The Transformation That Has Changed the Balance of the Global Economy
To understand the economic geopolitics of the twenty-first century, it is now essential to analyze the evolution of the Chinese economy. China represents one of the most extraordinary cases of economic transformation in contemporary history: within a few decades, it moved from a system characterized by widespread poverty, rigid planning and low productivity to one of the largest industrial, technological and commercial platforms on the planet.
The extraordinary nature of China’s transformation lies not merely in the growth of its gross domestic product. The truly revolutionary element is the transition from a model based primarily on abundant labor and low-cost production to a system seeking to control the entire technological value chain, from scientific research and product design to component manufacturing, finished products, logistics and international distribution.
This process is profoundly changing competition between China and the West.
For many years, the economic relationship was relatively simple: Western companies possessed technology, brands and capital, while China provided abundant labor, production capacity and relatively low costs. Under this model, China was essentially the great manufacturing center of the world.
Today, this framework is no longer sufficient.
China produces electric vehicles, batteries, solar panels, electronics, industrial machinery, robots, digital infrastructure and advanced technological systems. In artificial intelligence, Chinese models have reached performance levels increasingly close to those of leading American systems. At the same time, Chinese industry continues to increase its investment in research and development.
In 2025, Chinese spending on research and development reached 3.926 trillion yuan, increasing by 8.1% compared with 2024 and accounting for 2.80% of GDP. In the same year, the value added of high-tech manufacturing increased by 9.4%, while overall manufacturing value added rose by 6.4%.
These figures help illustrate the scale of the transformation.
China no longer wants to be merely the world’s factory.
It wants to become one of the world’s principal industrial and technological powers.
And it is precisely this transformation that is creating growing commercial pressure on Western industry.
From Maoist China to Industrial China
To understand the current situation, it is necessary to return to the origins of the process.
After the establishment of the People’s Republic of China in 1949, the country adopted a highly centralized economic model inspired largely by the Soviet experience. State ownership of the means of production, economic planning and political control by the Communist Party became the foundations of the economic system.
This model allowed China to create industrial and infrastructural capabilities relatively quickly, but it also imposed enormous rigidities.
The fundamental turning point came with Deng Xiaoping in the late 1970s.
The reforms launched from 1978 onward did not represent an immediate transition to liberal capitalism. Rather, they constituted a gradual process through which market mechanisms, private investment and foreign capital were progressively incorporated into a political structure that remained firmly under Party control.
The Chinese formula can broadly be described as a market economy under strong state guidance.
Special Economic Zones, greater openness to foreign investment, the expansion of private enterprise, gradual price liberalization and integration into international trade allowed China to exploit one of its greatest advantages: its enormous labor force.
But low-cost labor was only the first stage.
The broader strategy consisted of using integration into the global economy to acquire capital, technology, managerial expertise, production capabilities and access to international markets.
Globalization therefore became an instrument of Chinese transformation.
Western corporations sought lower production costs.
China sought industrial development.
For a long period, these interests coincided.
Globalization as an Accelerator of Chinese Power
During the 1990s and early 2000s, a decisive transformation took place.
Western multinational corporations transferred an increasing share of their manufacturing activity to China. The process affected electronics, textiles, toys, industrial components, automobiles and an enormous variety of consumer goods.
China’s accession to the World Trade Organization in 2001 accelerated the country’s integration into the global economy.
But the most important consequence was perhaps less visible.
Chinese factories did not merely manufacture on behalf of Western companies.
They learned how to manufacture.
Entire industrial ecosystems developed.
A company that initially imported components from abroad gradually began producing some of them domestically. Local suppliers acquired expertise. Universities trained engineers. Logistics infrastructure improved. Local authorities supported the development of industrial clusters.
Over time, a gigantic production network emerged.
This is the crucial transition that is often underestimated.
Chinese competitiveness is no longer based primarily on labor costs.
It is increasingly based on industrial density.
When a battery manufacturer can have nearby suppliers of raw materials, electronic component manufacturers, chemical companies, machinery producers, ports, railway infrastructure and a vast pool of engineers and technicians, the overall cost of the production system declines.
