How China rose, why the US won’t let India rise like that, and what India should do

A new age of competition demands new rules.

US Deputy Secretary Christopher Landau’s recent statement at the Raisina Dialogue in Delhi —“We won’t repeat the China mistake with India”—signals that Washington views its past openness to China as a strategic error, one it intends to avoid with New Delhi by imposing stricter reciprocity, technology safeguards, and market protections in any deepening partnership. This shifts the terms under which India can leverage US facilitation, but the core architecture of China’s rise still offers actionable lessons: India should prioritise domestic policy imagination while treating external access, including from the US, as a constrained but valuable accelerator, not the foundation.

Any serious account of China’s economic rise over the last four decades must resist monocausal explanations. China did not simply ‘do it on its own,’ nor was its ascent a passive by‑product of American benevolence. Rather, the transformation from a poor, largely autarkic command economy in 1978 to the world’s second‑largest economy by 2020 was co‑produced by two interacting forces: China’s own policy imagination and institutional inventiveness on the one hand, and a US‑shaped global economic order that chose to integrate, finance, and absorb China on the other. Quantitatively, the scale of the shift is stark. China’s nominal GDP rose from about $300 billion in 1980 to roughly $14.9 trillion by 2020, while real annual growth averaged close to 10 percent between 1979 and 2010. Merchandise trade and capital flows expanded even faster, with exports of goods and services peaking at around 35 percent of GDP in the mid‑2000s before moderating to about 20 percent in the early 2020s. Over the same period, the United States emerged as China’s single most important external counterpart: US imports from China rose from negligible levels in the early 1980s to over $430 billion dollars by 2020, and China became one of the largest destinations for global FDI, drawing more than 100 billion dollars a year in the 2010s and emerging as the world’s largest FDI recipient in 2020.

To show that this ascent rests ‘almost in equal measure’ on Chinese innovation and American facilitation, it is useful to break the period into four phases and, in each, track the main channels—trade, FDI, technology, and rules—through which domestic policy and US choices interacted.

Phase I (1978–1992): Experimental Opening in a US‑Backed Strategic Embrace

The first phase begins with Deng Xiaoping’s “reform and opening” and runs through to the early 1990s. On the domestic side, the defining feature was institutional experimentation. Chinese leaders dismantled the people’s communes by introducing the household responsibility system, which returned production decisions and residual income to peasant households and sharply raised agricultural productivity. Township and village enterprises were allowed to flourish, blurring the boundaries between public and private ownership and creating a dense layer of rural industry. The creation of special economic zones (SEZs) in places like Shenzhen and Xiamen provided highly controlled spaces where foreign capital, export‑oriented production, and limited market pricing could be trialled without destabilising the core political order.​

The Household Responsibility System (HRS) was a policy innovation. Emerging secretly in late 1978 in Xiaogang Village, Anhui Province, the HRS was a survivalist response to the stagnation and food shortages inherent in the People's Communes. Under the traditional collective model, agricultural productivity was suppressed because the link between individual effort and reward was obscured by complex "work point" systems and the high costs of monitoring labour in large teams.

The HRS effectively split property rights into a trinity of state ownership, collective management, and household operation. This allowed peasants to obtain autonomy in production and residual claims on distribution. After meeting state procurement requirements and collective retentions, farmers were free to sell surplus crops on the open market. The results were instantaneous: between 1978 and 1984, agricultural output increased by 8.2 per cent annually, compared to 2.7 per cent in the pre-reform period. This rural success created a capital surplus that fuelled Township and Village Enterprises (TVEs), which by 1992 employed over 100 million workers and contributed nearly one-third of the country's total industrial output.

Indicator	Pre-Reform Period (Pre-1978)	Post-Reform Period (1978–1984)	Impact of Institutional Change
Annual Growth in Output	2.7%	8.2%	Significant Increase in Yields
Basic Accounting Unit	Production Team/Commune	Individual Household	Direct Incentive Alignment
Surplus Distribution	Collective Allocation	Household Residual Claim	Market Participation
Food Security	Common Shortages	Bumper Harvests (e.g., 1984)	Self-Sufficiency Achieved

Collated from public sources.

