quality of a Chinese product has become a geopolitical issue, forcing our companies to invest in our own automation, efficiency, and AI to optimize the entire value chain and defend margins.
8. Beyond the Car: The EV as a 'Software-First' Strategic Model
If you are looking for a single showcase of China's new industrial power, look at the automotive sector. It combines advanced manufacturing, software dominance, and a deep understanding of consumer desires. Chinese manufacturers aren't just winning on price; they are winning because they have redefined the concept of the "car." Giants like BYD ("Build Your Dreams") enjoy massive advantages. These include state subsidies (a widely cited estimate quantifies cumulative support at $230.9 billion from 2009-2023 (3)) and extreme vertical integration: BYD internally produces almost everything, including its own batteries and semiconductors, insulating itself from supply chain shocks.
But the real paradigm shift is philosophical. The Chinese approach is the "smartphone on wheels." Local manufacturers prioritize in-car tech, entertainment screens, and voice assistants over pure driving performance. This "software-first" approach is a cultural challenge for many Western brands. Recent data confirms this acceleration: in 2024, China sold over 11 million electric cars (1), pushing the EV share to nearly 50% of its domestic market and accounting for two-thirds of all global EV sales (2). In 2025, facing this overcapacity and a race to the bottom on price, analysts have signaled the risk of "involution" within the sector (14).
Table 1: Technical & Performance Comparison: Chinese EVs vs. International Competitors
Market Note (2025): The massive overcapacity in China's EV sector is triggering a fierce price war, a risk analysts call "involution" (a competitive race to the bottom) that threatens the margins of both domestic and international producers (14).
The battle for the future of the car is no longer being won on the track, but in the user interface. China is democratizing the "smart EV" and proving that the definition of excellence is shifting from mechanical engineering to software and user experience. The next frontier is Vehicle-to-Grid (V2G): in 2025, 30 pilot projects were launched in 9 cities (including Beijing, Shanghai, and Shenzhen) to pay the EV fleet for stabilizing the grid (4)(5).
9. Guochao: How Cultural Nationalism Reinforces China's Strategic Model
In parallel with its industrial transformation, a profound cultural shift is underway. The declining dominance of Western luxury and consumer brands is being driven by a powerful nationalist trend known as Guochao (国潮), or "China Chic." This is not a passing fad; it is a fundamental shift in consumer identity. The Guochao phenomenon combines traditional Chinese cultural elements with modern design and aggressive marketing. It is fueled by strong national pride, particularly among younger generations (Gen Z), who show far less automatic loyalty to foreign brands than their parents. The pandemic accelerated this inward-looking consumption trend. The results are tangible: Chinese brands have drastically improved their quality and marketing, creating products "tailor-made for local consumers."
While the luxury goods market in China is projected to hit $65.11 billion in 2025, domestic brands are capturing a growing share of that spend. Even in high-end beauty, a historically foreign-dominated sector, the premium segment is expected to capture 53% of the market by 2025, an area where local brands are investing heavily in R&D. Guochao is a commercial manifestation of China's broader geopolitical strategy of self-sufficiency. It reflects a "patriotic consumption" encouraged by the state, where choosing a domestic brand is framed as an act of national support. This creates a powerful, consumer-driven engine for the industrial goals of MiC-25. The two strategies are mutually reinforcing: MiC-25 produces higher-quality domestic goods, which fuels the Guochao trend. In turn, Guochao creates a protected and enthusiastic domestic market for these goods, helping Chinese companies scale before they compete globally.
Table 2: The 'Guochao' Effect: Market Share Shifts in Key Sectors
For Western managers, Guochao is a warning: the prestige of the "Western brand" is no longer enough. One must understand local cultural nuances and compete on quality, innovation, and authenticity. Contextual research and local sentiment analysis become critical to avoid losing touch with the world's largest market.
10. The 'Pivot to the South': The Geopolitics of China's New Strategic Model
An analysis of China's strategy cannot stop at its borders. Facing growing trade and geopolitical tensions with the West, China is executing a clear reorientation of its foreign policy and investments. Its focus is increasingly on the "Global South": the Middle East, Africa, and South America. This is part of a long-term vision to re-establish China as the "Middle Kingdom," the center of a new, Sino-centric global order. China's engagement in Iraq is a model of its strategy: it became the top recipient of Belt and Road Initiative (BRI) investments in 2021, with nearly €9 billion for infrastructure, power plants, and even building a thousand schools.
