Why over regulation of business the Dems give China the win?

Want to end up like Europe? Socialism, over regulation has killed the Eurozone. China is eating their manufacturing and industry for lunch. Very sad to watch.

Move Fast and Regulate Later: The Paradox of China’s Economic Dynamism

In the U.S., regulation can protect incumbents while discouraging entrepreneurs. China gives startups room to grow before cracking down on founders.

By Carl Benedikt Frey, WSJ

July 31, 2026 2:00 pm ET

Carl Benedikt Frey is an associate professor at Oxford University and the author of “How Progress Ends.“

IN CHINA, property rights are conditional, contracts can be torn up by the Communist Party, founders can suddenly disappear from public life or be ousted from their own firms and there is no meaningful recourse against the state.

By every textbook of institutional economics, this should make China a graveyard for enterprise. Instead, the country has produced ByteDance, Shein, BYD and, last year, DeepSeek, a Hangzhou startup whose AI model helped trigger a record $593 billion one-day loss in Nvidia’s market value. In July, Beijing-based startup Moonshot AI announced the release of a fully open-source AI, startling Silicon Valley with its ability to rival U.S. models.

How does a country with such casual regard for the rule of law produce so much dynamism?

The answer is that the rule of law, in China and elsewhere, is not one thing. It has a liberal side—secure property rights, courts that constrain the state—that shields entrepreneurs from arbitrary state power, ranging from selective prosecution to outright expropriation. It also has a regulatory side that can wall off competition, brick by brick, protecting incumbents from challengers who lack a compliance department. America used to be alive to this distinction. It is no longer.

Consider the America of Thomas Edison. In 1876, he built the country’s first industrial research laboratory at Menlo Park, New Jersey, for $2,500, paid for with money earned from his telegraph inventions. Facing nothing like today’s environmental review, occupational safety regime or modern product-liability law, Edison promised investors a minor invention every 10 days and a big thing every six months. Within a few years, he had filed hundreds of patents and electrified lower Manhattan. The regulatory environment he worked in was thin.

That world is long gone, and for good reasons.

The DuPont plant in Parkersburg, W.Va. Owing to protections from legislation the chemical industry helped author, it took 20 years to settle a class-action lawsuit over a toxic chemical used in the manufacture of Teflon.

Take for example DuPont’s use of the chemical C8 to manufacture Teflon. By the early 1960s, its own toxicologists knew C8 enlarged the livers of rats; by 1981 it had documented birth-defect concerns among the children of women on the Teflon line; by 1984 it knew the chemical was leaking into the local drinking water.

The Toxic Substances Control Act of 1976 was meant to give EPA authority over such chemicals; the chemical industry helped write it, and C8 was grandfathered in. It took 20 years and a class-action lawsuit to force DuPont to settle.

Many similar regulations were a response to real harms. But the cumulative effect created a wall. By RegData’s count, restrictive terms in the Code of Federal Regulations rose from around 400,000 in 1970 to more than one million by 2020. Each layer thickened the regulatory side of the law, but without strengthening the liberal one.

The result has been a shield for incumbents. Bringing a new drug to market in the U.S. (not to mention Europe) takes roughly a decade and can cost north of a billion dollars.

For Pfizer, that entry fee has already been funded. For two founders with a prototype, it is almost disqualifying. Legal infrastructure is a fixed cost, and fixed costs favour scale. No start-up can afford to build the compliance department that protects Pfizer. The threat to enterprise in a mature democracy is no longer the whim of governments; it is the weight of procedure.

Workers at one of Pfizer’s research facilities in Bothell, Wash. Bringing new drugs to market is often cost-prohibitive for startups.

Workers at one of Pfizer’s research facilities in Bothell, Wash. Bringing new drugs to market is often cost-prohibitive for startups. Chona Kasinger for WSJ

CHINA’S DYNAMISM does not come from the absence of law. It comes from the sequence in which laws are enacted. The Communist Party allows firms to scale in regulatory gray zones, when a sector serves growth, employment or strategic competition. Safety is an afterthought; the rules arrive later, sometimes all at once.

