Undeniable New Exports from China
“Allowing the Chinese to return to prosperity through exports is simply not feasible,” claims U.S. Treasury Secretary Scott Biesen, who asserts that the Chinese economy is “the most distorted in history.” Such statements reflect the growing anxiety in Washington that excessive production capacity, subsidies, and dumping could distort global trade.
However, the more pressing concern is not what China exports, but how it exports. The fact is, global cost structures are already being reshaped, but through a quieter, more complex force: continuous improvements in productivity. China is not just moving more goods; it is exporting a new production model powered by automation, artificial intelligence, and state-directed industrial enhancement. This transformation is disruptive, deflationary, and largely misunderstood.
China’s rise as the world’s factory in the late 20th century was driven by labor and scale. Now, it seeks a new form of dominance through smart infrastructure. Artificial intelligence is no longer limited to applications or chatbots; it is deeply integrated into various sectors of the physical economy—guiding everything from robotic arms and warehouse fleets to autonomous production lines. For instance, Xiaomi’s “lights-out” factory in Beijing can assemble ten million smartphones annually with minimal human intervention. AI orchestrates a symphony of sensors, machines, and analytics that creates a tightly woven industrial loop, achieving efficiencies that traditional manufacturers can only approach gradually.
This tech-based ecosystem is not confined to a single factory. The company DeepSeek has already begun deploying its massive open-source language model containing 671 billion parameters, not just for coding but also for enhancing logistics and manufacturing services. Retailer JD.com is overhauling its supply networks through automation. Unitree is exporting bipedal warehouse robots, and Foxconn (Apple’s main manufacturing partner) is developing AI-driven mini-factories to reduce its reliance on fixed production lines.
While these examples may not constitute “noteworthy innovation,” they testify to a widely prevalent culture of industrial enhancement. Under the slogan “High-Quality New Productive Forces,” the Chinese government is rolling out AI experimental zones, supporting factory upgrades; cities like Hefei and Chengdu are offering local incentives that rival national initiatives elsewhere.
This strategy mirrors that of the Japanese industry in the 1980s, when automation, flexible production, and industrial integration helped companies outpace global competitors. However, the Chinese approach goes further, blending AI with large-scale economies, feedback loops, and a unique cultural dynamic known as neijuan: a relentless self-perpetuating race to improve performance and outshine competitors, often at the expense of profit margins. Recently, BYD, one of the most vertically integrated car manufacturers in the world, reduced prices across dozens of models, resulting in a $20 billion stock sell-off at heavily discounted prices.
In sectors ranging from e-commerce to electric vehicles, this practice has led to relentless cost pressure, prompting the state at times to intervene. In April 2025, the People’s Daily warned that extreme neijuan distorts market stability, citing a destructive price war in food delivery among JD.com, Meituan, and Ele.me. The issue is even more pronounced in the electric vehicle industry. Currently, more than 100 Chinese electric vehicle brands compete, while over 400 have ceased operations since 2018.
The global competitive landscape is unforgiving. Those who survive emerge more resilient, adaptable, and better positioned than their older counterparts. This is how successful Chinese electric vehicle manufacturers have been able to advance in Europe, offering models at prices local companies struggle to match. From a distance, this process appears chaotic. Yet in practice, it resembles natural selection. China deliberately encourages industrial evolution: the state supports a wide field of competitors and then allows the market to filter them.
This approach is spreading across industries. In the solar panel sector, Chinese manufacturers now account for over 80% of global production capacity, leading to a 70% price drop over the past decade. A similar trend is evident in electric vehicle batteries, where Chinese companies dominate the cost-per-kilowatt curve. However, there is no doubt that this deflation does not stem from oversupply or dumping; it reflects redesigned cost structures resulting from AI, fierce competition, and ongoing iteration.
Thus, the Chinese industry has turned efficiency into a tradable asset—reshaping global pricing dynamics. Once this shift is truly established, companies worldwide will find themselves compelled to adjust their pricing strategies, labor deployment, and supply chain configurations.
However, this evolution presents new challenges for many economies. Consider the role of central banks, tasked with ensuring price stability. What can they do if inflation declines not due to weak demand but because of superior supply-side efficiency abroad? Likely, monetary policy will lose its potency in such a scenario. The progress of software will not slow simply due to rising or falling interest rates. Instead, industrial policy will need to come to the forefront—not as a protective measure, but as a necessary adaptation. The fundamental divide will no longer be between capitalism and state planning, but between static and dynamic systems.
The U.S. Inflation Reduction Act, the CHIPS and Science Act, and the European Union’s Green Industrial Deal represent early Western efforts to challenge Chinese dominance; however, these packages have largely been reactive, isolated, or focused on upstream issues such as semiconductors. As the U.S. and its allies impose tariffs, subsidies, and export controls, the real race centers around integrating AI into the real economy: not who builds the smartest chatbot, but who constructs the smartest factory and can sustainably replicate their model at scale.
Of course, the Chinese model is not without trade-offs. Working conditions may deteriorate with relentless cost-cutting; oversupply remains a systemic risk; regulatory overreach may disrupt progress; and not all gains in efficiency translate into shared prosperity. Consumers may benefit, but workers and smaller companies will bear the brunt of adaptation.
Yet, even if the Chinese model is not globally replicable, it poses important questions for policymakers everywhere. How will others compete with systems that produce more, faster, and cheaper—not by suppressing wages but through innovation?
Dismissing China’s approach as merely a distorted model misses the point. The Chinese government is not just playing the old trade game more rigorously; it is changing the rules—not through tariffs, but through industrial transformation. If the last wave of globalization pursued cheap labor, the next will chase smarter systems. Intelligence will no longer reside solely in the cloud—it will be embedded in machines, warehouses, and assembly lines around the clock.
Today, China’s most significant export is not a product but a process. This process will redefine the nature of global competition.