This creates economies of scale that are extremely difficult to replicate.
From Imitation to Innovation
For a long time, China’s principal weakness was considered to be its technological gap relative to the United States, Europe and Japan.
That assessment was justified in many sectors.
But the situation has changed.
China has progressively invested in domestic innovation, moving from a strategy focused largely on adopting foreign technologies toward a greater capacity to develop its own.
Official Chinese data illustrate how far this transformation has progressed. In 2025, high-tech manufacturing increased by 9.4%; the value added of integrated circuit manufacturing rose by 26.7%, aircraft production by 24.8% and specialized electronic materials by 23.9%. Industrial robot production increased by 28%, while service robots grew by 16.1%.
These figures do not mean that China has achieved technological leadership in every field.
The picture is much more complex.
The United States retains important advantages in advanced semiconductors, software platforms, venture capital and, above all, the ability to finance frontier technology companies.
But the distance has narrowed in numerous areas.
And it is precisely the speed of technological convergence that represents a strategic challenge for the West.
The Chinese Electric Vehicle Revolution
No sector illustrates this transformation more clearly than the automotive industry.
For decades, European, Japanese and American automotive companies represented one of the clearest symbols of Western technological superiority.
China was regarded primarily as a large consumer market and manufacturing platform.
Today, the situation is radically different.
In 2025, China produced approximately 16 million electric cars, almost three quarters of global electric vehicle production. Chinese exports of electric vehicles exceeded 2.5 million units, roughly double the previous year’s level.
The Chinese domestic market has also become a vast technological laboratory.
In 2025, almost 55% of new car sales in China were electric, with more than 13 million electric vehicles sold.
This creates an enormous competitive advantage.
Chinese companies can test new technologies in the world’s largest electric vehicle market before exporting them internationally.
But the real advantage is not the vehicle alone.
It is the ecosystem surrounding it.
China controls a very large share of battery production, components, active materials and power electronics.
In 2025, China accounted for more than 80% of global battery-cell production, around 85% of global production of active cathode materials and more than 90% of anode material production.
As a result, Chinese vehicle manufacturers can design and produce automobiles while having direct access to much of the supply chain required to build them.
This is an enormous strategic advantage.
BYD and the Transformation of Automotive Competition
The growth of companies such as BYD represents much more than the emergence of another car manufacturer.
It represents the transition from automobile production to the construction of an integrated technological ecosystem.
Batteries, electronics, software, electric motors and energy-management systems can be developed within the same industrial structure.
This model enables companies to control costs more effectively and accelerate innovation.
The impact on the European market is already visible.
In 2025, approximately 940,000 electric cars produced in China were sold in the European Union, an increase of almost 50% over the previous year.
Even more important is the changing composition of these imports: the share of Chinese brands among electric vehicles imported from China into the EU rose from around 50% in 2023 to more than 70% in 2025.
This shows that China is no longer simply manufacturing for foreign brands.
It is exporting its own brands.
That represents the true qualitative leap.
The Battery as a New Center of Industrial Power
Electric vehicles reveal an even deeper transformation.
In the traditional automotive industry, a crucial source of competitive advantage came from the ability to design increasingly sophisticated combustion engines.
In the electric vehicle era, the technological center of gravity is shifting.
The critical elements increasingly include:
batteries;
chemistry;
software;
semiconductors;
power electronics;
energy-management systems;
charging infrastructure.
This radically changes the structure of competition.
A country that controls battery production and the raw materials required for batteries occupies a privileged position across the entire value chain.
The International Energy Agency emphasizes that China remains the world’s leading center for battery manufacturing and is expected to retain a dominant position in the coming years despite efforts by other countries to diversify supply chains.
The issue therefore extends beyond the automotive industry.
It concerns energy, mobility, electricity storage and a significant part of the global energy transition.
China and Robotics: Automation of the Factory
Another fundamental element is robotics.
One of the traditional criticisms of the Chinese model was that its competitiveness depended heavily on cheap labor.