This pattern is repeating. In the first half of 2025, BRI engagement hit a new record ($66.2B in contracts and $57.1B in investments, totaling $123.3B), with Africa leading at ~$39B and Central Asia at ~$25B, signaling a geographic re-segmentation toward energy and minerals (11). In Latin America, China is building production plants (like BYD's factory in Brazil) to access strategic resources like lithium while simultaneously bypassing Western tariffs. China is not just seeking new markets; it is actively building an alternative, Sino-centric global economic system. By becoming the indispensable development partner for the Global South, Beijing secures three strategic objectives:
Supply Chains: It secures access to critical resources (energy, minerals) needed for its tech revolution.
Export Markets: It creates new markets to absorb its industrial overcapacity (from MiC-25).
Diplomatic Influence: It builds a bloc of nations capable of countering US influence in international institutions.
Table 3: China's BRI Investments in the 'Global South' (H1 2025 Analysis)
For a Western company, this means global supply chains are bifurcating. Dependency on a single supplier or market is a strategic risk. China's "pivot to the South" is a signal for every CEO to map and diversify their own critical dependencies, whether they be raw materials, tech components, or talent.
11. Competition and Influence: The (Sun Tzu) Philosophy of China's Strategic Model
The deep cultural differences between China and the West manifest sharply in their approach to competition and conflict. The Western tradition has, in many phases, historically glorified warfare, conquest, and the warrior figure. In this worldview, struggle is a fundamental principle, with the goal of achieving victory through a decisive battle. Conversely, the Confucian tradition, which shaped Chinese civilization, detests violence and places the scholar-official, not the warrior, at the top of society. This philosophy sees the universe not as an arena of struggle, but as a great organism based on the principle of harmony. War is considered an evil to be avoided unless absolutely necessary. Politics is divided between wen (文), civil and cultural administration, and wu (武), the use of force, with the former always held as superior.
This cultural aversion to war does not imply pacifism, but a radically different strategic approach, embodied by Sun Tzu's The Art of War. While a military text, it is deeply rooted in Chinese philosophy. Its central thesis is that "the supreme art of war is to subdue the enemy without fighting." This ideal is achieved not with brute force, but with intellect: using strategy, deception, diplomacy, and psychological warfare to undermine the opponent's will to resist and induce surrender before a physical clash. This thinking extends to geopolitics through the concept of Tianxia (天下), or "All-under-Heaven." This is the traditional vision of a Sino-centric world order, where influence is expanded not through colonial conquest, but through cultural attraction and a hierarchical "tributary system." Peripheral states acknowledged China's superiority in exchange for peace and trade advantages. China's contemporary global strategy—based on economic influence (the BRI), diplomacy, and information warfare (the "Three Warfares": psychological, media, and legal)—is a modern reincarnation of these principles. For a company, the lesson from Sun Tzu is critical: competition is not won (only) by a head-on price war, but by making your competitor irrelevant through superior innovation, a stronger ecosystem, or a more efficient business model, strategically "subduing" them without a fight.
12. The Property Crisis: The Forced Rebalancing of China's Strategic Model
Despite its long-term planning and industrial successes, the Chinese model suffers from a systemic vulnerability: the property crisis. This is not a mere sectoral slowdown; it is a direct threat to household wealth, local government finances, and overall consumer confidence. The crisis stems from a decades-long growth model where local governments relied heavily on selling land to developers to fund their activities. This fueled a massive construction boom detached from real demand, leading to "ghost cities." The system was financed by a huge accumulation of debt by developers like Evergrande (with over $300 billion in liabilities) and a rapid rise in household debt. For the Chinese middle class, real estate represents an estimated 60% to 70% of total wealth, making the price crash devastating.
Property sales peaked at 18.19 trillion RMB in 2021 (13); analysts estimate a 2024 landing around 8.5–9.0 trillion RMB (12), with a gradual stabilization not expected before 2026-2027 according to market consensus (19). This shrinks the 'property multiplier' on consumption and confidence, a factor to be considered in any business plan. Beijing's response has been notably cautious, preferring targeted stimuli over a massive bailout. It appears the leadership is accepting a "smaller, but healthier" sector long-term. This crisis is acting as an involuntary and painful catalyst for the economic rebalancing Beijing has wanted for years. With capital no longer flowing into unproductive concrete, it is being redirected—by both market forces and state guidance—into the high-tech, high-value sectors outlined in MiC-25. The crisis is accelerating China's transition from an investment-led to a tech-led growth model. For any entrepreneur, this is a powerful lesson in change management: clinging to obsolete business models drains resources needed for future investment. The challenge is to initiate this transition before a crisis forces it. In my 20+ years of managing a P&L, I've learned that innovation without a measurable ROI is just an academic exercise. The question I always ask my clients is not 'what can this technology do?' but 'what strategic, profitable business problem can it solve?'
