As I work across China these days, I find two issues are foremost in the mind of Chinese corporate leaders: the US tariffs and artificial intelligence (AI). While these two topics may seem unrelated, they are, in fact, deeply connected.

Today, most people recognize China as an innovative nation — something that was not widely accepted even a little over a decade ago. Since the emergence of OpenAI two years ago, there has been a general sense of despair and frustration in China as the Chinese were caught by surprise by the US’ rapid progress in AI. However, the recent launch of DeepSeek marked a clear turning point. It stirred a new wave of confidence and activities in the Chinese business community, where AI and its applications have now become the most prevalent topic.

Although most companies remain in the early stages of adopting AI into their operations, some have begun to explore the fundamental changes AI will bring to business. AI will lead in the redefinition of what constitutes an industry, and even how an enterprise should be defined. It will also have a fundamental impact on the definitions of organizational structure, processes, and capabilities. Chinese companies are at the forefront of exploring how this transformation should be achieved.

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Furthermore, China is advancing rapidly in the integration of AI with other technologies such as robotics and automation across multiple sectors.

Many observers wonder how China has been able to grow so rapidly, become so innovative in such a short time, and demonstrate such a high level of resilience despite so many external and internal challenges. And why it is that China’s innovations often appear in bursts. And, why now?

I believe there is an internal logic behind China’s growth and resilience. It can be understood through three primary factors.

First is China’s structural system which is composed of a three-layered governance model with a dual business structure, forming a unique framework for economic development. At the top of the system is the central government, which sets national priorities through top-down directives. At the base are enterprises and entrepreneurs, who drive bottom-up innovation and competition, bringing fresh ideas and business models into the system. In the middle are local governments, which not only carry out these directives but also engage in regional competition and collaboration, pushing for innovation and growth. In a way, they are the glue connecting central government policies and businesses.

Alongside this governance model is a dual business structure that is made up of both State-owned enterprises (SOE) and privately owned enterprises (POE). SOEs play a key role in strategic sectors and help fulfill national goals, while POEs are more agile and competitive, especially in areas like tech, manufacturing, and services. While these sectors may suffer glitches at times, they also play complementary roles.

Together, this system allows China to balance central control with local flexibility, and government planning with market-driven innovation. While not perfect in its execution, the overall achievement of the approach has enabled China’s rapid growth over the last several decades.

Second is China’s inclination toward experimentation, learning, and adaptation. Instead of rigidly following fixed models, China often tests new policies or reforms in specific regions or sectors. This trial-and-error approach allows for real-world feedback, enabling successful practices to be scaled up, while less effective ones are revised or discarded. It reflects a mindset of continuous refinement and pragmatic problem-solving, which has been key to navigating complex development challenges.

Third is China’s large-scale organizational and coordination capabilities, particularly those demonstrated by local governments. Through centralized coordination and a clear hierarchical structure, local governments can rapidly mobilize resources and align with national goals. Implementation is both targeted — with clear performance metrics — and holistic, addressing employment, education, healthcare, and more. Combined with strong oversight mechanisms, this enables efficient and large-scale policy delivery across the country. When applied in the wrong way, this capability could lead to disastrous results. However, China’s track record in the last several decades has, by and large, been very positive.

But there is an even more fundamental underlying logic.

For nearly 200 years, different generations of Chinese elites have been searching for ways to rejuvenate the Chinese nation — to find a form of modernity that aligns with China’s context. This process has been tumultuous with both progress and setbacks.  

The formation of the People’s Republic of China in 1949 provided a new approach which addressed some of the fundamental flaws of the previous approaches but it also introduced plenty of tumultuous experiences during the republic’s first 30 years.

The reform and opening-up that started in the late 1970s was a fresh start for China.

With multiple strands of thought originating more than 2,000 years ago, Chinese civilization is broad and diversified. While Confucianism was a dominant school of thought, Legalism, Daoism, Mohism and others were also prevalent. The schools of the Strategists, Militarists, Logicians, and Yin-Yang thinkers also exerted their influence. Since the Han dynasty (206 BC-AD 204), the Chinese have taken on Buddhism from India and integrated it into Chinese thought. In more recent times, Chinese took on Marxism and later adopted the principles of the market economy. The Chinese ideology is therefore diversified, inclusive and adaptive.

China’s current resilience and continued pursuit of progress are not an aberration, but rather the result of nearly two centuries of collective reflection on how to achieve a form of modernity that is commensurate with the context of China — a country with the longest continuously documented history. Mistakes were made in the past, yet collective reflection on lessons learned and a cross-generational pursuit for modernity continues to drive the country forward. What we witness today is the collective will of an entire nation with a population of over 1.4 billion — shaped by a mix of rich history, culture, and civilization that was built on diversity, inclusiveness, and adaptability, and led by a functioning political leadership.

In fact, throughout China’s multi-millennia history, whenever there was a period of social stability, China would inevitably rise to become one of the world’s largest, if not the largest, economic power. This could explain why we are witnessing what we are witnessing today, and also, why it is happening now.

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As the world enters a new era of multipolarity, China’s role will become even more significant. Its growth and evolving influence will be a key factor in shaping how the global order functions in future.

The author is founder and CEO of Gao Feng Advisory Company, a strategy and management consulting firm with roots in China.

The views do not necessarily reflect those of China Daily.