But an aging society cannot base its industrial competitiveness indefinitely on low-cost human labor.
China has therefore rapidly expanded industrial automation.
In 2024, China installed approximately 295,000 industrial robots, representing 54% of global new installations. Its operational stock exceeded 2 million robots, the largest in the world. Chinese manufacturers also surpassed foreign suppliers in the domestic industrial robot market, reaching a 57% share.
The strategic significance of these figures is enormous.
China is progressively replacing its old advantage of low-cost labor with a new advantage based on skilled labor combined with automation.
This is the transition from a predominantly labor-intensive manufacturing model toward one that is increasingly capital-intensive and technology-intensive.
It fundamentally changes the competitive paradigm.
Chinese Industry Enters the Age of Artificial Intelligence
The next step is the integration of artificial intelligence into industrial production.
China’s objective is not limited to building large language models.
Its strategy increasingly involves integrating AI into the physical economy: industrial robots, automated factories, logistics, autonomous vehicles, energy systems and intelligent manufacturing.
The International Federation of Robotics has highlighted the growing role of AI-powered robotics in China’s industrial modernization strategy, particularly the integration of artificial intelligence with physical systems and industrial production.
This could become one of the most important developments of the next stage.
China already possesses:
a gigantic manufacturing sector;
millions of engineers and technicians;
an enormous domestic market;
huge volumes of industrial data;
advanced logistics networks;
and rapidly expanding AI capabilities.
If these elements are integrated, the result could be a new generation of highly automated factories.
The decisive competitive advantage will no longer simply be the cost of labor.
It will be the ability to produce quickly, efficiently and at low cost while incorporating a high technological content.
China and Artificial Intelligence: The Gap with the United States Is Narrowing
The situation in artificial intelligence is changing rapidly as well.
The current picture does not indicate overall Chinese superiority over the United States.
The United States retains major advantages, particularly in frontier models, private investment, advanced computing infrastructure and the ecosystem surrounding major technology corporations.
The 2026 Stanford AI Index notes that the United States produced 59 notable AI models in 2025, compared with 35 from China, and continued to lead in private AI investment.
Yet the same report points to an extraordinary development: the performance gap between leading U.S. and Chinese AI models has essentially closed. By March 2026, leading American and Chinese models were extremely close in benchmark performance, with several instances of one side overtaking the other since 2025.
China also continues to lead in numerous indicators of AI-related scientific publications, citations and patents.
This is arguably one of the most significant technological transformations of the decade.
Digital technology was one of the areas in which Western technological dominance appeared most secure.
That assumption can no longer be taken for granted.
The Semiconductor Question: China’s Major Weakness
To understand the situation correctly, however, one must avoid making the opposite mistake.
China has not yet achieved complete technological autonomy.
The advanced semiconductor industry remains one of its principal vulnerabilities.
U.S. and allied export controls introduced from 2022 onward have sought to restrict China’s access to advanced chips and to the equipment required to manufacture them.
According to the Center for Strategic and International Studies, these restrictions have limited Chinese access to certain advanced technologies but have simultaneously strengthened China’s drive toward semiconductor localization, encouraging the development and adoption of domestic alternatives.
This produces a strategic paradox.
The objective of Western policy is to slow Chinese technological progress.
Yet external pressure may also encourage Beijing to accelerate the development of technological self-reliance.
The final outcome could therefore be a more fragmented global technology system, in which China and the United States develop increasingly autonomous technological and industrial ecosystems.
China Does Not Need to Surpass the West in Everything
This point is essential.
China does not need to become the global leader in every technology to represent a commercial threat.
It only needs to achieve a level of technological capability high enough to combine with lower costs, large economies of scale and integrated production chains.
In economic terms, this can sometimes matter more than absolute technological superiority.
A product that is slightly less sophisticated but significantly cheaper can capture market share.
But when that same product becomes technologically competitive as well, the situation changes dramatically.
This is already happening in several sectors.
Electric vehicles are the most obvious example.
China can combine technology, batteries, software, production capacity, competitive costs and rapid innovation.
