China Is Not Run by One Person. It Is a Mayor Economy

Asked for the single biggest misconception the West holds about China's economy, Keyu Jin does not start with GDP or the Communist Party. She starts with a cartoon of control. People imagine a group, or even one person, running the entire Chinese economy. That is far from reality. It is a complex, large economy. Even with extreme political centralization, the economy is totally decentralized. Local mayors, in what she calls the mayor economy, drive reforms and the technological innovation the world is watching. It is not run by a handful of people. She says it is more decentralized than the United States.

The broader misunderstanding is the relationship between Chinese people and authority. Outsiders picture blind submission. Jin describes something more contractual and older: paternalism, a certain deference, written implicitly for thousands of years. In exchange for that deference, people expect stability, security, peace, and hopefully prosperity. Without a sense of self, she asks, how would you get the radical entrepreneurialism on display? There are millions of young people who see a billion consumers, scale, speed, and a team of engineers. They may not be dreaming of being Steve Jobs in a garage and changing the world. They are dreaming of transforming the local economy, and not only through manufacturing.

Is China communist or capitalist? On the pure economic side, Jin has rarely seen a more capitalist society, companies as competitive, or people as ambitious and obsessed with making money. "Kind of ruthless, actually." Consumers shop, firms invest, good financial bets pay. What, she asks, is not capitalistic about it? At the same time the social fabric is highly socialist. State enterprises dominate some sectors, state banks control finance, and official language talks about common prosperity and a fair society. Behind her parents' apartment, a daily walk in the park turns up at least fifty organized groups singing, dancing, exercising, pursuing idiosyncratic hobbies. That communalism, that strive for harmony, is still there.

Competition in China is ferocious among companies and in schools, but Jin does not call it timeless culture. It is driven by the circumstances of the day. Chinese firms chase the same market share. If a coffee shop works, everyone opens the same coffee shop, a replication habit that drives the world crazy because making money is hard. In a country of 1.3 billion, with not enough jobs for the young, parents invest in education so the next generation can climb. Confucianism, she says, is a moral philosophy of social harmony, filial piety, loyalty, saving, and education as cultivation. The citizen has a duty to the whole.

If China has been relatively successful, a huge part of the reason is that it has been, by and large, meritocratic. That is changing. The only way poorer families could live in harmony with spectacular wealth, a couple of decades back, was the belief that children still had a future through exams. Classes of sixty, ten classes in a grade: American-style essays for that many applicants would have been a factory of connections. Standardized tests are imperfect, she says, and still by and large fair. Past premiers and presidents went to great schools; many were engineers. Civil servants were selected that way for centuries. What worries her now is the job market. Getting into university can still be meritorious. Getting a job is less so.

Her own memory is every midterm and final ranked from one to 800, publicly displayed. Fridman says "Nice." She laughs: nice, and then think of how the majority feel. It drives ambition. You take nothing for granted. In an American high school she found the United States just as competitive, only hidden. People said they were not studying. They were secretly studying. At Harvard, classmates claimed their parents told them not to work so hard. In China, showing effort and being number one is noble. The American signal is that it came easily. The efficient kind of competition, she says, is mastering something you are good at. Chinese schooling often was not efficient. It maximized the box. You never went outside it. In the U.S., teachers asked students to question authority and the text. Her first reaction was, "Wow, really? You can do that?" Then she started asking why.

Deng Xiaoping, Jin says, was by far China's most pragmatic leader. Her father's generation would not have seen that prosperity, peace, and opportunity without him. Opening up and reform in the late 1970s was not one man deciding and everyone saluting. There were political barriers and incentive problems at every local level. You needed provincial governors and mayors, and they had their own interests. Deng broke tradition and offered a new way of thinking about society, life, and the economy. People of that generation told her they were shocked that the whole country would focus on the economy. Wasn't it supposed to be politics, struggle, ideology?

Opening up was momentous. Special economic zones turned Shenzhen from a fishing village into an export platform and then a Chinese-style Silicon Valley. Agricultural reform in the 1980s let farmers decide what to grow and keep the surplus. Joining the WTO in 2001, after a decade of preparation, was the ultimate transformation. Every major reform was followed by a good decade of growth; every slowdown brought a new series of reforms and another wave. That reform pace, she says, has slowed in the last fifteen years. China has not come close to its potential. The barrier now is less economics than national security and politics.

