Zheng Yongnian on Local Government Overreach and the Private Economy

"Whether in the platform economy, new energy vehicles or any other sector, almost every private enterprise has some connection to the local government."

Recent criticism in official publications of economic mismanagement by some local governments may have opened space for sharper lines of enquiry among Chinese scholars. Last month, official statements on optimising the “unified national market” contained disapproval of “hidden and explicit barriers” in the internal market, a nod to local government protectionism, a point several high-level scholars then developed. A Qiushi article early this month by Fudan economist Zhang Jun directly criticised local governments for ploughing resources into favoured new industries and industrial park build-outs, without proper consideration of the economic logic in the local context.

Amid this, Zheng Yongnian offers a set of diagnoses and recommendations that are noticeably more pointed than his past prescriptions for lighter-touch governance. The core of his argument in this interview is that China now occupies a situation where across a range of sectors, “almost every private enterprise has some connection to local government” and nominally private companies are viewed by the local state as a “lever for promoting local economic development”.

The result is that once sectors like electric vehicles and chipmaking receive attention, the local authorities and the enterprises that they support then come piling in, leading to an over-proliferation of new companies that spreads resources too thin: he raises the examples of China’s plethora of EV companies and the “battle of a hundred models” in Chinese AI. Moreover, he observes that local officials are loath to loosen their controls over society for fear that it will generate instability, suffocating the “social vitality” necessary for genuinely innovative companies to emerge in a bottom-up manner.

However, rather than only employing negative foils, Zheng also raises a positive example of the motorcycle entrepreneur Zhang Xue, whose story of success outside of the gaokao route has made him the darling of opinion leaders critiquing the traditional examination system. He argues that Zhang’s company ZXMOTO is a lesson in how SMEs can benefit from industrial policy without being overwhelmed by it. He is also careful to specify that the target of his criticism is only local governments. The central government, he makes clear, is pursuing the correct course in carrying out “high-standard opening up”.

What Zheng does not interrogate is the degree to which central government policy—the drive to develop domestically a “complete industrial system”, which he praises—may have conditioned the very situation he decries, whereby state-backed capital dominates the private sphere. It is not clear whether he thinks the central government’s current top-down approach to regulating local government excesses will see results.

—James Farquharson

Key Points

1. Local governments, private enterprises and private capital often “rush in and then scatter” once sectors become high-profile, producing fragmented investment driven more by subjective enthusiasm than by economic laws.

2. Chips, large models and new energy vehicles illustrate this pattern, with the “war of a hundred models” showing how China’s more limited capital base is stretched further by too many competing projects.

3. Behind this proliferation of projects is a local-growth logic in which private enterprises have close ties to the local state, which treats them as a “lever” for launching economic projects and entering high-profile growth industries.

4. Bottlenecks facing private enterprises and SMEs stem from the dominance of state and SOE capital; policy support must be matched by a business environment that better manages capital allocation between large and smaller enterprises.

5. Unleashing private enterprise as a source of social vitality requires balancing a “capable government” and “effective market” with the existence of a “vibrant society”, where the state does not overreach and capital does not become over-extractive.

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6. A vibrant society also requires a relaxation of regulation in order to allow room for genuine vitality, but excessive local caution can mean that a focus on stability prevents these reforms from taking place.

7. SMEs are central to China’s private-sector dynamism, with the case of Zhang Xue’s ZXMOTO showing how their capacity for innovative breakthroughs complements the state-backed industrial system.

8. ZXMOTO’s success also suggests that China may be able to break into and potentially surpass the West in traditional manufacturing sectors, like internal combustion vehicles, where Western firms have long held dominance.

9. Promoting further breakthroughs by people outside of the mainstream education system also requires a broader definition of talent, since practical and industrial talent capable of integrating existing technologies is equally important to basic research.

10. At the macro level, China’s development and security must advance in parallel, since a country of 1.4 billion cannot rely entirely on a volatile international market and must pursue self-reliance.

The Scholar

Name: Zheng Yongnian (郑永年)
Year of birth: 1962 (age: 63/64)
Position: Founding Dean and X.Q. Deng Presidential Chair Professor, School of Public Policy, The Chinese University of Hong Kong (CUHK), Shenzhen; Founding Director, Institute for International Affairs, Qianhai (IIA), CUHK, Shenzhen
Previously: Director, East Asian Institute, National University of Singapore (2008–2019); Founding Research Director, China Policy Institute, University of Nottingham (2005–2008); Researcher, East Asian Institute, National University of Singapore (1996–2005)
Research focus: International Relations; Chinese Politics and Society; Nationalism
Education: BA (International Relations), Peking University (1985); MA (Political Theory), Peking University (1988); MA (Political Science), Princeton University (1992); PhD (Political Science), Princeton University (1995)
Experience abroad: Postdoctoral Fellow, Harvard University (1995–1997); University of Nottingham (2005–2008); National University of Singapore (1997–2019)