The macro‑numbers capture the effect of these reforms. China’s merchandise trade (exports plus imports) rose from under 15 percent of GDP in the late 1970s to around 20 percent by 1980 and higher thereafter, while real GDP growth in the 1980s averaged roughly 9–10 percent per year. What made these experiments sustainable, however, was not just their internal design but the external environment in which they were embedded. From 1979 onwards, the United States normalised diplomatic relations, extended most‑favoured‑nation (MFN) tariff status to China, and, crucially, treated China as a strategic counterweight to the Soviet Union. That choice unlocked Western credits, technology, and early joint ventures; it also signalled to European and Japanese allies that China was to be incorporated into, not excluded from, the US‑led order.

In this phase, the trade channel shows most clearly how domestic and US decisions interacted. Chinese exports and imports could only become a rising share of GDP because new SEZs and coastal zones were designed to service external demand; in turn, the US decision to maintain MFN status and open its market to Chinese goods ensured that the test of these experiments was a large, stable, dollar‑denominated market with relatively low tariffs. Similarly, early FDI, still modest by later standards, flowed into China because Beijing created institutional niches (joint venture laws, local development zones) at precisely the moment when US policy encouraged Western firms to see China as a politically acceptable destination.

Phase II (1992–2001): From Coastal Laboratory to Export Platform

The second phase begins with Deng’s southern tour in 1992 and ends with China’s accession to the World Trade Organization (WTO) in 2001. Domestically, this period saw a decisive deepening of market‑oriented reforms and a hard political bet on export‑led growth. Beijing endorsed a ‘socialist market economy,’ drastically restructured state‑owned enterprises (SOEs), and laid off millions of workers, while granting coastal provinces and cities greater autonomy to court foreign investors. Massive investments in ports, highways, and power generation built the logistics backbone of what would become the world’s factory.

The numbers again reveal the scale and direction of change. China’s FDI inflows rose from a few billion US dollars annually in the late 1980s to around $40 billion dollars by 2000, making China the largest FDI recipient among developing countries. Exports of goods and services climbed toward 20 percent of GDP by the late 1990s. These flows did not appear in a vacuum. On the US side, successive administrations made a conscious choice to entrench China within US‑centric globalisation. Despite recurring human‑rights crises, Washington renewed China’s MFN status year after year and, by the late 1990s, began to pave the way for permanent normal trade relations.

US firms played a leading role in driving the FDI and trade channels during this phase. Congressional research from the early 2000s shows US FDI flows to China rising from roughly 456 million dollars in 1990 to between $4.4 and $4.7 billion dollars annually by 2000–2001, with heavy concentrations in manufacturing, electronics, and consumer goods. US trade data mirror this outward investment: imports from China, tiny in 1985, expanded to tens of billions of dollars by the late 1990s, generating a persistent bilateral deficit that became politically salient.

In functional terms, China’s coastal regions became export platforms servicing US and allied markets. Local governments deployed their own policy imagination—offering land, tax holidays, labour discipline, and streamlined approvals—to attract foreign plants, while US multinationals used China to assemble products for sale back into the United States at far lower cost. The result was a symbiotic pattern: Chinese authorities created the institutional and physical infrastructure for outward‑oriented growth; US policymakers ensured that this outward orientation had somewhere large, predictable, and profitable to go.

Phase III (2001–2008): WTO Accession and Hyper‑Globalisation

The third phase, from China’s WTO accession in 2001 to the global financial crisis in 2008, marks the period of ‘hyper‑globalisation’ in which the co‑production of China’s rise is most visible in the quantitative data. On the internal side, WTO entry required significant changes in tariffs, non‑tariff barriers, and legal frameworks. Beijing cut average tariffs, reduced quotas, and undertook to align a wide range of domestic regulations with WTO norms, while simultaneously expanding development zones and deploying targeted industrial policies in electronics, automotive components, and telecommunications. During this period, China’s nominal GDP rose from about $1.3 trillion in 2001 to over $4.5 trillion by 2008, and real growth often exceeded 10 percent.

The external side is decisive. China’s WTO entry was not merely a technical matter; it was a geopolitical decision in which the United States played the key enabling role. In 2001, Washington not only granted China permanent normal trade relations but framed the move explicitly as welcoming China into a ‘global, rules‑based trading system,’ providing firms with the assurance that China’s low tariffs and market access would be stable and predictable. Quantitatively, the impact on trade flows was dramatic. US imports from China jumped from about $102 billion dollars in 2001 to over $337 billion by 2008. On China’s side, exports of goods and services as a share of GDP climbed steeply, peaking at around 35.5 percent of GDP in 2006—an extraordinarily high export dependence for a large economy.

