(Warroom)—Rich Stern of the Heritage Foundation and former Congressman Dave Brat explored the trajectory of China’s economic transformation on Friday’s WarRoom, warning that Beijing’s return to central planning under Xi Jinping is crippling domestic growth but enhancing strategic military and industrial power. China’s massive industrial subsidies—disguised as economic stimulus—are now serving as covert military investments. While China sacrifices long-term economic health, it gains near-term advantage in global manufacturing, rare earths, and strategic infrastructure. Meanwhile, the U.S. lacks a coherent vision to counter this threat, exposing national vulnerabilities in the face of a highly centralized, authoritarian strategy.
China’s Economic Shift: From Market Reform to Command Control
Rich Stern opened the conversation by contrasting China’s past economic model with its current trajectory under Xi Jinping. From the late 1970s through the early 2000s, China adopted market-oriented reforms, welcomed Western capital, cut taxes, and slashed red tape. This hybrid economic approach, Stern noted, was largely responsible for China’s stunning four-decade growth spurt.
However, under Xi Jinping, that trajectory reversed. Xi publicly committed China to a Marxist-Leninist path, rejecting price mechanisms and market signals in favor of state control. Stern described this shift as a form of “economic self-sabotage,” noting that China’s growth rate has halved, and nearly a third of Chinese companies are now dependent on state subsidies just to survive.
Subsidies as Strategic Weapons
A central theme of Stern’s warning was the real purpose behind China’s ballooning industrial subsidies. He estimated that China may be spending as much as $2 trillion annually—a sum comparable to the entire U.S. manufacturing sector’s value-added output. However, unlike Western-style corporate bailouts or inefficient handouts, Stern argued that China’s subsidies are strategically targeted.
“They’re military subsidies disguised as economic ones,” he explained. China is investing in critical sectors like rare earth mineral processing, semiconductors, electric vehicles, solar panels, and shipbuilding—all essential to war-making capability. These aren’t commercial endeavors meant to generate profit; they are state-sponsored engines of global dominance, aimed at overtaking U.S. and European industrial capacity.
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