This makes competition substantially more difficult for European and American companies.
The Chinese Advantage of Economies of Scale
The enormous size of the Chinese domestic market represents another strategic factor.
A Chinese technology company can develop a product for a potential market of more than a billion consumers.
This allows research and development costs to be amortized rapidly.
The company can produce millions of units.
Economies of scale lower unit costs.
Lower prices stimulate demand.
Higher demand allows greater production.
And the cycle strengthens itself.
This dynamic is difficult to replicate in fragmented economies.
The European market is enormous, but it consists of multiple national systems.
The U.S. market is highly integrated, but its production and wage costs differ significantly from those of Asia.
China combines a gigantic domestic market with a highly concentrated manufacturing capacity.
This creates an extraordinary national scale effect.
Integrated Supply Chains as a Competitive Weapon
The economic competition of the twenty-first century is no longer simply competition between individual corporations.
It is competition between industrial ecosystems.
To manufacture an electric vehicle, it is not enough to possess a strong automotive brand.
You need batteries, semiconductors, steel, electronics, software, components, logistics and raw materials.
To manufacture solar panels, you need polysilicon, ingots, wafers, cells and modules.
To develop artificial intelligence systems, you need advanced chips, servers, data centers, energy, networks and software.
China has built an extraordinary capacity for integrating supply chains.
The IEA estimates that China accounts for around 85% of global solar manufacturing capacity and about 80% of lithium-ion battery supply-chain capacity. For certain segments, such as photovoltaic wafers, the Chinese share reaches roughly 95%.
This concentration represents both an economic strength and a geopolitical vulnerability.
But from a competitive standpoint, it gives China enormous market power.
Renewable Energy as an Industrial Laboratory
Solar photovoltaics provide perhaps the clearest example of China’s ability to transform a technology into a global industrial platform.
China does not merely dominate solar panel manufacturing.
It controls numerous stages of the production chain.
In 2025, China installed almost 370 GW of solar photovoltaic capacity and 117 GW of wind capacity, contributing more than 60% of global renewable capacity growth.
This means that China possesses simultaneously:
production capacity;
domestic demand;
industrial demand;
research capabilities;
infrastructure;
and intense domestic competition.
This combination accelerates innovation and reduces costs.
It is precisely this dynamic that Western industry must confront.
The Commercial Threat to Europe
At this stage, the European problem becomes evident.
European industry has historically been structured around a model in which technological advantage allowed companies to sell relatively expensive products.
Automobiles, machinery, chemicals, industrial equipment and luxury goods represented the core of European exports.
But the competitive advantage becomes increasingly fragile if China enters the same market segments with technologically sophisticated products at lower prices.
The problem concerns more than the Chinese market.
It also concerns third markets.
A Chinese electric vehicle that becomes competitive in Europe can also be sold in Latin America, the Middle East, Africa and Southeast Asia.
According to the IEA, in 2025 more than half of Chinese electric vehicle exports were already destined for markets outside Europe and the United States. Exports to Southeast Asia increased by 130%, exports to the Middle East by 60% and those to Latin America by 55%.
This is a fundamental transformation.
China is no longer competing with the West only in their respective domestic markets.
It is competing for the markets of the rest of the world.
The Threat Is Not Merely Chinese: It Is Systemic
It is therefore reductive to describe Chinese competition simply as competition based on price.
The phenomenon is much broader.
China is simultaneously developing:
technology;
infrastructure;
logistics;
finance;
research;
education;
automation;
energy;
industrial production;
supply chains;
international brands.
The result is the formation of an economic system in which the various components reinforce one another.
Industrial competitiveness generates profits.
Profits finance research and development.
Research generates innovation.
Innovation creates better products.
Better products capture markets.
Larger markets produce economies of scale.
Economies of scale further reduce costs.
This is the cumulative competitiveness cycle that is changing the global balance.
The West Still Retains Major Advantages
To understand the situation properly, it is essential to avoid the idea that China has already surpassed the West as a whole.
It has not.
