Investment Competition: The Gap and Opportunities Between China and the West

Ladies and gentlemen, we are currently in the midst of a major global competition, but at the end of the day, what exactly is competitiveness? The World Bank has listed 1,200 influencing factors, but McKinsey puts it simply: the key lies in productive investment. This isn’t financial investment in stocks or bonds, but rather fixed investment in tangible and intangible assets—such as infrastructure, factories, equipment, R&D, and intellectual property. Data shows that productive investment accounts for 80% of labor productivity growth. The greater the value created by labor, the more investment it drives in turn, creating a virtuous cycle. Let’s look at the differences in productive investment among the world’s major economies: China reached $5.9 trillion in 2024, accounting for 31% of its GDP; the U.S. stood at $5.1 trillion; and the EU was at $3.1 trillion. However, when accounting for price differences and measured in terms of purchasing power parity (PPP), China’s productive investment more than doubles to $11.9 trillion. The U.S. remains at $5.1 trillion, while the EU’s figure converts to $4.5 trillion. China’s total is exactly equal to the combined total of the EU, the U.S., Japan, South Korea, the U.K., and India. Even India, often overlooked, invested $1 trillion, which is equivalent to $4.6 trillion in purchasing power terms; however, after accounting for the replacement of obsolete assets, its net investment amounts to only $1.6 trillion. Most of Europe’s investment is directed toward asset maintenance, with new productive investment totaling only 400 billion; even when calculated using MPP, it amounts to just 700 billion. The U.S.’s net investment is 1.1 trillion, while China’s is 4.4 trillion; after MPP conversion, this amounts to 8.8 trillion—exactly eight times that of the U.S. and 1.8 times the combined total of Europe, the U.S., Japan, South Korea, the U.K., and India. Let’s now take a look at how each economy allocates its productive investment across different industries. The magenta portion represents China; compared to the dark blue United States and light blue European Union, our investment proportion in machinery, electronics, and basic manufacturing is significantly higher. Overall, a substantial portion of global manufacturing investment has flowed into China, while investment in information and communications technology and financial services has been much lower. Data from 2025 shows that while China’s total productive investment remained flat, investment in specific sectors that directly challenge developed economies—such as automobiles, railways, aviation, aerospace, and shipping—grew by 15 percent. The composition of investors has also shifted, with the source of investment growth moving from private enterprises to state-owned enterprises, focusing on strategic industries that may not yield high profits in the short term. So, in fact, we are currently adjusting our investment structure. While the value of our productive assets is 70% higher than the average in Europe and the United States, the direct rates of return on these assets are typically low due to heavy investment in infrastructure and construction. Consequently, economic efficiency—that is, the return on capital—is 40% lower than the average in Europe and the United States. What about investment trends in the United States? There is a shift toward high-return intangible assets, such as software, patents, and R&D—that is, intellectual property-related products. The U.S. is also the most enthusiastic nation in building AI data centers, with investment in this area having grown by 200% since the launch of ChatGPT. However, the boom in AI investment has not driven a broader recovery in investment outside the technology sector. In fact, the share of GDP accounted for by investments unrelated to technology, software, and R&D has actually been declining. This divergence in investment patterns also signals a reshaping of the global economic landscape. It’s clear to see who is building future production capacity in which sectors. For example, the United States holds a competitive edge in the service sector, particularly in finance and information and communications technology—that is, Wall Street and Silicon Valley. China, meanwhile, is consolidating its position in mechanical and electronic industries while catching up in the automotive and pharmaceutical sectors. McKinsey has identified ten strategically significant priority industries, including nuclear power, solar energy, electric arc furnace steel, polyethylene, pharmaceuticals, batteries, data centers, semiconductors, biopharmaceutical R&D, and automotive R&D. If you examine the costs in these industries and make a standardized comparison, you’ll find that, with the exception of polyethyleneterephthalate (PET), China’s costs are among the lowest in nearly all of them. Differences in capital expenditures for equipment and facilities, labor costs, industrial energy and raw material prices, as well as the speed of project approvals vary from country to country, leading to cost disparities. With the exception of natural gas, China holds a competitive advantage in nearly all areas, particularly in labor costs. In R&D-intensive sectors, the cost gap between Europe, the United States, and China can be as high as threefold, while labor costs for blue-collar workers are as much as ten times higher. In response to the cost disadvantages and severe underinvestment in Western developed economies, McKinsey has proposed a seven-pronged strategy. Regarding capital expenditures, infrastructure restrictions should be lifted. In the labor sector, AI and automation should be leveraged to boost productivity. Ensure an adequate supply of clean energy near industrial hubs, streamline regulatory processes to accelerate project timelines, maintain price premiums through innovation and differentiation, and focus on key industries with low cost sensitivity. Finally, utilize industrial policies to foster a level playing field. These recommendations are primarily aimed at helping the West address its weaknesses. The challenges facing Chinese companies lie in low returns on capital, homogenized production capacity, and price wars. It is time for us to make the leap toward intangible assets such as software, brands, algorithms, and intellectual property. This sector represents the most lucrative segment; by increasing the proportion of investment in these areas, we can enhance the added value of our products and break free from the low ceiling imposed by pure hardware sales. Currently, Europe and the United States are aggressively implementing industrial policies—through subsidies, tariffs, and localized procurement—to narrow their cost gaps. It is time for us to go with the flow, exporting our efficient experience in industrial chain coordination overseas and transitioning from pure trade to localized operations. To break through the stagnant competition in the domestic mid-to-low-end market, we must concentrate our efforts on areas where Europe and the U.S. face high costs and slow response times. By leveraging China’s unique advantages in supply chain clusters and project execution capabilities, we can fully master high-end semiconductor equipment, critical materials, industrial automation, and high-end medical devices—hard technologies—we will secure the strategic high ground in both technology and economics.