Table 4: Key Indicators of China's Property Crisis (2021-2025)
13. China's Strategic Model vs. The West: A Confrontation on AI Governance
China's rapid innovation, from digital convenience to robotics, captures a key aspect of its rise. However, the deepest difference between China and the West lies not in what they build, but in why and how. We are witnessing the emergence of fundamentally different technological paradigms, especially in artificial intelligence. On one side, China is engineering a top-down, state-driven AI ecosystem aimed at national sovereignty, economic efficiency, and social engineering. On the other, the West fosters a more fragmented ecosystem, driven by market competition (US) or defined by rights-based regulation (EU). China's doctrine of technological sovereignty is codified in plans like "Made in China 2025" and "AI Plus" (17). The state plays a central coordinating role, tasking giants like Tencent to lead research in specific areas. The approach is defensive in origin (resisting sanctions) but offensive in ambition: to create a parallel tech ecosystem that China controls.
The American pragmatism of market dominance is different. The US "AI Action Plan" frames AI as a "race for global dominance." The strategy relies on accelerating innovation, often through aggressive deregulation to unleash the private sector. The model is "private-sector-led," and the government tends to equate corporate dominance (by Nvidia, OpenAI, Google) with national leadership. Finally, the European Union has positioned itself as a regulatory superpower. Its strategy, embodied in the AI Act, is to create an AI hub that is "human-centric and trustworthy." The entire framework is risk-based. For European companies, translating this debate into a compliance roadmap is decisive: bans (e.g., social scoring) and AI literacy obligations have been applicable since February 2, 2025; obligations for GPAI models since August 2, 2025; and the full framework (high-risk systems) will roll out between August 2, 2026, and 2027 (9). This approach to governance, which turns a regulatory burden into a competitive advantage, is a topic I've explored on my 'Rhythm Blues AI' podcast, where I explain how compliance (from the AI Act to ISO 42001) can become a powerful market differentiator. The EU is using regulation as a tool of competition, leveraging the "Brussels effect": the idea that global companies will adopt the EU's high standards to access its wealthy market.
Table 5: Strategic Comparison of AI Paradigms
14. "Embodied AI": The Practical Execution of China's Strategic Model
The strategic differences translate into divergent approaches to AI's fuel (data), its engines (innovation), and its final products (applications). In data, China benefits from massive, centralized pools. Super-apps and the lack of a structural firewall between corporate data and state intelligence turn data into a national strategic resource. China's advantage isn't just the quantity of data, but its liquidity—the ease with which it can be aggregated for state-defined goals. The West faces a dilemma. In Europe, GDPR and the AI Act (9) impose strict limitations (consent, minimization), creating compliance costs but also spurring research into "data-saving" tech like synthetic data. In the US, data is a corporate asset, creating a three-way tug-of-war between the state (regulator), corporations (owners), and individuals (subjects). This system is ethically more robust but strategically less coherent.
In innovation engines, China uses "Military-Civil Fusion" (MCF). This is an all-of-society approach to ensure commercial breakthroughs are adapted for military and state use. The state acts as a "first and best customer," de-risking R&D for companies that can scale knowing they have a guaranteed buyer. MCF functions as a state-run incubator and accelerator. The Western model is dominated by Venture Capital (VC). VCs fund high-risk startups, betting on financial returns. This system is exceptionally effective at creating disruptive consumer and enterprise software but optimizes for speed and disruption at the expense of strategic coherence. It creates a portfolio of "point solutions" (the next great app) rather than an integrated national system.
Finally, applications diverge. China excels in "embodied AI"—intelligence embedded in physical hardware: advanced robotics, drones, autonomous vehicles, and MiC-25 industrial automation. The emblematic application is the "Smart City," like Hangzhou's "City Brain" (16), an AI system optimizing traffic, energy, and public safety in real-time. China is using AI to build a physical "social operating system." A pilot case for this AI-Energy-Mobility integration is Vehicle-to-Grid (V2G): in 2025, China launched 30 large-scale projects in 9 cities, with grid-feed services and dynamic pricing (4)(5). The West, particularly the US, excels in software-centric AI, like the Generative AI and LLM explosion. Applications focus on enhancing productivity and creativity: chatbots, report analysis, software development. The West is building a "universal toolkit" for the digital economy. It doesn't create monolithic systems to re-engineer society from the top down, but modular tools to empower individuals and companies to operate better within existing market frameworks.
