China will win the Iran War Its factories are ready for a step change

There’s a strong case for Deng Xiaoping, China’s leader from 1978, being the most important historical figure of the second half of the 20th century. Purged twice, only to rise a third time, he embraced a market system while preserving one-party rule. Deng was the central author of modern China, from its emergence as a technology superpower to promoting the one-child policy.

One phrase is particularly associated with Mao’s diminutive successor. “It doesn’t matter if a cat is black or white,” the memorable dictum goes. “If it catches mice, it’s a good cat”. In other words: it is possible for a socialist society to have a market economy — or a capitalist society to have a planned one. What matters is which social interests are privileged. Understand Deng’s feline-themed refrain, and the thinking behind it, and you grasp how contemporary China permits private firms, and the profit motive, while warding off the worst evils of capitalism. The economic objectives of the Chinese state are determined politically by the Communist Party, rather than reflecting the sectional interests of capital. The planner state isn’t always kind — it’s generally best not to have your fertility policy designed by a missile engineer — but it has dragged China to the top table of geopolitics.

In his own inimitable fashion, Donald Trump recently offered a mirror to Deng’s famous saying. “I respect China, because it’s… a system that, in theory, shouldn’t work,” he told an audience in Miami last week. “But if you look at China, how well they do, how much they produce. I mean, they produce so many cars that they actually have competitions over who can produce the fewest cars.” If Deng’s words were immortalised as the “white cat” formula, perhaps Trump had articulated the less poetic “too many cars” theory. It certainly distils how Chinese firms, often backed by the state, capture huge market share through oversupply. A decade ago, that meant a sudden profusion of solar panels. Today, it’s electric vehicles.

Such an overt admission of the success of the Chinese system, not least by a Republican president, might be unexpected — but it shouldn’t surprise us. Deng re-calibrated the political and economic system of his own country; now, almost half a century later, it increasingly feels as if United States will have to follow suit. The question is whether, after Trump, it can. While the People’s Republic has a system where the parties can’t change but the policies can, America seems to operate in reverse. The faces, factions and rhetoric constantly evolve — polarisation is everywhere, and ever more ferocious — but the underlying economic reality remains the same.

Even before the Iran War, it was clear that the US, and the “political West” more generally, were in relative decline. Their collective high point came at the turn of the millennium, when the OECD countries comprised 80% of nominal global GDP. Today, by contrast, that figure stands at 60%, with economic clout — and, by extension, political power — flowing east. By another measure, indeed, China is already the world’s largest economy, with India and Russia behind the US in second.

Though it might be tempting to point to recent growth across the Pacific, economic expansion in America rests entirely on debt. While it’s true American GDP grew by an extraordinary $9 trillion between 2020 and 2025, the country’s national debt ballooned even more, rising by $11 trillion over the same period. Even at the start of the year, before the assasination of Ayatollah Khamenei, the country’s jobs data, and stubborn deficit, were at odds with Trump’s rhetoric of an economic miracle. As with every Republican president since Reagan, his growth model is familiar: deficit-funded tax cuts while barking about smaller government. The Brookings Institution recently concluded that keeping tax breaks introduced by Trump would mean the country’s debt-to-GDP ratio will rise to more than 200% by the 2050s. Think Japan, just without the fast trains or social cohesion.

But it’s not just that the West is sluggish. China is increasingly competitive as both an industrial juggernaut and a global centre for innovation. In the 2000s, when China was allowed to join the World Trade Organisation, the assumption had been that, as America de-industrialised, it would move up the commodity chain, leaving the dirty work for poorer, less creative rivals. The avatar for such thinking was the Apple iPhone. While the handset was assembled in Asia, it was designed in California — home to the world’s largest company, and the first to reach a valuation of $1 trillion.

Today, however, China is building its own versions of the iPhone, from Xiaomi to Huawei, while remaining home to almost a third of global manufacturing. Then there is its burgeoning car industry. BYD is now the world’s leading manufacturer of electric vehicles, overtaking Tesla some years ago. Elsewhere, despite being banned from a number of Western markets, Huawei remains the global leader in 5G networks.

China also has a growing advantage in sectors like lithium-ion storage, solar cells and drones. Six of the world’s 10 leading battery producers are Chinese, while the country produces around 90% of all consumer UAVs. And the innovation gap in both fields is only set to grow. Emblematic of that is how BYD presently has more than 100,000 people working on research and development alone.

Finally, there is the country’s remarkable success with renewables. Nine out of every 10 solar panels are made in China. Given almost half of all electricity worldwide is now generated by renewables — with solar being the leading source by far — that means an exporting bonanza. Global solar capacity grew by 511 GW in 2025, and virtually all of that comes via panels made in the Middle Kingdom.

The war in Iran looks set to accelerate all this — not only emphasising the industrial prowess of the People’s Republic, but underscoring its advantages as a so-called “planner state”, where private enterprise cooperates tightly with the state. Iran’s strategy of leveraging geography to close an economic chokepoint, and catalysing a global energy crisis, means Beijing is set to be the conflict’s biggest winner.

In the first days of the war, one often encountered claims that attacks on both Iran and Venezuela were part of a new “Great Game”, with Washington hoping to undermine Beijing’s access to cheap fossil fuels. But besides Tehran only ever accounting for 12% of China’s supply, it was always the historic allies of America, not least in Europe and East Asia, that were most vulnerable to a blockade of the Persian Gulf. Pax Americana not only rested upon security guarantees for both regions, but in also ensuring a steady, cheap supply of energy. These assumptions are now imperilled and, with them, the credibility of the US global order.

