Western Industrial Policy Mimics Fail to Match China's Advantage
1h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
industrial-policychina-manufacturing
Fazen Markets Editorial Desk
Collective editorial team · methodology
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A Financial Times analysis published on 31 May 2026 argues that Western attempts to replicate China’s state-led industrial policy model are fundamentally misguided. The commentary contends that China’s comparative advantage stems from a unique confluence of political control, scale, and supply chain dominance that Western democracies cannot and should not imitate. This perspective arrives as US and European subsidies for clean tech and semiconductors exceed $1 trillion since 2023.
Global industrial policy entered a new era following the US Inflation Reduction Act of 2022, which committed nearly $400 billion to green energy. The European Union responded with its Green Deal Industrial Plan, relaxing state aid rules. These moves marked a decisive shift from decades of neoliberal consensus towards proactive government intervention in key sectors. The catalyst is a recognition of strategic vulnerability in supply chains, exacerbated by pandemic-era disruptions and heightened US-China tech competition.
The current macroeconomic backdrop features elevated interest rates, with the US 10-year Treasury yield near 4.5%. This increases the cost of capital for large-scale, long-term industrial projects that are central to these policy initiatives. The triggering event for the FT's critique is the observable underperformance of several Western-backed ventures, such as battery plants facing delays and cost overruns, compared to the rapid scaling of Chinese counterparts.
China’s share of global manufacturing value added reached 31% in 2025, nearly double the US share of 17%. The country dominates specific future industries, producing over 80% of the world’s solar panels and controlling more than 60% of electric vehicle battery production capacity. Western spending has been substantial but fragmented. The US CHIPS Act allocated $52.7 billion for semiconductor manufacturing, while European national subsidies have topped €300 billion.
A comparison of project completion timelines reveals a significant efficiency gap. Chinese battery giant CATL constructs a major gigafactory in under 24 months. Similar projects in the US and Europe frequently encounter 36-48 month timelines due to regulatory hurdles and labor complexities. Subsidy intensity also differs; Chinese support often combines direct funding, cheap credit, and local government incentives, creating a layered financial advantage.
| Metric | China | United States | European Union |
|---|---|---|---|
| EV Battery Production Share | 60% | 10% | 12% |
| Avg. Gigafactory Build Time | 24 months | 36 months | 40 months |
| 2023-2025 Green Subsidies | ~$300B (est.) | ~$500B | ~$400B |
Sectors reliant on green technology subsidies, such as renewable energy equipment manufacturers, face heightened uncertainty. Western pure-plays like ENPH and VESTAS may see volatile earnings as policy winds shift, while Chinese giants like CATL and BYD benefit from a stable, long-term domestic framework. Semiconductor capital equipment firms (ASML, LRCX) could see demand sustained by global capacity expansion efforts, albeit with geopolitical risks.
A key counter-argument is that Western policy aims for resilience, not outright cost leadership, accepting higher expenses for secure supply. However, this strategy risks inflationary pressures and requires continuous public funding. Hedge fund positioning data shows increased short interest in US solar companies dependent on imported components, while long positions are building in mining firms critical for the energy transition, such as lithium producers.
The next major catalyst is the potential renewal of the US Inflation Reduction Act tax credits after the 2026 midterm elections. A shift in Congressional control could alter funding levels and priorities. In Europe, the European Commission will review its state aid framework in Q4 2026, a decision that will either deepen subsidy competition or attempt to impose limits.
Market participants should monitor the yield on 10-year US Treasuries. A sustained move above 5.0% would severely pressure the economics of capital-intensive subsidy projects. Watch for earnings reports from CATL and BYD on 15 August 2026 for signals on Chinese capacity expansion and margin trends. The key level for the Global X Lithium & Battery Tech ETF (LIT) is $75; a break above could indicate sustained momentum in the sector.
China's advantage is structural, not merely financial. It combines centralized, long-term planning with a vast domestic market for rapid scaling, vertically integrated supply chains, and a regulatory environment that prioritizes project speed. This system allows for coordinated investment in infrastructure, workforce training, and R&D that is difficult to replicate in decentralized Western economies with stronger environmental and labor protections.
Established Western automakers like Ford and Volkswagen face intensified competition and margin pressure from Chinese EV makers who benefit from lower production costs. These companies must choose between partnering with Chinese firms for technology and batteries, accepting lower margins to compete on price, or retreating to niche segments. Tariffs on Chinese EVs, such as the EU's upcoming decision in late 2026, will be a critical factor for their competitiveness.
Historical precedents exist but involved different contexts. The US Apollo program in the 1960s demonstrated successful state-directed technological mobilization, but it was a singular mission with a clear goal, not a broad industrial strategy. Japan's MITI-led development in the 1970s-80s successfully built champions in automotive and electronics, but this occurred during a period of less integrated global trade and different technological complexity compared to today's challenges.
Western industrial policy struggles to replicate China's model due to fundamental structural and political differences.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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