The United States retains enormous advantages in advanced semiconductor technology, software, venture capital, digital platforms and frontier innovation.
The 2026 Stanford AI Index also shows that the United States continues to lead private investment in artificial intelligence and produces a larger number of notable frontier models.
Europe also retains significant strengths.
It has world-leading companies in mechanical engineering, chemicals, pharmaceuticals, automotive manufacturing, aerospace and luxury goods.
The problem is that these advantages must be defended through investment.
The danger for the West is therefore not some supposed absolute Chinese superiority.
It is the progressive reduction of the technological and industrial gap.
Why Chinese Technological Convergence Matters Strategically
Technological convergence changes the nature of competition.
When China was technologically far behind the West, the Western advantage was protected.
Companies could manufacture sophisticated products in Europe or the United States and sell them at premium prices.
China largely supplied lower-value goods.
But as the gap narrows, this mechanism weakens.
If a Chinese company can produce a machine, automobile or technological system with characteristics similar to those of a Western competitor but at a lower cost, the barriers to market entry are reduced.
This is why the closing of the technological gap represents one of the greatest strategic challenges facing Western industry.
The same phenomenon is occurring in artificial intelligence.
Stanford has observed that the performance gap between leading U.S. and Chinese AI models has nearly disappeared, while China continues to lead in several indicators of AI publications, patents and research activity.
The important question is not simply which country is “more advanced” in absolute terms.
The important question is how rapidly the gap is shrinking.
The Western Response: Protectionism or Innovation?
Faced with growing Chinese competition, the West has responded in two main ways.
The first is protectionism.
Tariffs, trade restrictions, export controls and industrial policies are designed to protect domestic markets and strategic sectors.
The second is investment.
The United States and Europe are attempting to establish domestic supply chains in semiconductors, batteries, energy technologies and other strategic industries.
Both strategies have a rationale.
But neither solves the problem automatically.
Tariffs can slow Chinese imports.
They cannot prevent Chinese companies from improving.
Technology controls can restrict access to certain equipment.
But they may also encourage the development of domestic alternatives.
The real response therefore has to be productive.
The West must increase productivity.
Europe Faces a Historic Choice
Europe is in a particularly difficult position.
It does not possess China’s demographic scale.
It does not possess the United States’ unified domestic market.
Its energy costs remain high compared with many competitors.
Moreover, regulatory and financial fragmentation makes it more difficult to build large technology ecosystems rapidly.
This does not mean that Europe is destined for marginalization.
It means that Europe faces a strategic problem.
It cannot indefinitely defend competitiveness through quality alone.
It must increase productivity.
It must invest in automation.
It must develop artificial intelligence.
It must lower structural energy costs.
It must deepen its capital markets.
It must strengthen strategic supply chains.
It must support research and development.
And above all, it must transform its internal market into a more integrated industrial platform.
From Industrial Competition to Geopolitical Competition
China’s transformation ultimately has consequences far beyond economics.
Industry is geopolitical power.
Whoever controls batteries controls part of the power behind the energy transition.
Whoever controls advanced semiconductors controls part of digital power.
Whoever controls railway and port technologies controls part of global logistics.
Whoever controls artificial intelligence increasingly controls part of informational power.
Whoever controls production networks possesses instruments of international influence.
China’s rise must therefore be analyzed as a transformation in the relationship between economics and geopolitics.
It is not merely a question of GDP.
It is a question of productive capacity.
It is a question of technological autonomy.
It is a question of supply-chain control.
It is a question of influence over international markets.
The New Geography of Economic Power
Chinese industrialization is helping shift the center of gravity of the global economy toward Asia.
But the transformation may be broader still.
China is building commercial and industrial relationships across Africa, Latin America, the Middle East and Southeast Asia.
Chinese companies are increasingly establishing manufacturing facilities abroad in order to produce closer to final markets and reduce the impact of tariff barriers.
In the automotive industry, for example, more than half of Chinese companies’ overseas electric vehicle production capacity is located in Southeast Asia, where local production is increasingly being used to reduce exposure to trade barriers.