Unlike the Soviet ministries, power was given to provincial governors, party secretaries, and mayors, and they were incentivized. Succeed at a radical reform and you could be a national hero, see it rolled out in every city, and climb toward vice premier or beyond. China has shifted, she says, from an entrepreneurial state to a safe state. The objective function changed, and you see it in the outcomes. Deng's line about the cat, black or white so long as it catches mice, is the pragmatism underneath. Safety is a different cat.

Central leadership is extremely powerful, Jin says, because it holds the local officials' fate: promote, jail, fire, reward, punish. What surprises Western audiences is why American mayors do not do the same radical things for GDP and technology. China's uniqueness is political centralization plus economic decentralization, with a yardstick. In the first stage that yardstick was GDP growth. If she were mayor of Nanjing, she would peek at the neighboring city's GDP and get very competitive, because mayors are competing with other mayors for a top job. First everyone wanted exports. Then they discovered fiscal revenue from selling land, built real estate, urbanized, and the money kept coming. Everything ran at double speed because of how local incentives were designed.

China's biggest challenge now is consumption, not production. Why not put consumption on the yardstick? For a while environmental protection was on the list, and almost no one did it seriously, because it hurt GDP. For a couple of years nothing happened. Then the center got angry and made environment a penalizing factor. In a few years she sees blue skies every day in Beijing. Unicorns and innovation became an implicit yardstick, which is how you get eighty cities doing EVs, solar, semiconductors, each wanting a national champion after DeepSeek. The model is brilliant at scaling supply and weak at raising household consumption, because the incentive never sat there. Shift the objective toward jobs, healthcare, elderly care, and security, and mayors might start stimulating demand.

Whether you need eighty EV brands depends on timing. For a new strategic sector you need local governments to mobilize supply chains; waiting for markets can take forever, and the United States, she notes, is behind on some of those sectors. Once competition is real, the state should retreat. Picking winners is not its comparative advantage. Harvard professors, she says, are very skeptical of industrial policy. The Chinese data, in her telling, show that cities which pushed a sector hardest did best on production and patents. The downside is wasted capital and misallocation, companies that go under, investment plowed in by the state. On balance she calls it positive. Internal-combustion efforts went nowhere. Semiconductors improved dramatically, "thanks to Biden, thanks to Trump." On new things with no incumbent, China is spearheading.

The Chinese, she adds, are both the most patient and the most short-termist economic actors she has met. Political continuity allows two-decade plans; parents treat children as a multi-decade project and love to save. The impatient motto is short, flat, fast, borrowed from a volleyball tactic and applied to society. Investors want a quick turnaround and little work. Marriages, she jokes, can mean a short courtship, a flat emotional relationship, and a fast divorce. That mentality produced cheap copies and companies that rose in a blink and later found themselves stuck. She thinks the attitude is transitory. Younger consumers care about quality and values. The downturn, painful as it is, taught people that not everything goes up, and that opportunistic short-termism ultimately fails.

Jin grew up in Beijing when nobody locked doors, neighbors helped one another, apartments were small, eggs came on vouchers, and blackouts happened three or four times a week. She rode on the back of her father's bike to nursery at 6 a.m. Little material wealth, a strong common goal. She does not dismiss the nostalgia. What extremely individual capitalist societies lose is that communal purpose. Deaths of despair, addiction, and loneliness in the United States are, for her, a reflection. Chinese society now can be badass in competition and forsake harmony to get ahead; that was not the case before. You cannot, she says, detest financial greed and still want the risky capital that fuels American breakthroughs. China wants technological supremacy and cannot comfortably tolerate the uncomfortably rich. You cannot have it both ways.