Two channels intertwine here: trade and technology. By the mid‑2000s, foreign‑invested enterprises—many of them US‑linked—accounted for more than half of China’s exports. These firms did not only bring capital; they brought production know‑how, managerial practices, and integration into global value chains that spanned design centres in the US, component suppliers in East Asia, and assembly plants in Chinese coastal cities. Chinese policy‑makers, for their part, used WTO rules and foreign presence to discipline domestic producers, encourage competition, and push local firms to upgrade.

Put differently, WTO accession allowed China’s internal policy imagination—its hybrid of state guidance and market mechanisms—to be leveraged through a US‑centred global system that supplied the demand, capital, and technology necessary for export‑led catch‑up on a massive scale. Without Beijing’s willingness to restructure SOEs, open sectors, and invest in infrastructure and education, WTO entry would have yielded much smaller gains. Without Washington’s decision to sponsor that accession and keep its own market wide open, those internal reforms would have produced far less foreign exchange, learning, and growth.

Phase IV (2008–Present): Rebalancing, Tech Push, and Friction within Entrenched Interdependence

The global financial crisis of 2008 inaugurates a fourth phase. The collapse of demand in the North Atlantic exposed the vulnerabilities of China’s hyper‑export‑dependent model, prompting a partial rebalancing toward investment and domestic consumption. In macro terms, China’s exports of goods and services fell from the mid‑2000s peak of around 35 percent of GDP to about 20 percent by the early 2020s, even as nominal GDP expanded from more than three times by 2020.

Domestically, Beijing responded with large stimulus packages, a massive expansion of credit, and a deliberate upgrade of industrial policy. Programmes like Made in China 2025 targeted strategic sectors—high‑end machinery, telecommunications equipment, electric vehicles, batteries, and, more recently, AI and green technologies—while enormous investments in high‑speed rail, digital infrastructure, and R&D sought to push China up the technological ladder. By the mid‑2010s, China’s share of global manufacturing output was close to one‑third, underpinned by both domestic champions and multinational supply chains.

Externally, the US role became more ambivalent but remained structurally central. Throughout the 2010s, US imports from China stayed in the $400–500 billion range, and China continued to attract over $100 billion dollars in FDI annually; in 2020, amid the pandemic, China became the world’s largest FDI recipient, receiving about $163 billion dollars—slightly more than the United States—according to UNCTAD. At the same time, from 2018 onwards, Washington began to deploy tariffs, export controls, and investment restrictions in a bid to decouple critical parts of the relationship, particularly in semiconductors and advanced technologies.

Even this apparent turn to confrontation underlines the depth of the co‑produced rise. For four decades, US firms and consumers had been integral to China’s development model; their embeddedness meant that even as Washington turned to tariffs and controls, full separation was difficult without massive adjustment on both sides. China, in turn, responded by accelerating domestic innovation, seeking to reduce reliance on US inputs while leveraging the scale and sophistication it had already achieved within the US‑led order. The channels of trade, FDI, and technology thus became sites of contestation, but only after they had already served as the conduits through which China’s internal policy ingenuity and US external facilitation had jointly produced China’s rise.

Channels of Co‑Production: Trade, FDI, Technology, and Rules

Looked at across these phases, four channels make the 'dual causality' most visible.

First, trade. Chinese leaders used SEZs, coastal open cities, undervalued exchange rates, and world‑class port infrastructure to build an export‑oriented manufacturing base; China’s exports rose from low single‑digit shares of world trade in 1980 to making the country the world’s largest goods exporter by the 2010s. But this export orientation only yielded outsized dividends because US policy provided exceptionally large and predictable market access. US imports from China grew to more than 400 billion dollars annually, and the US ran a structural merchandise trade deficit with China, effectively acting as a demand engine for Chinese industrialisation.

Second, FDI and capital. Beijing progressively liberalised joint ventures, offered tax holidays, and tolerated complex ownership forms as long as Party control was maintained. As a result, FDI inflows rose from a few billion dollars a year in the late 1980s to about $40 billion by 2000 and over $100 billion annually after 2010, putting China at or near the top of global FDI recipients. US and allied multinationals supplied a large share of this capital and, more importantly, embedded China into their global production networks. US FDI alone rose nearly ten‑fold in the 1990s, and foreign‑invested enterprises came to account for more than half of China’s exports.