This means that China’s strategy is evolving.
It is no longer simply about exporting.
It is about internationalizing production.
That process could transform China from a major exporter into a truly global industrial platform.
China Toward a New Economic Model
The future of the Chinese economic model may therefore differ substantially from the model of the past.
China cannot rely forever on exporting low-cost manufactured goods.
Its population is aging.
Wages have risen.
Global competition has intensified.
Beijing must therefore shift the economy toward higher productivity, automation, domestic consumption, innovation and high-value-added production.
The data for 2025 point in precisely this direction.
High-tech manufacturing grew substantially faster than manufacturing as a whole, while production of integrated circuits, robots, servers and other advanced technologies recorded particularly strong growth rates.
China is therefore attempting to replace the old model:
cheap labor → production → exports
with a more complex model:
research → technology → automation → advanced manufacturing → economies of scale → global exports.
This transformation could have enormous consequences.
Conclusion: China Is No Longer Merely the World’s Factory, but a Global Technological Competitor
The evolution of the Chinese economy is one of the most important economic developments of recent decades.
China began with a centrally planned and relatively underdeveloped economy and used globalization as a tool for constructing a gigantic industrial platform.
It subsequently invested in research and development.
It built infrastructure.
It trained millions of engineers and technicians.
It automated its factories.
It integrated supply chains.
It created national brands.
And it is now entering the high-tech sectors with increasing intensity.
The numbers are difficult to ignore.
In 2025, Chinese R&D expenditure reached 3.926 trillion yuan, equivalent to 2.8% of GDP.
High-tech manufacturing grew by 9.4%.
China produced approximately 16 million electric cars, almost three quarters of global production, and exported more than 2.5 million electric vehicles.
It retained more than 80% of global battery-cell production.
In 2024, it installed approximately 295,000 industrial robots, equivalent to 54% of global installations, pushing its operational stock above two million robots.
In artificial intelligence, the performance gap with the United States has narrowed dramatically, while China continues to lead in several research and patent indicators.
These developments define a fundamental transformation.
China is no longer merely the world’s factory.
It has become a global industrial and technological competitor.
This does not mean that China has already replaced the United States or Europe in every field.
It has not.
The United States retains enormous advantages in frontier technology, advanced semiconductors, venture capital and major digital platforms. Europe retains extraordinary capabilities in engineering, chemicals, pharmaceuticals, automobiles, aerospace and luxury goods.
But the nature of competition has changed.
In the past, the West possessed capital, technology and global brands, while China primarily provided production capacity and lower costs.
Today China also possesses capital, technology, research capabilities, automation, infrastructure and internationally recognized brands.
The central strategic problem for the West is therefore not that China has necessarily achieved absolute superiority.
It is that the gap is narrowing simultaneously across numerous sectors.
When a major economic power possesses competitive costs, enormous economies of scale and increasingly sophisticated technological capabilities, it can become an extremely formidable competitor even without holding absolute leadership in every sector.
The automotive industry is the clearest example.
Batteries provide a second.
Robotics a third.
Artificial intelligence may become the next.
And it is precisely this convergence between industrial scale and technology that constitutes the most important historical novelty.
For Europe, the implications are evident.
It is no longer enough to defend domestic markets.
It is no longer enough to impose tariffs.
It is no longer enough to invoke the reputation for quality of European products.
Europe must increase productivity, invest in technology, reduce structural costs, strengthen strategic supply chains and create conditions under which European companies can compete globally.
Competition between China and the West will therefore increasingly cease to be a simple trade dispute.
It will become a competition for control of technologies, infrastructure, supply chains, markets and productive capacity in the twenty-first century.
That is why China’s technological rise represents one of the defining geopolitical transformations of the contemporary era.
The real question is no longer whether China has become an industrial power.
That is now beyond serious dispute.
The real question is whether the United States and Europe will be able to maintain sufficient technological and productive capabilities to compete with a country that has transformed its enormous economic scale into one of the most powerful industrial and technological platforms on the planet.
The answer to that question could determine the structure of the global economy for decades to come.