Beijing prepared for this moment. Not only is China a net exporter of refined oil, but it also possesses a strategic reserve of 1.3 billion barrels of petroleum — enough to meet domestic demand for three months. So, as energy costs rise for competitors overseas, the Chinese state can offer price stability to domestic manufacturers. No less important, Chinese exporters stand to uniquely benefit — not only from domestic energy stability but also, for many sectors, increased demand. For the likes of BYD, CATL, which is a battery manufacturer, and LONGI, which makes solar panels, we are approaching a dream scenario. They’ve committed decades to creating the world’s most efficient renewable products, with highly optimised global supply chains. Until recently that seemed an uncertain bet. Yet in the weeks and months ahead, global demand will be unleashed.

Already, even before the deluge of orders materialised, China’s lithium-ion battery makers had seen their collective market values rise by $70 billion in the opening phase of the war. Last week, meanwhile, Indonesia’s president announced plans to increase solar capacity 10-fold over the next two years, from 11GW to 100GW. “We’ll convert all motorcycles into electric motorcycles,” he added. “All cars, all trucks, all tractors must [also] be electric”. Lee Jae Myung, the president of South Korea, has made similar noises, adding that the need to switch to renewables was so serious he couldn’t sleep.

If such rhetoric is to become reality, it means spending hundreds of billions on Chinese goods. And besides enabling an export bonanza for the country’s cleantech sector, which has benefited from decades of state support, something else highlights the acumen of China’s planner state: almost half of Congolese-mined cobalt will be in the hands of Chinese firms by the end of the decade, with around 70% of refining happening in the People’s Republic. That is important because the mineral is critical for lithium-ion batteries. While Washington waged a host of unnecessary wars in the Middle East, Beijing secured critical minerals for the backbone technology of the mid-21st century. The same is true for graphite and tantalum — the latter being a key metal for capacitors, central to stable wind and solar energy.

When it comes to rare earth metals, meanwhile, China boasts a potential chokepoint of its own. The country has larger total deposits of rare earths than any other, a glaring concern for the United States given that its military is reputed to have reserves equivalent to no more than two months’ use. While it is true such minerals can be found outside of China, for instance in Australia, Beijing currently has a near-monopoly on refining and processing them. If it wishes for meaningful technological sovereignty, here is another industry Washington may soon need to start developing. From a military standpoint the importance of these minerals can’t be overstated. Each F-35 fighter jet, for instance, reputedly requires hundreds of kilograms of rare earth metals.

Yet as we’ve already seen, when your political consensus has long rested on the idea that industry is of secondary importance to financial services, technology firms and various forms of rentierism, that is virtually impossible to accomplish. The margin for such businesses can be large, certainly, but as enterprises they lack the scalability favoured by US tech capital. If you view effective business through the prism of monopolies, as someone like Peter Thiel does, mining and processing, with its absence of network effects and high labour component, is deeply unattractive.

As NS Lyons wrote last year for UnHerd, the West’s lack of manufacturing capacity is its most glaring defensive weakness. Even now, despite years of fighting in Ukraine, Europe and the US can’t match Moscow’s ability to manufacture artillery shells. If the West is struggling to maintain parity with Russia — whose manufacturing base is nothing like as productive or wide-ranging as China’s — what hope would they have in a protracted conflict with Beijing? In 2025 China produced half a million consumer drones. The prospect of what that could mean in a war economy is staggering. The country’s shipbuilding capacity, meanwhile, is over 200 times greater than that of the United States.

China’s preparedness — a function of its aversion to market fundamentalism — together with the Iran war, now offers a historic opportunity for those advantages to be extended. Its power isn’t the result of a growing military-industrial complex, but the reflection of world-class civilian industries set to seize even more business. As these industries grow further in the months and years ahead, bolstered by Trump and Netanyahu’s war, that provides an even larger industrial base able to pivot in a time of war. The idea, therefore, that rearmament is the route to industrial renewal for Britain, as John Healey and much of the Labour party insist, is refusing to learn not only the major lessons of the last 25 years, but the last month. If a war with China ever came, the People’s Republic would defeat us for the very same reason it currently exploits demand for green technology: it makes stuff. Its defence capacity is built on its industrial base rather than the other way round.

While some have compared the unfolding events in the Persian Gulf to the Suez Crisis, the American-Israeli failure to inflict a decisive defeat on Tehran would more closely resemble the Fall of Singapore for the British Empire. It wouldn’t, in short, be the end of Pax Americana, but the beginning of the end. The erosion of its alliances; the declining confidence in its competence as a hegemon; the diminishing security returns on hosting American bases — all of these matter. But it is in starting a war which will see China’s leadership in industry and technology grow further still that reveals Washington has played its most foolish hand yet.

Quite suddenly, then, the future seems clearer. Energy stability, whether or not Europe uses more of its own limited fossil fuels, means more electrification, more batteries and more storage. In short, it means deploying more of the technologies where China is the unrivalled market leader. And with technology comes influence, with political realities then bound to shift too.

Deng’s second most famous quote concerned China on the global stage: “Hide your strength, bide your time.” With this kind of leadership — in technology, supply chains and, increasingly, moral authority — the time for hiding may now be at an end.

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