Third, technology and know‑how. Chinese policy‑makers designed joint‑venture rules, local content requirements, and procurement policies to maximise technology transfer, while substantial state funding built up universities and public research institutes. Over time, this helped domestic firms move from simple assembly into higher‑value segments such as component design and systems integration. Yet the initial and continuing sources of much of this technology were US corporations and universities, whose offshoring decisions and research collaborations created learning channels that no purely autarkic strategy could have replicated.

Fourth, institutions and rules. Beijing used WTO accession strategically to lock in domestic legal and regulatory reforms, disciplining local protectionism and signalling commitment to openness without surrendering political sovereignty. The United States, for its part, used its agenda‑setting power within the WTO and other institutions to ensure that China would be integrated as a central participant in the liberal economic order rather than excluded as a hostile outsider. The resulting rules framework—MFN tariffs, WTO dispute mechanisms, international investment norms—provided the predictable environment in which both Chinese and US actors could undertake long‑term commitments to trade, investment, and production.

Channel	China’s internal inventiveness / policy imagination	US facilitation and external environment
Trade	Shift from autarky to export‑led growth; creation of SEZs and coastal open cities; active use of undervalued exchange rate and logistics infrastructure to support manufacturers; exports rising from low single‑digit share of world trade to making China the largest goods exporter by 2010s.	MFN status from 1980s and permanent normal trade relations from 2001 lowered tariff uncertainty; US market absorbed over 400 billion dollars in Chinese goods annually by 2010s, driving China’s export boom and large bilateral surplus.
FDI and capital	Progressive liberalisation of joint ventures, tax incentives, and land‑use policies made China the top developing‑country FDI destination; inflows rose from a few billion in late 1980s to around 40 billion by 2000 and over 100 billion annually after 2010.	US and allied multinationals led FDI in manufacturing, electronics, and consumer goods; US FDI alone rose from about 456 million dollars in 1990 to 4.4–4.7 billion by 2000–2001, with American firms using China as a base to serve the US and global markets.
Technology and know‑how	Industrial policies, local procurement rules, and joint‑venture requirements encouraged technology diffusion to Chinese firms; state funding of R&D and universities fed a growing domestic innovation system, especially after 2000.	US corporations and universities were major sources of technology, management, and standards; offshoring of complex manufacturing and design‑linked tasks created learning channels that Chinese firms leveraged to move from assembly into higher‑value stages of the value chain.
Institutions and rules	Beijing used WTO accession to lock in domestic legal and regulatory changes, disciplining local protectionism and signalling commitment to openness; experimentation at provincial and municipal levels produced flexible, hybrid governance forms.	US diplomacy was central to bringing China into WTO on relatively favourable terms in 2001, and to ensuring that international financial institutions and allies treated China as a core participant in the liberal economic order rather than an adversarial outlier.

Collated from public sources.

Two Halves of a Single Story

Taken together, the quantitative evidence and institutional history show that China’s economic rise was neither an autonomous miracle nor a simple gift of US hegemony. China’s leadership displayed considerable policy imagination in designing a hybrid developmental state that could absorb foreign capital and technology while maintaining political control, and Chinese firms proved highly inventive in exploiting the opportunities created by SEZs, WTO accession, and industrial policy. At the same time, it was the US‑led order that provided the external enabling environment: MFN status and, later, permanent normal trade relations; sponsorship of WTO accession; hundreds of billions in cumulative FDI; and, above all, a gigantic, relatively open consumer market that absorbed China’s exports on a scale no other counterpart could match.

In that sense, the story of China’s rise since 1978 is best understood as a joint production. China supplied the institutional inventiveness and labour mobilisation that turned opportunities into growth; the United States supplied the market access, capital, technology, and rules that made that growth globally scalable. Each side’s contribution was necessary but not sufficient. It is their interaction—phase by phase, channel by channel—that explains how a poor socialist economy became, within four decades, the central manufacturing and trading power of the world.

Lessons for India

India can draw three big lessons from China’s co‑produced rise, but it must apply them in a world where the US is explicitly warning that it “won’t repeat the China mistake with India.”

