Japan was different in that it never became the world's factory, and then, manufacturing skills hadn't atrophied in the west, so it's a little different now. Even so, past performance is no guarantee for future results.

> But even more so, markets enforce discipline on capital that state directed firms don't have

I struggle to reconcile this with stock buy-backs.

Also, China seems to have deployed a hybrid strategy: the national and regional governments provide incentives to industries, but the individual companies compete against each other. Product-wise, US defense contractors have done surprisingly well under a more extreme version of this regime (cost-plus contracts) for decades.

> I struggle to reconcile this with stock buy-backs.

Would it offend your sensibilities less if they paid dividends with that money?

Buybacks are simply a more tax advantageous means of returning profits to share holders.

Similarly debt financed buybacks are a morally neutral way to change the capital structure of the firm by replacing equity with debt.

This "market discipline" also requires that companies only look for their immediate future and next quarter profits. This makes it hard to do anything long term, which is exactly what China is doing. Even companies like Google, that expressly said to make decisions based on a long term view, are pushed by the markets to consider only their current profits, which reflects in the changes we see in the company.

Most Chinese firms are also very short term focused as the Chinese would regularly lament. But somehow as a system they show persistence. A good example is the solar industry with many bankruptcies of the earlier giants, yet the baton gets passed on and they keep at it. I think because of the sky high savings rate they can afford (or even prefer) to have asset heavy industries. Even with financial failures the hard assets get passed on (as opposed to financial firms). Large projects are funded by loans. Banks prefer hard assets because they have collateral. Equity holders contribute through intangibles, i.e. operating expertise. If they fail banks foreclose and find new operators. US used to be like that. Railroads, airlines, factories etc routinely go through bankruptcies. But the equity markets learned their lessons and now hate hard assets. With heavy asset you need leverage to get decent ROE which makes you vulnerable to the business cycle and puts you in a weak position bargaining with third parties like unions, class action lawyers or debt holders.