She first went to the United States on a scholarship, to an American high school, because the country then wanted to educate future leaders of the world. She was plucked from the Communist Youth League and dropped into a host family running a Democratic campaign for New York attorney general, handing out flyers in Chinatown. Even at fourteen she found a simplistic picture of China: the three T's of the late 1990s, Taiwan, Tibet, and Tiananmen. That was not the China she felt, bidding for the Olympics, buildings going up, excitement about the WTO. Americans described a place of white terror. The gap has not profoundly closed. Hollywood and student flows mean Chinese misunderstanding of the United States is smaller, she thinks. She has rarely met an American who has been to China and still goes on about how bad it is. Go, she says, and do not only go to Beijing and Shanghai.

Another fundamental misunderstanding is that the state suppresses the private sector. Local officials want to help the most promising private firms, because those firms add GDP, jobs, and investment. They work nights coordinating debtors, creditors, and banks. DeepSeek is a private company that made the country proud. Why would the state suppress that beacon? Freedom has ranged from too much, defense firms buying auction houses, Evergrande buying soccer clubs and dabbling in EVs, to the other extreme of scolding and folding firms into submission. China is moving from little rule of law toward bankruptcy and corruption rules. The method is innovate first, regulate after, which produced useful financial experiments and disasters such as P2P platforms, unlike Europe's regulate-first model. Most of the economy, if you admit China is entrepreneurial, must be driven by the private sector. Speed, cheap engineers, and fast consumer feedback are the lure. Xiaomi went from phones to EVs and sold 270,000 of a new model in a day. The costs are weak bankruptcy law, evil competitors who call the police, weak IP, and the need to keep local government close. The United States, she says, is much more tolerant of entrepreneurial failure.

Jack Ma's disappearance and reappearance became a Western parable. Jin's rule is simpler. In the United States, one can argue that capital controls politics. In China it has to be the other way around. The capitalist class is not supposed to exceed the political class. Details the West underplayed: Ant was doing banking work without being regulated like a bank, which raises financial-stability questions. Halting the IPO had strong regulatory grounds. The broader instruction to entrepreneurs is keep your head down, make money, do philanthropy. Plenty of billionaires are fine and in favor of the leadership. In America it is great to be colorful. Trump would never have made it in China, nor would the likes of Elon Musk. You do not want to stand out. The tallest tree gets the most wind.

Leadership still needs the Jack Mas of the country. They have done great things. Garnering too much influence, even through social media, is personally unwise. Jin rejects the Western conclusion that young people no longer want to be entrepreneurs or no longer look up to Ma. The incentives are still there. It is a different kind of rich elite. You can still be the richest person in China, she says, if you are not too outspoken, not too hungry for attention, humble, collaborative with government. Colorful about your technology is one thing. Colorful about Xi Jinping is another. Stay out of politics.

Ma living in Japan, she says, is by choice. He is funny, witty, creative, loves a good life; in the United States he would thrive. He has more free time and is roaming. Does he love China? All of them do, she says. Their destinies were changed by China, by the government, by Deng Xiaoping. Fridman knows people from the former Soviet Union who carry resentment of broken promises. That is not how she would describe that Chinese generation. Exceptions exist, especially among those who moved to the United States and want democracy. By and large people are deeply grateful, including to the Communist Party if you want that label, because they have seen their lives transformed. Ma went from schoolteacher to one of the most powerful people in the world. Without China, she asks, how could that have happened?

The United States will lead for some time on disruptive zero-to-one technologies, Jin says. Innovation is a process: invention, production, commercialization, diffusion. On the later stages China has a unique advantage even if it still cannot do the breakthroughs. How widely a technology is adopted is what unleashes productivity. DeepSeek is one example of a scale-based, cost-cutting, leading-edge model that could be as powerful as invention, maybe more. Chinese firms focus on solutions. Give a Chinese student a problem and they find the best answer; ask them to write the question and they cannot. She is exaggerating, she says, but it is a little like that. Developing countries do not need unused frontier tools. China's AI Plus program is about pushing AI into every plausible sector with state help.

Why the missing zero-to-one? Proximate reason: short, flat, fast. You do not spend long on something that may never be commercially viable. Deeper: basic research is still weaker than in American universities, and motivation is more extrinsic, compensation and reward, than the pursuit of knowledge for its own sake. That commitment existed in Confucian scholarship; poverty interrupted it. It is starting in China, she says, but it is not there. The two approaches are compatible. China uses technology well, scales it, cuts cost, spreads it. The United States captures high value by inventing. Diffusion still matters, which is why AI's productivity numbers have been slow everywhere, and why she mentions Huawei engineers who talk about solution-driven work in Africa and rural areas that changes individual lives without changing the world.