1. Learn from China’s internal playbook

Even without China‑style concessions, India can still borrow China’s domestic strategy mix:

a.       Use experimental zones, not uniform policy: China used SEZs and coastal open cities as laboratories before scaling reforms; India’s own SEZs, PLI clusters, and digital‑public‑infrastructure corridors can be pushed much harder in this spirit, with aggressive local facilitation and export orientation.

b. Tie openness to industrial upgrading: Beijing never opened markets as an end in itself; every tariff cut or WTO obligation was linked to moving Chinese firms up value chains in electronics, autos, telecoms and later EVs, batteries, and 5G. India’s version would be to treat trade deals, tariff cuts, and supply‑chain participation as instruments for scaling domestic champions in electronics, defence, green tech, and pharma rather than as standalone “market‑access” wins.

c. Use rules as a lever on your own system: China used WTO accession to discipline local protectionism and embed reforms; India can similarly use carefully crafted FTAs and standards regimes (with the US, EU, East Asia) to hard‑wire improvements in logistics, contract enforcement, and factor markets that it struggles to push purely from within.

2. Exploit US partnership, but on narrower terms

Landau’s line at Raisina—that Washington will not again give a partner sweeping access to US markets, technology and capital only to be beaten commercially—means India will not get the same combination of low‑friction market access, FDI and tech transfer that China enjoyed in the 1990s–2000s. Even so, there are gains to be had if Delhi is realistic about the channels that will stay open.

a.    Trade: the emerging US–India trade deal is framed in “reciprocity” and “America First” terms, not in the China‑era language of building up a new workshop of the world. India should therefore expect more limited tariff cuts, tighter safeguards, and product‑by‑product fights—but can still use selective access (e.g., in pharma, IT services, certain manufactures) to anchor export growth, much as China initially used sector‑specific openings.

b. Technology: US policy now explicitly seeks to preserve a technology edge versus China through export controls, investment screening and “small yard, high fence” regimes in critical tech. For India, the opportunity is not “China‑style” unrestricted tech flows, but targeted co‑development and co‑production in areas where Washington wants an alternative to China—semiconductor assembly/test, trusted telecoms, defence electronics, clean‑energy supply chains—paired with serious domestic capacity‑building rather than dependence.

c. Capital: India is unlikely to receive the same kind of large‑scale, manufacturing‑heavy FDI from US and allied firms that transformed China’s coastal belt, but ‘China+1’ relocation and risk diversification still create scope for sizeable inflows if India can deliver reliability on land, power, taxation, and dispute resolution. The lesson from China is to treat each wave of foreign capital as a structured learning and upgrading opportunity, not simply as a jobs or forex story.

3. Guard against becoming either ‘the next China’ or ‘not China enough’

The US message that it will not “let you develop all these markets and then find you beating us” is as much about domestic US politics as about India. India therefore has to learn a second‑order lesson from China’s experience: how not to trigger the same backlash, without giving up strategic autonomy.  

a.      Calibrate export profile and narrative: China’s rise as the dominant low‑cost exporter into the US market generated visible US job losses and a powerful political backlash; India’s export push will need to be framed around higher‑value niches, joint production, and “friend‑shoring,” so that Washington can sell it at home as risk‑sharing rather than de‑industrialisation.

b. Avoid over‑dependence on one demand centre: one structural vulnerability in China’s model was its heavy reliance on US and EU demand—exports of goods and services reached about 35 percent of GDP by 2006 before being forced down after 2008. India should deliberately diversify towards Asia, the Gulf, Africa and Europe so that US access is a strong pillar, not a single point of failure.

c. Keep strategic autonomy as a negotiating asset, not a slogan: commentary after the “death of US–China engagement” has warned that India’s real risk is passive accommodation—aligning too closely with either American or Chinese preferences and then being punished when the mood turns. The China story shows that alignment for economic gain can later be reinterpreted as a “mistake” in Washington; India’s aim should be to structure cooperation in explicitly reciprocal, time‑bound, sector‑specific ways, so that it remains a partner whose rise the US expects—but does not feel blindsided by.

Put simply, the lesson from China’s co‑produced ascent is not that India should seek the same deal—Washington has said it will not offer it—but that India should imitate China’s internal discipline (experimentation, export‑orientation, tech climbing) while treating US access and capital as important but constrained inputs, to be maximised where interests align and hedged where they do not.