Washington’s China hawks have spent years warning that America must learn from Beijing: subsidize strategic industries, direct investment toward favored sectors, and mobilize the state to compete with a supposedly superior Chinese economic model, etc. There is just one problem. China’s own economic experience increasingly undermines the premise that America must imitate Beijing to remain competitive.
China’s latest infrastructure initiative—the so-called Six Networks—offers a case in point. Covering water infrastructure, electricity grids, computing capacity, telecommunications, underground pipelines, and logistics, the program is intended to sustain its already declining growth and stimulate its increasingly flagging domestic demand. Beijing anticipates more than 7 trillion yuan (just over $1 trillion) in investment across the networks and related areas in 2026 alone. Estimates for the five-year investment push reach approximately 26 trillion yuan (just under $4 trillion).
Some of these projects may prove economically valuable. Replacing deteriorating water pipes, improving electricity transmission, and connecting productive regions are not inherently wasteful undertakings. But the question is not whether infrastructure can be useful. It is whether individual investments are worth their opportunity costs, and whether the institutions directing capital have any reliable means of answering that question.
China’s investment-driven growth model has long obscured this distinction. Local governments have strong incentives to pursue construction and industrial expansion for fiscal reasons, while state-owned enterprises and state-directed lenders can sustain projects that would struggle to attract capital under actual market conditions—the latter being a particularly pernicious problem. The result is an economic system capable of producing spectacular physical infrastructure alongside mounting debt, excess capacity, and declining returns on investment. These problems have long been understood as central weaknesses of China’s construction and export-driven growth model.
The Six Networks risk perpetuating and even worsening precisely these imbalances, as Beijing is effectively attempting to solve the consequences of an investment-heavy development model by doubling down on investment—and state-directed investment at that. Economic calculation cannot be said to occur under such conditions. In the absence of free prices and exchange, officials are merely establishing spending targets, directing credit toward favored projects and ordering construction. They cannot decree that the resulting assets will generate sufficient returns to justify the resources consumed. Nor can aggregate investment figures distinguish economically-productive projects from expensive monuments to administrative ambition.
The distinction matters because capital is scarce. Steel, labor, machinery, land, and financing committed to an unproductive project cannot simultaneously serve alternative uses. A new computing center may support valuable innovation; another built without sufficient demand may simply absorb capital that entrepreneurs would otherwise have employed elsewhere. The same applies to power grids, logistics hubs, and the other components of the Six Networks.
Worse, the costs of these mistakes extend beyond the money spent constructing the projects. Malinvestment distorts the structure of production, sustains uncompetitive enterprises, and delays the reallocation of resources toward more valuable uses. Subsidized financing and the political imperative to maintain growth can postpone the recognition of losses, allowing mistakes to accumulate rather than forcing timely correction.
We cannot know how much wealthier Chinese households would already be had the trillions devoted to bad investments instead flowed toward genuinely productive uses. This is the counterfactual, or synthetic, case that cannot be directly observed. Empty buildings, underused infrastructure, and unproductive industrial capacity provide visible evidence of waste, but they cannot tell us the full value of the businesses never established, the consumption forgone, or the innovations never financed because resources were committed elsewhere. The full cost of malinvestment is not merely what was wasted, but also what never came to exist.
China’s broader economic difficulties make the question especially pertinent. Weak household demand, a prolonged property downturn, and excess industrial capacity have exposed the limits of a model reliant on investment and exports. Beijing has made technological self-sufficiency and advanced manufacturing priorities, and it has succeeded, but at what cost?
Whatever the cost, the political incentives to stay the course, that is continuing to favor the existing investment-driven model, remain formidable. Officials can claim credit for completed projects and headline growth; connected companies receive contracts; favored industries obtain financing; while the costs are dispersed across the wider economy.
American policymakers should take note. China’s technological achievements are real, but they do not vindicate the institutional arrangements that have also produced debt burdens, excess capacity, diminishing returns on capital, and reliance on financial repression and foreign market access. The lesson is not that Washington must copy Beijing’s policies—it is that economic resources cannot be made productive simply by directing them toward politically-designated priorities.
While it may satisfy the demands of government planners, even so-called successes come at the cost of the broader public being made poorer than they would otherwise have been. It is, to borrow Doyle’s phrase, difficult to appreciate the dog that didn’t bark—but it is no less important for that.
The Six Networks will no doubt yield some useful infrastructure; it will equally certainly compound China’s existing malinvestment. What Beijing’s decrees cannot repeal is economic reality. An economy does not become wealthier merely because its government can mobilize trillions to build things. It becomes wealthier when scarce resources are allocated toward uses that people value, and when investment decisions are disciplined by the possibility of loss.
With trillions of bad debts already being shuffled around China’s financial apparatus following its previous, massive expansionary credit cycle; and with growth having slowed drastically over the past decade; while Beijing’s planners doubtlessly have multiple additional motives for this latest round of spending, such as raising the domestic price level and stemming some of its exports at a time when Beijing is trying to carefully massage important relationships with trade partners like the EU, one would have thought yet more government stimulus would have been the furthest thing from their minds.
But when all you have is a hammer, it is natural that everything starts to look like a nail.
