What asset managers do that AI can't
What asset managers do that AI can't
Understanding nuance and acting with empathy remain human strengths
Darryl Law (Kahana Capital Partners)
https://www.costar.com/article/472223154/what-asset-managers-do-that-ai-cant?
By Darryl Law
Artificial intelligence already is changing hotel investment and asset management in practical ways. It can model revenue per available room scenarios, benchmark capital expenditure assumptions and flag forecast anomalies before the impact shows up in a P&L. But the part of the job that will not be replaced and remains essential to executing the investment is the human element: It's the ability to read people, navigate nuance and act on what the data does not show.
Consider a familiar situation: A hotel’s Year 1 net operating income significantly underperforms underwriting. The management company cites a changing market. The franchisor points to delays in completing a renovation. Capital partners want both a diagnosis and an action plan to get performance back on track. In that moment, technology can help organize information and sharpen analysis, but someone still must align the various constituencies and move them in the same direction. That role can only be fulfilled by the asset manager.
Sitting between franchisors, management companies, project managers, vendors and capital partners, the asset manager’s role is still rooted in influencing others to maximize returns for ownership while protecting the long-term value of the asset. While the people involved may be bringing their best to the job every day, each organization also brings its own priorities, pressures and motivations.
A dashboard can identify variances and measure productivity. It cannot create motivation, accountability or execution. That is where the human element becomes essential. In practice, it shows up most clearly in three parts of the job: aligning stakeholders, building trust and turning insight into action.
Aligning people around the problem
When performance slips, the issue rarely is just analytical. Different parties often arrive with differing explanations, agendas and definitions of urgency. The asset manager’s role is to cut through that fragmentation, clarify what matters most and get people moving in the same direction. As technology takes on more of the quantitative work, this part of the role becomes even more important. Better analysis is useful, but alignment is what allows a plan to move forward.
Building trust and surfacing the truth
Building trust requires candid communication, respect for differing objectives, and consistency around desired outcomes. Strong working relationships are built when parties can speak honestly about challenges, competing priorities and uncomfortable realities. Shared truth is more often reached by asking questions with curiosity rather than accusation and by creating confidence that issues can be addressed openly and handled fairly.
When a management company’s projections fall short, the instinct is often to escalate. But the asset manager who first calls the general manager privately, before anyone else frames the narrative, often learns more, moves faster and preserves the working relationship needed to fix the problem. Credibility and trust are built over time by showing up honestly, especially when the news is bad. AI can summarize a forecast miss. It cannot earn the kind of trust that leads to a more honest answer.
Turning insight into action
Empathy is not about being soft or allowing responsibilities to slide. It is about understanding the pressures, objectives, and blind spots each party brings to the table so the asset manager can respond more effectively and keep execution moving. A strong asset manager listens for what is being said, what is not being said, and where hesitancy or resistance may reside.
Asset managers also know that honest, clear communication can be difficult but is essential to achieving the desired outcomes. Softening the truth can allow problems to worsen and become more difficult to resolve. Delivering hard news constructively, without assigning blame and without burying the issue, is a skill that requires judgment, self-awareness and a clear sense of what the conversation is meant to accomplish. The goal is not just to identify the issue. It is to create the conditions for action.
AI will continue to make asset managers faster, sharper and better informed. But translating an investment thesis into actual performance still depends on the human element that only an asset manager can bring to the job.
Darryl Law is an asset manager with a focus on operational and investment strategy for public REITs, private equity, special servicing, and management companies. His viewpoints have been developed over multiple cycles, and coverage includes a wide range of property types, including select-service, resort, full-service, convention, and lifestyle hotels located in suburban, destination, and top 25 gateway markets.
Japan Hotel REIT sells Okinawa resort, acquires limited service Osaka hotel
Pair of deals will help REIT recycle capital and increase cash reserves
Japan Hotel REIT has sold The Beach Tower Okinawa, located in Chatan, Okinawa. (Getty Images)
https://www.costar.com/article/1436009427/japan-hotel-reit-sells-okinawa-resort-acquires-limited-service-osaka-hotel
Japan Hotel Real Estate Investment Trust Corp. has sold one hotel and acquired another, with the combined value of the two deals adding up to 45.22 billion Japanese yen ($278.37 million).
In a statement, the Tokyo-based company confirmed it sold to Mihama Terroir TMK the 280-room Beach Tower Okinawa for 30.9 billion yen, with a closing date of July 31. Japan Hotel REIT acquired from GK Hikari Hotel the 496-room Candeo Hotels Osaka Namba for 14.32 billion yen with a closing date of Aug. 3. Proceeds from the Okinawa sale will be used to purchase the new acquisition and to bolster the company's cash reserves.
According to CoStar, Japan Hotel REIT acquired the Okinawa resort in March 2004 for approximately 8.17 billion yen. The 2026 sale represents — inflation and currency fluctuations notwithstanding — an approximate 278% increase in transaction value.
In its statement, Japan Hotel REIT said it decided to exit the Okinawa hotel as part of a capital-recycling strategy despite every indication the property has a good future.