WHY CHINA NEEDS “ZHANG XUE-STYLE” BREAKTHROUGHS
Zheng Yongnian (郑永年)
Published by Hubei Daily’s Guanyixian on 16 May 2026
Partially adapted from original interview format
Translation and summary by Cherry Yu
(Illustration by ChatGPT)

I. The Symbolic Value of Zhang Xue’s Success

The Zhang Xue story has drawn such wide attention for three reasons. [Note: The ZXMOTO 820RR, designed and built by Zhang Xue’s company, has clocked up a series of wins in the World SSP Championship motorcycle racing competition, thus becoming the first Chinese-built vehicle to claim a win in the championship.] The first, and the one on which most people have focused, is personal: he came from an ordinary, even difficult, family background, yet grew into a hero-like figure. The second is the question of how small and medium-sized enterprises (SMEs) can succeed. The third is that his story reflects the overall level of China’s manufacturing. These three dimensions are closely connected and mutually indispensable [缺一不可].

Looking back over China’s journey since reform and opening up, its success stories have been driven primarily by private enterprises, most of which began as SMEs, as Huawei and Tencent once did. Without exception, even the large companies that now occupy leading positions in manufacturing and other sectors all went through an SME stage. The much-discussed “Six Little Dragons of Hangzhou” [“杭州六小龙”] are still SMEs. From the perspective of manufacturing, Zhang Xue’s story can be seen as a successful example with contemporary significance. [Note: The “Six Little Dragons of Hangzhou” [“杭州六小龙”] refers to a group of emerging technology companies based in Hangzhou, including DeepSeek, Game Science, Unitree Robotics, Deep Robotics, BrainCo and Manycore Tech.]

In terms of manufacturing upgrading, ZXMOTO also carries important indicative significance. Take the traditional automotive industry as an example: China has never managed to surpass the West in conventional petrol-powered vehicles. However, in the field of new energy vehicles, it has succeeded in “overtaking by changing lanes” [换道超车] and has surpassed the West. The development path represented by ZXMOTO is particularly interesting in this respect, because it suggests that China could achieve similar breakthroughs in traditional manufacturing sectors that have, until now, been dominated by the West.

Therefore, Zhang Xue’s success was not achieved through personal effort alone, but is inseparable from the continuous improvement of China’s overall manufacturing capabilities. It was against this broader backdrop that his achievement was realised through technological integration [技术集成]. This is not simply the story of a child from a poor family overcoming the odds [逆袭], but one that carries much wider significance. In key areas where China remains constrained by the West, whether among state-owned enterprises (SOEs) or large private enterprises, if we can advocate and practise the “Zhang Xue spirit” [“张雪精神”] and possess the same spirit of exploration that Zhang Xue has demonstrated, we likewise have hope of catching up [迎头赶上] and achieving independent breakthroughs [自主突破].

II. Bottlenecks in the Private Economy

Releasing the vitality of private enterprises is, in essence, releasing the vitality of society [释放社会活力]. China has a “proactive government” [有为政府] and an “effective market” [有效市场], but I believe we should also add a “vibrant society” [有活力的社会] to this [Note: The idea of a “proactive government” and “effective market” is most associated with Justin Lin Yifu’s theories of New Structural Economics, which is promoted as a key intellectual pillar of China’s modern industrial policy. Zheng’s ideas might differ somewhat from Lin’s.] If the government becomes too proactive, it may end up regulating the economy to the point of rigidity. If capital pursues efficiency to excess and keeps harvesting our society for profit until there is nothing left to take [把我们社会的“韭菜”割得光光的], that too will create problems. In this sense, social vitality is precisely what matters most.

From Zhang Xue’s case, we can see that individual spirit alone is not enough. Without a good business environment [良好的营商环境] and without financial backing from Zhejiang and elsewhere, he would have struggled to achieve what he has today. [Note: In January 2026, ZXMOTO completed a RMB 90 million Series A funding round led by Zhejiang Venture Capital [浙创投], an investment platform with Zhejiang state-capital backing.] In the United States, figures such as Jensen Huang, Elon Musk, Bill Gates in an earlier era and Sam Altman today all represent a form of entrepreneurship. The precondition for releasing that entrepreneurial spirit and translating it into material outcomes is a good business environment.

