It is often assumed the US is the best exemplar of capitalism, and the difference in stock market performance between the US and China in the past two decades has certainly played a role in reinforcing this view. That said, China’s economic model has prioritised broad-based economic benefits for its citizens above corporate profits, better reflecting the classical economic theory of perfect competition. While the S&P 500 has more than tripled since 2009, Shanghai’s indices languish behind. This performance differential has often been attributed to investor reluctance in the face of Chinese state interference. However, this divergence in stock market returns may be the result of lower profit margins due to higher levels of competition in China. The concept of perfect competition, originating with Adam Smith’s “invisible hand” before being formalised a century later by economist Alfred Marshall, posits that profits tend towards zero as competitors enter the marketplace, driving prices to marginal cost. China has embraced this foundational capitalist economic model, using state subsidies for start-ups and enforcing anti-trust laws to promote competitiveness between manufacturers. Western markets, on the other hand, tend to favour established players. US corporate profits hit record highs during recent economic crises, even though median wages have stagnated. This divergence between China and the US underscores how a highly concentrated market directs wealth to shareholders, who have come to favour buybacks over innovation. Boeing’s recent struggles epitomise this ideology, while Pfizer’s Covid vaccine pricing, which was fivefold higher in the US than in Africa, illustrates the struggles facing Western consumers. US firms have learnt to think of profits as permanent and brands as unassailable. China thinks differently. A consumer in Shenzhen switches brands because the camera quality is marginally better, while a California consumer sticks with Apple because they’re locked into the ecosystem. One is an efficient market. The other is an example of Stockholm syndromeIn this respect, China may be more capitalistic than the West, redistributing value away from firms and towards consumers, which is precisely what classical economics predicted would occur under conditions of perfect competition. In contrast, American capitalism appears a lot more monopolistic, dominated by a handful of Big Tech companies and nationwide retailers whose margins benefit from economies of scale, rent-seeking, regulatory capture, brand loyalty and tax optimisation. It’s not only the businesses either. Chinese consumers, shaped by decades of rapid market evolution, exhibit particularly low brand loyalty compared with other countries. A McKinsey study found 40% of Chinese consumers switch brands for better value versus 25% in the US. This consumer fluidity forces companies to compete on price and quality. US firms have learnt to think of profits as permanent and brands as unassailable. China thinks differently. A consumer in Shenzhen switches brands because the camera quality is marginally better, while a California consumer sticks with Apple because they’re locked into the ecosystem. One is an efficient market. The other is an example of Stockholm syndrome. Xiaomi’s rise against Huawei in smartphones exemplifies this trend. In contrast, brand loyalty in the West insulates firms such as Apple, whose ecosystem locks in users despite premium pricing. The competitive intensity of the Chinese domestic market is often overlooked. No major platform has been able to dominate its segment for long. Alibaba was forced to adapt or perish when Pinduoduo redefined e-commerce with bargain-led group buying. Didi disrupted taxis but was soon under pressure from Meituan and others. High levels of competition and constant innovation keep resetting the pricing environment, lowering margins and raising consumer expectations. The average operating margin for Chinese tech companies is less than 10%. In the US, the equivalent figure is at least double and often far higher. Though this has meant investments in dominant US companies have often offered higher returns for investors, these higher margins indicate a lack of genuine competition. Another reason Chinese firms can’t slack off is because of a regulatory system that, while often criticised as heavy-handed, enforces competition far more rigorously than in the West. When Alibaba was caught squeezing vendors with exclusive contracts, regulators didn’t hold back. They fined the company $2.8bn. Tencent’s exclusive music licensing was unwound by force, and Ant Group’s initial public offering was blocked because its lending business had grown too large. These moves were widely framed as evidence of China’s hostility towards business. But perhaps they simply reflect China’s hostility towards monopolies. Meanwhile, in the US, policymakers have allowed tech giants to grow and self-regulate with few constraints. Google and Meta control more than 80% of the global digital ad market, while Nvidia is worth more than most countries. This isn’t only bad for business. It is a threat to democracy. As newsrooms shut down and newspapers go out of print, the independent media our freedoms depend on struggle to survive while whole nations must compete with Big Tech for capital. For ordinary Americans the situation is just as bad. Overpriced weapons systems drain taxpayer resources, while drug companies charge far higher prices in the US compared with foreign markets. This means the cost is not only paid by Western consumers but by their cash-strapped governments whose procurement budgets are bloated by anti-competitive pricing. This stagflationary trend in America’s real economy could eventually have consequences for the entire US financial system as the treasury market comes under strain due to growing budget deficits and higher debt servicing costs resulting from higher levels of inflation. Meanwhile, American leaders regularly accuse China of operating a closed economy, but that’s not really true. Tesla operates its largest factory in Shanghai. Apple sells more iPhones in China than in any other market outside the US. Starbucks, KFC and McDonald’s are all well supported. In fact, there are almost three times more KFC stores in China than in the US. While the US excludes Chinese tech companies such as Huawei and BYD from its market, China makes iPhones for Apple and buys its products. This openness also created conditions where domestic firms must be competitive not only against each other but also against foreign incumbents. The US, on the other hand, uses tariffs, sanctions and legislative exclusions to protect its companies from competition, leading to negative outcomes for consumers. US President Donald Trump’s administration has even argued China and Europe are only more competitive than the US because of labour exploitation, ignoring differences in profit margins. But employees have benefited from Chinese capitalism too. Huawei is a 99% employee-owned private enterprise, with its founder Ren Zhengfei retaining only 1% of the shareholding. While a surprisingly large number of US firms are also employee owned, Chinese workers tend to accept lower wages (another symbol of heightened competition), while R&D personnel consume about a quarter of revenue and comprise more than half of Huawei’s workforce. The irony here is that “communist” China is succeeding by doing capitalism better than the West. Prices trend towards marginal cost and profits are lower. Though state intervention remains a decisive factor, the US has also become increasingly reliant on fiscal and monetary policy stimulus, state subsidies, sanctions and tariffs. This may be hypocritical, but perhaps it is a good thing. After all, capitalism was supposed to be an economic theory, not a political system. Shubitz is an independent Brics analyst. Business Day