How does China plan to overtake the US and Europe?

I just got off a call with a Hong Kong friend and investor, and we started talking about the “Little Red Book.” That’s when it hit me - most French people don’t even know it exists! So here we are...

How is China going to surpass Europe and then the US?

Every five years, the Chinese government releases a new Little Red Book. It’s a summary of their ambitions and expectations for the Chinese population. In other words, it’s a guide to the opportunities available not just for the Chinese, but for the entire world.

In October 2022, China held its most significant Plenary Session in history - the one where Xi Jinping secured his third term. This was a big deal because tradition says a leader shouldn't serve more than two terms. During this event, Xi released one of the most impactful Little Red Books ever. His goal is crystal clear: transform China into a major global powerhouse, surpassing both the US and Europe.

To achieve this, Xi has laid out some major directives, which we’ll dive into here. The key areas are: Technology, Investment, Energy, and Transport.

• Technology (the point you’re probably most interested in)

Surprisingly, there’s no push to create another GAFAM or anything like that. The focus is on something more fundamental - technology infrastructure. The priority is now on producing chips, semiconductors, supercomputers, and quantum computers.

That’s why Xi Jinping is so keen on TSMC.

Don’t underestimate China’s power here; even though they’re currently behind, they’re advancing faster than us and have massive scaling potential.

China’s desire to have giants like Google or Meta isn’t totally off the table for a simple reason - information. China prefers to create government-controlled giants that can manage information rather than letting a bunch of small digital startups flourish. Internally, they’re still keen on developing leaders like Alibaba and ByteDance, which have global reach.

• Investment

I’m planning to write a whole piece on the VC structure in China - the vision and methods are very different from the rest of the world.

Back to investment: China has a paradoxical stance. They want to attract foreign direct investments (USD→RMB) but do everything to keep investors from pulling out (RMB→USD). This makes local investment risky but also creates fantastic opportunities. We’ll get into that later, but to fund all these public infrastructures, the government dreams of setting up more joint ventures between big corporations and local entrepreneurs.

• Energy

The net-zero goal is on track. There are no gasoline cars, electricity is mostly nuclear, and industries are transforming.

But as you might expect, China follows the same playbook every time, and energy is a perfect example. They start with their strengths - quick and efficient production -focus on a local issue (energy here), develop a top-notch product with government-funded production chains, flood the local market, and then export massively. They used this strategy with solar panels and are now applying it to cars (more on that in a bit).

• Transport

How do you make a massive country super-efficient? By having ultra-smooth transportation. China is tackling this with cars, trains, and planes. In just a few years, with public funds, China has become a benchmark in carbon-neutral vehicle production, with companies like BYD surpassing Tesla.

But cars aren’t their only focus. The Chinese government has also built an entire production chain for trains and planes - the most advanced in the world - to dominate the local market and then conquer the global one.

→ The strategy is straightforward and always the same: super entrepreneurs, a national need, government-funded production chains, and entrepreneurs flooding the world with high-performance products.

In other words, China’s 5-10 year plan is to finish siphoning Europe by capturing high-value production (transport and tech infrastructure) and to compete with the US on these fronts while maintaining a strong interdependence relationship through holding US Treasury bonds (China is the biggest holder).

If you have any other questions, the comment section is there for you. Keep pushing – you’re going to crush it. Catch you in the next article!