China’s modern rise began with Deng Xiaoping’s reforms after 1978. A handful of pragmatic changes turned an inward, centrally planned economy into an export superpower.
Beijing created Special Economic Zones (like Shenzhen) to welcome foreign investors and new rules; introduced the Household Responsibility System in agriculture to boost yields and the cheapest and most disciplined labour for factories; allowed private and collective firms to grow alongside state enterprises; and eased into markets with dual-track pricing rather than a shock switch. It stitched this together with massive, sustained investment in ports, power, highways, rail and industrial parks, a competitive exchange rate and export rebates.
China’s WTO entry in 2001 secured market access and gave global brands confidence to establish long supply chains within China. Within a generation, a fishing village became a tech-manufacturing metropolis and ‘Made in China’ moved from basic assembly to complex components and complete products.
For three decades, the results were unprecedented: near-double-digit growth in the 2000s, hundreds of millions lifted from poverty and deep industrial capability in electronics, machinery, solar, batteries, appliances, furniture and more. By the early 2010s, many forecasters expected China to overtake the US in total GDP around 2020. That conviction rested on three visible strengths: one-party policy continuity, remarkably disciplined execution that treated infrastructure as a growth tool (not a ribbon-cutting) and very high savings generated by current-account surpluses that funded extraordinary investment.
The tempo changed through the 2010s, and the shift became unmistakable by 2017–2018. Deleveraging efforts tightened credit – especially for property developers and local-government financing vehicles. A long property boom turned into a drag. Demographics tilted older. Trade and technology frictions with the US rose. The pandemic then added stop-start disruptions.
China still grows faster than most large economies, but no longer at its earlier breakneck pace. In nominal US dollars, a measure influenced by inflation and exchange rates, China’s GDP rose roughly from $14.3 trillion in 2019 to about $18.3 trillion in 2024 (around 27 per cent). Over the same period, the US climbed from about $21.5 trillion to roughly $29.2 trillion (around 35 per cent). The widely expected 2020 ‘overtake’ did not happen; in dollar terms, America’s lead has recently widened.
Why did the US keep its edge? Mostly because the American innovation engine never switched off. Over 40 years, the waves that reset global productivity began and scaled in the US: almost all transformative technologies – personal computers, the public internet and e-commerce, the smartphone, cloud computing and now artificial intelligence – were developed and commercialised in America.
What powers that engine? A few simple, durable ingredients working together. Rule of law and basic fairness: contracts and property rights are credible, minority investors are protected and courts are trusted – so capital commits for the long run. World-class universities and labs – MIT, Stanford, Berkeley, Harvard, Caltech and many more – attract the world’s best talent, many of whom stay to build companies. A complete capital ladder – angels, venture funds, growth equity and deep public markets – lets bold ideas raise money at every stage. And a culture that tolerates failure allows people to try, stumble, learn and try again, speeding the path from research to products and platforms.
Entrepreneurs make these ingredients visible. Steve Jobs made computing and phones intuitive for everyone. Bill Gates made software the operating system of business. Jeff Bezos fused e-commerce with cloud infrastructure. Mark Zuckerberg scaled global social networks. Larry Page (with Sergey Brin) organised the world’s information. Elon Musk pushed EVs and private space into the mainstream. Jensen Huang’s GPU revolution now underpins modern AI. Common threads: bold bets, the ability to raise very large sums, and an ecosystem that lets ideas scale fast.
Capital markets are the scoreboard and the fuel pump. The US hosts the deepest, most liquid equity markets on earth (NYSE/Nasdaq). The total US market value is currently about $62 trillion to $65 trillion, reflecting both breadth and liquidity. China’s total domestic market cap is around $11 trillion to $13 trillion across its exchanges – large by any standard, but only a fraction of the US scale.
The venture market shows an even starker contrast. In 2024, US venture capital investment was roughly $209 billion (one of the three strongest years in two decades), while China drew about $35 billion as domestic VC activity slowed. The US also led globally in late-stage growth funding and exits.
A telling comparison is that the combined market capitalisation of just six US tech leaders –NVIDIA, Microsoft, Apple, Alphabet (Google), Amazon and Meta – now is roughly in the same value as China’s annual GDP. Even allowing for market swings and exchange rate effects, that single fact says a lot about where investors believe the next decades of cash flows will come from.
China’s capital markets are large but structured differently. Mainland exchanges (Shanghai/Shenzhen) are big but more retail-driven, with heavier state influence and capital controls; Hong Kong is globally connected but has endured long downcycles. There are bright spots – STAR Market listings, deep domestic savings and strong valuations in EVs, batteries and solar – but the availability of risk capital for ‘moonshots’ remains significantly lower than in the US, and exit pathways are narrower. International investors also price in policy swings, opacity, and IP concerns. The result: while China is a magnet for manufacturing and energy-transition hardware, the US remains the default home for frontier software, chips, AI models and platform firms.
From an investor’s vantage point, the choice ‘US or China’, if you must pick one on an overall basis, most global allocators today overweight the US because of rule of law, disclosure standards, liquidity, IP enforcement and the extraordinary pipeline of innovative firms. On net investment flows, the US continues to attract heavy FDI and portfolio inflows, while China’s inbound investment has slowed and, at times, reversed – reflecting lower growth, property stress and geopolitics.
Each system has real strengths and real weaknesses. The US advantage is its rules: reliable contracts, property and investor protections and open, deep markets. That’s why capital forms and reforms there decade after decade. Its weakness is political noise; governments change every four years and policy emphasis shifts, yet the bedrock rarely moves.
The China advantage is continuity: one-party rule for over seven decades and especially consistent policies for 40-plus years after Deng introduced a market-based pathway. That continuity made long, complex projects possible and allowed engineers to run. The weaknesses are demography, debt tied to property/local vehicles, slowing productivity, and frictions with major export markets.
Looking 25 years ahead, it is hard to imagine a world economy not shaped by these two. China will likely remain the manufacturing and clean-tech giant, pushing up the value chain and localising critical inputs. The US will likely remain the launchpad for general-purpose technologies – AI, advanced semiconductors, synthetic biology, autonomy and software-defined industries – where network effects, IP and capital intensity reward first movers.
Convergence will be selective (China catching up in targeted hardware), while US leadership in software-heavy, IP-rich platforms persists. Interdependence will continue, even with ‘de-risking’: supply chains may re-route, but ideas, components, capital and talent will still cross borders.
That is the landscape. My next article will turn to Pakistan: what it can learn from the two giants – how to build firm-level productivity through technology and better management and how to convert that productivity into export earnings that finance stable, lasting growth.
The writer is a former managing partner of a leading professional services firm and has done extensive work on governance in the public and private sectors. He tweets/posts @Asad_Ashah