China does not lack entrepreneurs. Since the 1980s, we have nurtured a large cohort of outstanding entrepreneurs, including Ren Zhengfei, Wang Chuanfu and Pony Ma. The question now is how to enable more entrepreneurs to emerge. We must acknowledge that private enterprises today, especially some SMEs, have indeed encountered certain bottlenecks [瓶颈] in their development. At the level of central policy, the principle of the “two unswerving commitments” [两个毫不动摇] is clear: the Private Economy Promotion Law is now in force and being implemented, and the central authorities have maintained regular engagement with private entrepreneurs. Yet why have private enterprises now run into development bottlenecks? To answer this, we need to look at the business environment. [Note: The “two unswerving commitments” [两个毫不动摇] refer to the policy of unswervingly consolidating and developing the public sector, while unswervingly encouraging, supporting and guiding the development of the non-public sector.]

Realistically speaking, this problem does not exist in the United States because there is no involvement by SOEs or state capital. However, in China, we must properly handle the relationship between SOEs and private enterprises, and between state capital and private capital. If we shy away from this real contradiction, we will make mistakes. Therefore, we need to confront the problem directly, recognise that both SOEs and private enterprises are important and properly handle the relationship between the two.

Judging from the current situation, large enterprises, whether state-owned or private, have absorbed and taken up too much capital. Since the total amount of capital is limited, SMEs will naturally find it difficult to obtain sufficient support if financial resources and services flow in large quantities to big enterprises. Likewise, if most capital is directed towards SOEs, the space for private enterprises to develop will also be squeezed. The key to handling this issue properly lies in building a good business environment.

What is a “vibrant society”? I think the most important point is “allow room for vitality, [and then] govern effectively” [放得活、管得好]. Yet the approach of some local governments today is a preference for not relaxing or loosening controls, on the grounds that grasping things tightly makes for more stable social management, whereas letting go might invite disorder [出乱子]. The problem is that governance premised on refusing to loosen control often ends up in “governing to death” [管死] rather than “governing into existence” [管活]. The precondition must be to allow room for vitality [放得活] before governance can truly be effective [管得好]. At present, there is no problem with the direction of opening up at the national macro level, which is steadily advancing towards high-standard opening up to the outside world. However, at the micro level, problems remain to be addressed, and considerable space remains to be unlocked.

III. Unclear Boundaries Between the State and the Market

Private enterprises themselves do have problems, and private capital is not without issues either. Aside from this, the role of local governments also cannot be ignored. Whether in chips or in large models, a common phenomenon at present is that some local governments and private investors tend to “rush in and then scatter” [一哄而上、一哄而散], acting less in accordance with economic laws than on the basis of subjective will [主观意愿]. The result is that our investment has become dispersed. At present, AI large models in both China and the US are basically led by private capital, but while the US has very strong capital power and only a limited number of large models, China has already seen a “war of a hundred models” [百模大战] despite having a weaker capital base than America’s, meaning that our already limited capital is being spread even more thinly. A similar situation also exists in the field of new energy vehicles. In the US, Tesla is essentially dominant, whereas China has a huge number of new energy vehicle brands, which objectively reflects a similar pattern of fragmentation.

We have long been influenced by Western economics, especially neoliberal thinking, which holds that the government should not intervene in private capital but should simply issue licences and allow it to compete freely. However, in reality, if you look across different sectors in the West, the number of competitors is limited, whereas in China the number of competitors is almost unlimited, a phenomenon that is admittedly also related to the size of China’s population. Whether in the platform economy, new energy vehicles or any other sector, almost every private enterprise has some connection to the local government. Local governments view private enterprises as a lever [抓手] for pursuing local economic development. As a result, once a sector attracts widespread attention, such as with new energy vehicles, many localities rush to launch their own projects [纷纷上马自己的项目]. Behind this lie underlying assumptions, problems within private enterprises themselves, but also the factor of improper handling of the relationship between government and the market. I think it’s a result of multiple factors working together rather than any single determining factor.

IV. A Reappraisal of the Definition of “Talent”

This touches on our understanding of what counts as talent. If measured by traditional standards of talent, Zhang Xue would be excluded. [Note: On the basis that he only has a junior secondary education and trained as an apprentice mechanic, placing him outside China’s mainstream and higher-education-centred conception of talent.] At present, we essentially treat academic talent as the sole benchmark for defining talent. Basic research is undoubtedly very important, as is academic talent. But problems arise if academic talent is treated as the only form of talent, because practical talent capable of turning the results of basic research into applied technologies is equally important.

To give a simple example, the 5G technology that Mr Ren Zhengfei and his team at Huawei developed is now something each of us uses within our phones, but 5G itself began as an academic paper. As an idea, 5G belonged to basic research, which is undoubtedly very important. Yet without people like Ren Zhengfei to turn 5G into an applied technology, it would have remained on paper and could not have been transformed into economic activity. This is why industrial talent is so crucial. The same applies to innovative drugs, where many achievements are also translated into application by industrial talent.