Copying is a real cultural difference. China's sense of property rights is not America's. Firms have no qualms about copying if it leads to success, which is also why everyone piles into the same business. In the United States you would get no respect for that. She thinks it will change. If China is serious about innovation, it cannot skip strict IP protection. The country is still a bit hungry. It will be less hungry later. For now it is a stage.

DeepSeek surprised the world. It did not surprise Chinese observers to the same degree. It happened in crisis, not comfort. Jin calls it crisis innovation, and she thanks the United States for it. While China comfortably imported American chips, the industry stalled for twenty years. Why plow in tens of billions when you can import the best? Export controls and sanctions made firms and the state feel an existential crisis, cut off from critical components. In a short time the domestic ramp-up was remarkable. Again, thanks to American truculence on technology. There is hyperbole around DeepSeek, she says, but it shows the gap on leading-edge technology is smaller than expected, and that the controls were not effective. They may have backfired.

This is happening in economic softness: trade wars, weak private investment and consumption, foreign venture money leaving. Imagine, she says, what China would look like if the economy were healthier. Or argue the opposite: people leap when they feel threatened. She wishes countries did not have to drive each other into corners to do something great. Winning, in the old playbook of who dominates, misses the network of choke points. Use leverage once and it has a half-life. Rare earths will find substitutes. Coercion is a tool that teaches the other side to route around you.

On the CHIPS Act and Biden-era export controls, she hopes the reverse effect was unintentional, "otherwise you'd be questioning the level of intelligence of the U.S. administration." The measures sped up domestic capacity and motivated a whole-of-nation program, like going after Olympic gold. Huawei was sanctioned and came back stronger than ever. History, she says, is not kind to blockades. The Continental System indirectly fed Britain's industrial revolution; Spanish pressure helped produce a ferocious Portuguese naval power. China does not lie down. The lesson is not to force a nation into a corner. Comfort produces complacency. Corners produce motive.

China, Jin says, has been preparing for Trump's return and his "maniac" trade policies for five years. Trump also had five years. It did not show. This time China has played its hand with calibrated assertiveness. The war is still bad for both countries and for the world. China is one of the largest intermediate exporters; its manufacturing prices anchor global prices. Cumulative tariffs hit Canada, Mexico, and any final destination. China's principles, poorly understood abroad, are equivalence, reciprocity, and realism. It will not cut tariffs unless the United States does. The phase-one deal last time was not realistic, and Beijing will not treat a commercial deal as a political concession.

Negotiable: opening services, American banks and financial firms in China, buying a limited amount of more U.S. goods, transparency on e-commerce and data rules. Not negotiable: mixing in Hong Kong or Taiwan, trying to change the state-plus-private hybrid, anything that challenges China's technology security. Respect and face matter. With more cultural fluency, she thinks, the United States could push China to do many reasonable things in America's favor. Humiliation is not a free variable. Xi Jinping is not Putin. Under economic strain, China has a genuine desire to deescalate, even if the weather does not fundamentally change. A workable deal, in her sketch, lets Trump show more Chinese purchases, more room for American firms and banks, better IP protection, which is also in China's interest, and lower but not pre-war tariffs. Success for both is possible if people stay realistic.

Are tariffs a useful tool? No. There is a real problem in the trading system that tariffs will not resolve. She pushes back on China too: amazing companies cannot dominate everything if global harmony is the goal. Give other countries a chance; develop the internal consumer economy. Both China and the United States enjoyed the U.S. liberal order, open sea lanes, and a long peace in which living standards and technology rose. Taking it apart for a more disorderly world is, she says, an illusion politicians sell. Strengthen domestic competitiveness instead of punishing foreigners. The 1980s U.S.-Japan semiconductor fight actually drove American innovation and law changes; consumers benefited and the United States took the lead again. Trade deficits have widened since Trump because the United States saves too little, a macro fact, not a tariff fact. Leave the network and you lose leverage, not the other way around. Economists, she deadpans, are not all dumb.