Conclusions: Strategic Coherence as the Real Competitive Advantage
The analysis of the Chinese paradigm, from its collectivist ethics to its push for technological sovereignty, offers Western leaders a fundamental lesson that is not about imitation, but coherence. The Chinese system is not necessarily "better" or "worse" than the fragmented, market-driven, rights-constrained Western model; it is, however, extraordinarily coherent. Culture (Guochao) reinforces industrial policy (MiC-25); industrial policy creates overcapacity (14) that necessitates foreign policy (BRI); foreign policy secures resources (lithium, energy) that fuel industry (11); all of it is made efficient by a digital infrastructure (super-apps) (6) that doubles as a governance tool (SCS) (8) and a data pool for AI (17).
Western companies cannot, and should not, replicate this top-down model. Our advantage lies in agility, bottom-up innovation, and an ethical framework that, while creating regulatory friction (like the AI Act) (9), builds long-term trust. However, the speed of Generative AI in the West (the "toolkit") contrasts with our slowness in long-term industrial strategy (the "embodied AI"). A prime example is physical-digital integration: while China launches 30 V2G pilots (4)(5), Europe is still debating standardization. The challenge for a CEO today is not to choose between the Chinese or American model, but to build their own strategic coherence.
This means stop treating AI as an isolated tech experiment and start seeing it as the connective tissue of corporate strategy. It means asking: Is our corporate culture ready for the transparency AI demands? Is our data governance compliant not only with the law (GDPR, AI Act) (9), but with the ethics our customers expect? And, critically, are we measuring the right KPIs? The Chinese property crisis (12)(13) teaches us that investing billions in unproductive assets is a systemic threat. How many of our companies are investing in "digital concrete"—AI projects with no clear Return on Investment (ROI)—instead of focusing on applications that generate tangible competitive advantage? The true lesson from the Chinese paradigm is that success in the 21st century belongs to those who align culture, technology, governance, and strategy into a single, coherent plan of action.
Frequently Asked Questions (FAQ)
What is the "Made in China 2025" (MiC-25) strategy?
It is a 10-year strategic plan launched in 2015. The goal is to transform China from a "big" manufacturer (based on quantity and low cost) to a "strong" one (based on quality, innovation, and high-tech), reducing dependency on foreign suppliers in key sectors like robotics, AI, and semiconductors.
How does the Chinese Social Credit System (SCS) work?
It is a complex and often misunderstood system. It is not a "single social score" for all citizens. It's a mosaic of systems, including a Corporate SCS (8) to monitor business compliance (tax, environmental, legal) and various local pilot systems for citizens, designed to "promote state-approved morality."
What is "Guochao" or "China Chic"?
It is a cultural and consumer trend in China favoring domestic brands. Fueled by national pride and rising local product quality, it blends traditional Chinese design with modern aesthetics. It is causing market share erosion for many Western brands.
What are the key deadlines for the European AI Act (9)?
For businesses, the key dates are: February 2, 2025 (bans on systems like social scoring take effect), August 2, 2025 (obligations for Generative AI/GPAI models begin), and August 2, 2026-2027 (full application of the framework, including requirements for high-risk systems).
What is the scale of China's EV dominance (1, 2, 3)?
In 2024, China sold over 11 million electric cars, capturing nearly 50% of its total domestic car market. This represents about two-thirds of all global EV sales. This advantage was built with state support estimated at over $230 billion from 2009-2023.
What is "Embodied AI"?
It refers to artificial intelligence that is integrated directly into physical hardware, allowing it to perceive and act on the real world. Key examples include advanced robotics, autonomous drones, self-driving cars, and "smart cities" like Hangzhou's City Brain project (16).
Why is China investing so heavily in the "Global South" (11)?
For three strategic reasons: 1) To secure critical resource supply chains (lithium, cobalt, energy). 2) To create new export markets for its industrial overcapacity (e.g., EVs, infrastructure). 3) To build a diplomatic bloc. In the first half of 2025, Africa was the top destination ($39B).
What is the "hukou" system?
It is China's household registration system. It links access to social services (like healthcare, education, and pensions) to a person's official place of birth or residence. It prevents millions of migrant workers who move to cities from accessing full urban welfare.
What does "smartphone on wheels" mean?
It's a design philosophy in the Chinese auto industry. It treats the car less like a mechanical product and more like a digital device (similar to a smartphone). Priority is given to software, user interface, entertainment screens, and connectivity, rather than just driving performance.
What is "Vehicle-to-Grid" (V2G) in China (4, 5)?
It is a strategic initiative to use the vast fleet of electric vehicles like a "distributed battery." In 2025, China launched 30 pilot projects in 9 major cities to allow cars to "sell back" energy to the grid during peak demand, stabilizing it and creating a new economic model for EV owners.