That said, it is worth noting that from a global perspective, basic research in most countries is located in universities, a pattern with its own particular historical background. Before the 1960s, large corporations also carried out basic research, with Bell Labs being the most representative example. Later, in the 1960s and 1970s, as US politics tilted towards left-wing policies and antitrust laws were implemented, the basic research functions of large corporations were moved into universities. [Note: The 1956 “consent decree”, on the basis of anti-trust law, obligated the AT&T-controlled Bell System to license its patents royalty-free. Zheng is probably suggesting that for a time this undermined the monopoly rents which made in-house basic research possible, but it has also been argued that this spurred innovation by other companies.] This produced a pattern in which universities primarily conduct basic research while enterprises are responsible for translating it into applied technologies. This division of labour did not emerge naturally but was the result of antitrust law.

However, the situation has now changed. Today, both universities and large corporations are engaged in basic research. For example, Google has already cultivated several basic research talents whose work is of Nobel Prize calibre. With the arrival of the age of artificial intelligence, more basic research is shifting towards large corporations. Even Professor Li Feifei of Stanford University has voiced concern that top universities such as Stanford now struggle to find talent in artificial intelligence. This is not simply a matter of money, although money is indeed one factor. The more fundamental reason is that basic research in large corporations follows a different path from basic research in universities. University-based basic research, such as Einstein’s work, often stems from scientists’ personal interests, which may or may not ever be translated into applied technology, despite its great importance. Meanwhile, basic research in large corporations is usually problem-driven, pushing research forward from specific practical questions and therefore more likely to be translated into applied technology.

Viewed across the course of human history, many Nobel Prize-winning achievements in basic research may never have been converted into practical applied technologies, but that does not make them unimportant. Without necessarily being directed towards applied technology, some basic research contributes new methodologies, while some of it changes the way people think. By contrast, basic research carried out by large corporations is much more likely to be converted into economic activity and applied technologies. These represent two different paths.

Many Nobel Prizes have emerged from the marketplace of ideas, but applied technology is different in that it can be advanced in a planned way, and many of China’s national projects fall within this category. What Zhang Xue has done is also applied technology. If you were to ask which part of ZXMOTO represents an original idea, the answer would be none. What he has done is combined, fused and integrated different technologies, improved efficiency and made such a product. Therefore, we still need to fully recognise the difference between these situations. Is this not an expression of social vitality?

V. Balancing Development with Security

In the 1980s, we were deeply influenced by Western liberalism and believed that many things, including grain and large aircraft, could be purchased from the international market rather than produced domestically. This may be an option for small countries and small economies, but it is absolutely not viable for an economy on China’s scale. In this respect, the decisions made at the central level have been entirely correct. New energy vehicles are a case in point: in the past, some argued that since the world was not short of energy, there was no need to develop new energy, a view that was also prevalent within the US. Facts have shown that our direction was correct, as are our current efforts to improve the efficiency of traditional energy and coal use. Today, China has the most complete industrial system across the categories used in UN industrial statistics. It’s the right approach.

For a major country of more than 1.4 billion people, relying entirely on the so-called international market would be a grave mistake. Globalisation and international markets exist only under certain conditions, and with geopolitical conflicts and wars now occurring so frequently, those markets could be disrupted at any time. Having drawn profound lessons from China’s history since the War of Resistance against Japan, we will not repeat the same mistakes, which is why we have always emphasised that development and security must advance in parallel [两条腿走路] and be pursued in a coordinated way.

I think what is tragic about humanity today is that we quantify everything and compare only the numbers. Numbers can certainly tell us something, but they cannot tell us everything. In 1820, China still had the world’s largest GDP but was later defeated by Britain, whose share of global GDP was in fact not very high. Similarly, although the United States still has a higher GDP per capita and a larger overall economy than China, we are not worse than the US in certain aspects of quality of life, such as safety and the lives of ordinary people. A fixation on quantitative comparison, much like entrepreneurs judging success solely by the size of their fortunes, overlooks something essential about human society—namely, that many dimensions of human life cannot be quantified.

This requires us to change our way of thinking, because without such a change, anxiety will only continue to grow. The state will certainly take economic issues into account, as reflected in the economic growth target of 4.5 to 5% set at this year’s Two Sessions. The economic base is already very large, so growth does not need to be so fast. Humanity as a whole pursues not only material wellbeing but also spiritual fulfilment, which makes China’s shift from quantity-based growth to quality-based growth especially important. Yet many people’s thinking remains stuck in the logic of quantity-based growth, when what we should really be pursuing is quality-based growth and development that is more coordinated and better integrated.

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