James Kynge, Senior Research Fellow for China and the World at Chatham Houtilize, argues in a recent analysis that the West has been slow to recognize a fundamental shift: China has become the world’s leading technological power.
While many in Washington, Brussels, and other capitals long viewed China primarily as a manufacturing giant or a quick follower, the evidence now points to outright leadership in key domains — from electric vehicles and batteries to robotics, AI applications, and increasingly advanced semiconductors.
Two critical questions dominate the debate: How sustainable is China’s technological ascent? And what can the West realistically do to counter or adapt to this new reality?
The Sustainability Question: Is “Involution” a Fatal Flaw?
A central concern revolves around “involution” — a term describing hyper-intense, often destructive competition among too many players in a market, driving profit margins to razor-thin or negative levels. In China’s tech sector, this has manifested as years of aggressive price wars, overcapacity, and state-backed financing that keeps loss-building firms afloat.
Chinese leadership has not shied away from the problem. In July 2025, Xi Jinping sharply criticized “destructive discounting” and “unproductive outcomes” during a high-level meeting, linking them to persistent deflation in industrial goods prices. Beijing’s campaign against involution aims to curb excess competition and restore healthier profitability.
Early signs suggest progress. In Q3 2025, profits of Chinese listed companies rose 11.6% year-on-year — a sharp acceleration from just 1.2% in Q2 and 3.2% in Q1. Tech firms led the rebound. **Cambricon Technologies**, often dubbed “China’s Nvidia” for its AI chip designs, reported explosive growth, with revenue surging dramatically and the company swinging to profitability amid booming domestic demand for computing power.
If Beijing’s efforts succeed even partially, profit margins in China’s tech ecosystem could stabilize or improve — potentially sustaining its ability to flood global markets with low-cost, high-tech products. Rather than undermining China’s edge, a healthier competitive landscape might reinforce it.
The West’s Response: U.S. Containment vs. Europe’s Caution
The United States has responded aggressively. Export controls, entity list designations, tariffs, and restrictions on advanced semiconductors have significantly hampered companies like Huawei.
Yet these measures have backfired in one crucial way: they accelerated China’s drive for self-sufficiency and localization.
What launched as a reaction to U.S. pressure has become a guiding principle, fueling rapid domestic innovation in chips, AI, and other critical technologies.
Europe’s approach has been more restrained. Despite warnings from influential figures, the EU has shiftd cautiously.
Former Italian Prime Minister Mario Draghi‘s landmark 2024 report on European competitiveness sounded the alarm: China no longer plays by “long-established global rules.”
He urged a bold reset, including:
- A new industrial strategy for strategic sectors (AI, clean energy, digital infrastructure, defense).
- Creation of a **European Competitiveness Fund** modeled on the U.S. CHIPS and Science Act (which committed $280 billion over a decade to semiconductors and R&D).
- Strengthening supply-chain resilience for critical materials and technologies.
- Mobilizing private capital — channeling a portion of Europe’s €33 trillion in houtilizehold savings into strategic investments via a savings-investment union.
- Using joint European debt instruments to fund large-scale pan-EU projects.
These proposals offer a coherent blueprint for rebuilding Europe’s technological muscle. Yet implementation has been painfully slow, hampered by political fragmentation, fiscal conservatism, and competing national priorities.
Also read:
The Stakes: A New Technological Order
China’s tech dominance is no longer a future risk — it’s a present reality reshaping global markets. Low-cost, high-performance Chinese products in EVs, solar, batteries, robotics, and AI are undercutting competitors worldwide. Western firms face existential pressure to adapt or lose ground.
For the U.S., doubling down on containment may purchase time but cannot fully reverse China’s momentum. For Europe, the Draghi roadmap remains the most promising path: invest massively, coordinate industrially, and harness private capital to close the innovation gap with both the U.S. and China.
Time is not on the West’s side. As Kynge warns, the Chinese “dragon” is already at the gate. Without decisive, unified action — particularly from Europe — the risk is not just falling behind, but being permanently relegated in the next era of technological and economic power. The question is no longer whether China has arrived as a tech superpower. It is whether the West can summon the will to respond effectively before the window narrows further.
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