China's Strategy for Funding Advanced Manufacturing

What is the purpose of finance and its relationship with the real economy? How can the financial sector better support innovation and national growth? What financing tools can lead to improved national competitiveness? What role should the state play, if any, in guiding capital?

These questions are not debated in the United States, at least not generally. The first question is not debated in China, either, because the answer is settled: finance should support the real economy. But China is vigorously grappling with the other points of political economy and is developing new theories and institutions—and its government is experi­menting with many new financing mechanisms—to support many different industrial policies. These new policy instruments combine state capital with market mechanisms. Such experiments offer insights into how the United States might fix its own market failures plaguing the fin­ancing of advanced hardware industries and the lack of patient capital in America.

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