On immigration she understands both sides: rural citizens who have not fared well, jobs under threat from uncontrolled illegal inflows, and the economic case that immigration holds prices down and staffs the service economy. Harmony, a word that barely exists in economics, is becoming more important. Skilled immigration is what makes the United States technologically advanced; a country still has to think about its own citizens. America's gift, she says, is that it can stomach volatility, financial crises, inequality, even businessmen in top political jobs, without breaking apart. Other countries lack the institutions to tolerate that clash and keep society together.

Taiwan has TSMC, vitally important for the global economy, for Chinese leadership, and for Chinese people. Ask the young generation, she says. One day they would like to see unification. It is part of a patriotic dream. The attention is not necessarily good for Taiwan: political-risk uncertainty has curtailed investment, and the mainland is a crucial economic partner. She credits Beijing with more political wisdom than outsiders assume. Strategic ambiguity and strategic patience, especially in the current slowdown, are the better path. Military action would be quite detrimental to China. Keep the U.S.-China channel open; shutting it under Biden was dangerous. Mainland soldiers are a one-child generation. Assuming families would forsake their only sons for unification, she says, is a stretch. Chinese people care about peace. Chaos is not what they think is good for them. TSMC is not really a bargaining chip, because the feeling about Taiwan goes beyond economics. It is about realizing a dream.

The one-child policy may be one of the most radical policies in Chinese history. In her class almost nobody had a sibling; 98 percent of urban households had one child, the rest mostly twins. An unintended golden age for women followed: daughters raised like sons, higher education returns, many women as CEOs and civil servants, surveys now showing a preference for girls because scarce brides have bargaining power. Relaxation hurt women at work, who are now suspected of having another child. The policy also drove high saving. Want consumption? Have more kids, she jokes, given tutoring, school-district housing, and a house for marriage. Those only children do not want many kids, because they do not want their children to suffer what they suffered. Six wallets, parents and grandparents, explain how young people afford expensive housing on meager incomes. The state kept the policy too long; by the time fertility was too low, it was late. They are now even encouraging single women to raise children, a sharp turn in a conservative society. She is less panicked about aging than most. Post-1990 evidence, she says, found aging economies got richer by adopting automation. China also has unemployment and an AI-shaped skill question. Collapse, meanwhile, is a word the West has used four, five, even six times since the 1980s, during China's fastest growth. She does not think the economy will collapse. Fundamentals remain: skills, human and physical capital, macro and political stability. Per capita income is still around $10,000, yet firms compete at the leading edge, a first in history, beyond even the Soviet Union's civilian tech. The real estate crackdown, housing to be lived in not speculated, hit fiscal and financial pillars at once because mayors funded cities by selling land. Household wealth sat in housing, so people felt poor and consumed less. Weaning off property takes three to five years in a good case, ten in a bad one. She does not know which China is in.

Fridman asks how a foreigner should actually visit. Jin points to travel videos that get beyond Beijing, Shanghai, and Shenzhen. A lot of economic opportunity is now in second- and third-tier cities. Firms like Pop Mart come from those places, aimed at local fun and entertainment. The new generation does not want factory lines. They want work-life balance, fashion, travel, clothing, restaurants. Homegrown coffee chains beat Starbucks in a short time. Opportunity, she says, is localism, not globalism: being rooted in a local economy.

She recommends Chongqing, which in a video she mistook for Shanghai; Chengdu, a bit slower, fun, with kind people; Xinjiang, go look for yourself, there are ski resorts. It is a colorful, complex, dynamic country, not defined by the two famous capitals. Those smaller cities, she says, are flourishing more than the first-tier giants and growing personalities of their own.

The most beautiful thing about China and its people, the thing she wishes more outsiders knew, sits under the competition. A genuine group: funny, community-based, authentic. A heavily controlled society still finds ways to be truly authentic. They are social. Western life is increasingly lived alone. That is not China. It is still a warm country, warm to foreigners, friendly. Fridman closes with Confucius: it does not matter how slowly you go, as long as you do not stop.