Strategic CTA (Risk & Governance Focus)
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About the Author
Andrea Viliotti is an AI Strategy Consultant who acts as a "translator" between technology and business for CEOs, entrepreneurs, and executives. With over twenty years of experience as an entrepreneur, his perspective combines a deep understanding of emerging technologies with a pragmatic, P&L-focused approach centered on measurable results and ROI. Through his proprietary "Rhythm Blues AI" method, he helps companies govern digital transformation, turning the complexity of AI into a sustainable competitive advantage. He is an author for leading publications Agenda Digitale and AI4Business and shares his analysis via his Blog, YouTube Channel, and the "Rhythm Blues AI" podcast. Connect with him on LinkedIn.
Sources and References
The numerical citations in the text refer to the following sources and reports:
IEA (2025). Global EV Outlook 2025, Executive Summary (China EV Sales >11M in 2024). https://www.iea.org/reports/global-ev-outlook-2025/executive-summary
IEA (2025). Trends in electric car markets (~50% share 2H 2024; ~⅔ global sales). https://www.iea.org/reports/global-ev-outlook-2025/trends-in-electric-car-markets-2
CSIS (2024). The Chinese EV Dilemma: Subsidized Yet Striking ($230.9B 2009-2023). https://www.csis.org/blogs/trustee-china-hand/chinese-ev-dilemma-subsidized-yet-striking
Reuters (2025). China to launch grid-connected car projects (V2G) in nine cities. https://www.reuters.com/business/autos-transportation/china-launch-grid-connected-car-projects-balance-power-supply-2025-04-02/
electrive (2025). Shanghai will carry out four of a total of 30 V2G pilots. https://www.electrive.com/2025/04/05/shanghai-starts-v2g-pilot/
OECD (2025). Competition in Mobile Payment Services (Alipay ~54%/WeChat Pay ~42% 2024). https://www.oecd.org/content/dam/oecd/en/publications/reports/2025/05/competition-in-mobile-payment-services_026eec4d/0ce6b5d3-en.pdf
Reuters (2024). Hong Kong allows China’s digital yuan to be used in local shops. https://www.reuters.com/markets/currencies/hong-kong-allows-chinas-digital-yuan-be-used-local-shops-2024-05-17/
MERICS (2021). China’s social credit score: untangling myth from reality. https://merics.org/en/comment/chinas-social-credit-score-untangling-myth-reality
EU Commission (2024). AI Act timeline (Bans 02/02/2025; GPAI 02/08/2025; Full application 02/08/2026-2027). https://digital-strategy.ec.europa.eu/en/policies/regulatory-framework-ai
Transparency International (2024). CPI 2024: China (Rank 76/180, Score 43). https://www.transparency.org/en/countries/china
Fudan GFDC (2025). BRI Investment Report 2025 H1 (Total $123.3B; Contracts $66.2B, Investments $57.1B). https://greenfdc.org/china-belt-and-road-initiative-bri-investment-report-2025-h1/
S&P Global Ratings (2024). China Property Watch (2024 Sales: 8.5–9.0 Trillion RMB est.). https://www.spglobal.com/ratings/en/regulatory/article/241018-china-property-watch-charting-a-path-to-stabilization-s13280334
NBS (China Statistics Bureau) (2022). National Real Estate Development and Sales in 2021 (2021 Sales: 18.193 Trillion RMB). https://www.stats.gov.cn/english/PressRelease/202201/t20220118_1826502.html
The Economist (2025). Now China’s ultra-cheap EVs are scaring China (Overcapacity/involution). https://www.economist.com/china/2025/06/05/now-chinas-ultra-cheap-evs-are-scaring-china
Government of China / Shenzhen (2025). Subsidy plan: compute vouchers up to 60%. https://english.www.gov.ci/news/202502/24/content_WS67bd2946c6d0868f4e8eff2c.html
Hangzhou Gov (2020). Hangzhou City Brain makes life easier (+15% speed, 4.6 min saved). https://www.ehangzhou.gov.cn/2020-04/23/c_269889.htm
State Council (2025). Guideline to accelerate ‘AI Plus’ integration. https://english.www.gov.cn/policies/latestreleases/202508/27/content_WS68ae7976c6d0868f4e8f51a0.html
NBS (English) (2025). China’s Expenditure on R&D exceeds 3.6 trillion yuan in 2024 (~2.68% GDP, +8.3% growth). https://www.stats.gov.cn/english/PressRelease/202502/t20250207_1958579.html
Reuters (2025). China home prices seen falling less; modest rebound from 2027 (consensus). https://www.reuters.com/markets/asia/chinas-home-prices-fall-less-than-previously-expected-market-still-weak-2025-09-04/
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