The fintech conglomerate Ant Group built an empire in the gaps between payments, banking and platform regulation before regulators halted its $37 billion IPO in 2020. DiDi, an app that provides ride-hailing and related services, became national mobility infrastructure before its 2021 NYSE listing turned its data into a sovereignty problem; Beijing fined the company $1.2 billion and pulled its apps from the market. ByteDance became one of the world’s most powerful recommendation engines before China wrote algorithm-specific rules in 2022. The pattern recurs: firms scale first; law and politics arrive later, often together.

DeepSeek is another recent example. It released its V3 model with reported development costs of $5.6 million. Meanwhile, its consumer app, by third-party estimates, attracted some 22 million daily active users within weeks. Questions about safety, data provenance, copyright and geopolitical risk arrived only after the model had already detonated across the market.

Dynamism occurs when newcomers can innovate before lawyers—or regulators—arrive. But in China the bill arrives in a different form. In place of compliance departments, Chinese firms invest in political insurance: loyalty signaling, support for party priorities and sensitivity to official moods. Founders appear at centenary celebrations and sign pledges to “common prosperity.” The investment is not optional; it’s the price of doing business without legal recourse.

Jack Ma forgot that, briefly, in October 2020, when at a financial regulators’ summit he said the Chinese banking system operated like a pawnshop. Within days, his record-breaking IPO was suspended; his business empire was soon under sustained attack; and he vanished from public view for months. After Wang Xing of Meituan posted a classical poem targeting the first emperor of unified China, widely read as an oblique criticism of imperial overreach, his company lost more than $25 billion in market value over two days, in an already tense regulatory climate. He resurfaced, conspicuously, at the Communist Party’s centenary celebration in Tiananmen Square the following summer.

The cost of arbitrary power shows up in discounted valuations on Chinese stocks, in capital flight, in private-sector confidence that has yet to recover. China produces winners. But credible commitment buys more than champions: it creates a deeper pool of people willing to take long-term risks. It’s evident in who chooses to build in America—immigrants have founded more than half its billion-dollar startups, and 60% of its leading private AI firms have at least one immigrant founder.

AMERICA’S distinctive advantage was always the liberal side of the rule of law: specifically, the types of rules that secure private property, punish anticompetitive conduct and hold the state at arm’s length from the firm. That advantage is now being eroded from the top.

The Trump administration has waged a campaign of corporate control, from executive orders barring certain law firms from federal contracts to labeling the artificial-intelligence company Anthropic a “supply-chain risk to national security”—the label previously reserved for firms with ties to foreign adversaries. Although in both cases the courts ruled against the administration, the mechanism at work is the Chinese one: discretionary state power used to punish disfavored firms and reward compliant ones.

As the regulatory state weakens—some estimates suggest 63% of the Trump administration’s 2025 Unified Agenda is deregulatory in intent—the administration has tried to build a parallel system outside the Code of Federal Regulations: a tariff regime of country-specific schedules, presidential proclamations and product-by-product exclusions.

Apple offers the clearest illustration. After Trump’s tariffs on Chinese imports threatened, according to analyst estimates, to push some iPhone prices above $2,000, Tim Cook called the Commerce Secretary and senior White House officials (while keeping quiet in public) and secured an exemption for smartphones, computers and chips.

Morgan Stanley estimated the carve-out cut Apple’s annualized tariff burden from $44 billion to $7 billion. Trump told reporters he had “helped Tim Cook…and that whole business.” The compliance burden has not so much fallen as migrated—out of the rulebooks and onto the trade schedule, where political discretion prevails.

Whatever the administration’s intentions, an underlying economic tension remains, and nowhere does it bite harder than at the frontier. The artificial intelligence laboratories now under discussion in Brussels and Washington exist because the regulatory environment was thin when they were founded, closer to Edison’s Menlo Park than to today’s pharmaceutical sector.

Anthropic’s recent decision to restrict public access to its most capable model—and the regulatory debate it triggered—is a reminder that some rules will be necessary, and soon. But every rule proposed today should be tested against a simple counterfactual: had it been on the books a decade ago, would the firm we are now regulating have ever been built?

Such regulations will also, by their nature, favor firms large enough to absorb them. That is not an argument against rules. It is an argument for writing them with new entrants in mind. Although the rule of law remains one of the great achievements of modern civilization, it is not always a protector of competition. Left to drift, it ossifies into a maze navigable only by the already-established.