Opinion | Why US attempts to thwart China’s industrial policy are a costly mistake

US political leaders have long tried to counter Chinese industrial policy. Now they seem to have decided the best way to do that is to emulate it, but their agenda betrays a lack of understanding of the unique challenge posed by China’s coupling of an authoritarian political regime with a dynamic market economy.

Millions of Chinese firms, including some of the world’s most innovative, are occasionally asked to serve the regime’s political objectives – an unprecedented marriage of pioneering private companies and a Leninist one-party state. Western countries cannot match it and should not begin to try.

Much of the US economic policy response to China is misdirected. For example, the United States wants to curtail China’s support for state-owned firms, despite evidence that such assistance starves private Chinese businesses of resources. The real challenge to America comes from private companies such as Huawei and Alibaba.

It does not come from state-owned firms such as aircraft manufacturer Comac, which has prevented the emergence of a private-sector Chinese equivalent of Boeing. In fact, the private firms that dominate the Chinese economy took off only after former premier Zhu Rongji closed or privatised hundreds of thousands of state-owned companies in the early 2000s.

The closures released capital to private firms and cleared the way for them to grow. Does anyone seriously believe the Chinese economy would be stronger if policymakers were to undo Zhu’s reforms and revive all the old loss-making state enterprises?

Consider the US obsession with the Chinese government’s “Made in China 2025” plan, which channels subsidies to private firms in strategic sectors such as semiconductors. The jury is still out on whether the billions of yuan spent to support such industries will prove effective, but the evidence is not encouraging.