The hotel’s “fixed-term lease contract is scheduled to expire in June 2027, and the property is expected to offer upside potential through a change of operator or rebranding,” the company said.
Japan Hotel REIT “determined that, rather than continuing to hold the asset, it would be in the best interests of unitholders to unlock the asset’s value through a sale at a price significantly exceeding its appraised value,” the statement added.
Company officials said the Candeo Hotels Osaka Namba was built in 2017 and generates stable rent income under a fixed-rent lease. The hotel's appraisal-based loan-to-value ratio is “expected to decrease from 36.3% to 35.5%, thereby contributing to greater financial flexibility and increased borrowing capacity in the future,” the company said.
Candeo Hospitality Management will continue as the operator of the Osaka property. Candeo Hospitality Management's full management portfolio includes 27 hotels and approximately 5,770 rooms.
Japan Hotel REIT now has 52 hotels — all in Japan — including the 1,052-room Hilton Fukuoka Sea Hawk; 828-room Hilton Tokyo Bay; 712-room Hyatt Regency Tokyo; 511-room Oriental Hotel Tokyo Bay; 460-room Hilton Nagoya; 352-room Okinawa Harborview Hotel, and 285-room Mercure Sapporo. The company's total hotel portfolio adds up to 15,058 rooms, and its anticipated acquisition value is approximately 648.1 billion yen, officials said.
Emirates Just Solved the Worst Part of Long-Haul Economy Flights
Courtesy of Emirates
https://www.fodors.com/world/africa-and-middle-east/united-arab-emirates/dubai/experiences/news/emirates-new-economy-headrest-doubles-as-a-built-in-neck-pillow
Emirates is rolling out an innovative economy-class headrest that doubles as a neck pillow, making long-haul flights more comfortable without extra travel gear.
You can leave that bulky neck pillow at home on your next trip—if you’re flying Emirates, that is.
The Dubai-based airline announced Monday that it would be introducing the new U-Dream Headrest to economy class seats on most of its fleet in the coming years. While many airlines have adjustable headrests with “wings” that adjust forward to accommodate sleeping positions, the new Emirates headrests will also flip down, offering a different angle for neck cradling—mimicking the support of a freestanding neck pillow.
“Emirates never rests on its laurels when it comes to customer experience and we have found a way to significantly improve the comfort for economy class passengers, especially those traveling long-haul,” said Emirates president Tim Clark. “The U-Dream changes the game if the person wants to sleep–by supporting the neck in full. No more neck pillows needed. It’s another innovation that shows our commitment to customers and cements our economy class as the best.”
The headrest is made of leather, so it can be easily cleaned between flights, and Emirates has also trained cabin crew in how to assist passengers making adjustments.
The headrests have already been installed on three of the airline’s Airbus A350 aircraft, and Emirates expects all of the A350s to have them installed by the end of 2026. The airline’s new Boeing 777X aircraft will also come with the headrests pre-installed. Beginning next year, Emirates will progressively introduce them to the Airbus A380 and Boeing 777 fleets as those aircraft go through scheduled cabin refreshes.
The u-dream headrest.Courtesy Emirates
Several airlines are known for having top-end economy class cabins, and Emirates consistently appears on those lists. In the U.S., most full-service airlines introduced built-in, adjustable headrests in the 1990s or 2000s, and designs have improved with each cabin refresh. But those headrests tended to remain on a simpler platform, with a more limited number of adjustment options than the new Emirates headrests, which are designed by the airline interior design firm Safran Seats.
The airline is introducing the company’s new Z400 seat, and the headrest will purportedly have a number of adjustment options to accommodate travelers of different heights and builds. Emirates also offers well-regarded meals, complimentary amenity kits and children’s amenities, and is progressively introducing free Starlink internet to its economy cabins.
Airlines have trended toward making the economy experience more comfortable for travelers. United Airlines is introducing a middle-seat-vacant seating row on some aircraft, and will also offer economy passengers the chance to purchase an entire block of seats convertible into a lie-flat bed. Air New Zealand is offering bunk rentals on its longest flight from New York to Auckland. On the 17-hour flight, passengers can book a bunk in the back of the aircraft for four-hour increments, which comes with fresh bedding, a privacy curtain, ambient lighting and kit with eye-masks, skincare, earplugs and socks.
Emirates does not currently operate the A350 on any routes to the United States, so American fliers will have to hope their connecting flight has the A350 if they want to experience the new headrest. Alternatively, travelers can head north to Montreal to hop on an Emirates A350. The airline serves 12 major gateways in the United States, including New York (JFK), Newark, Los Angeles, Chicago O’Hare, Boston, Dallas/Fort Worth, Houston, San Francisco, Washington Dulles, Miami, Seattle/Tacoma, and Orlando.
The average nonstop Emirates flight from a US gateway to Dubai ranges between 14 and 17 hours, making the comfort of the economy cabin an important factor. The airline also serves Milan (Malpensa) nonstop from New York JFK and Athens nonstop from Newark.
Catalyzing competitiveness: Where investment happens and why
https://www.mckinsey.com/mgi/our-research/catalyzing-competitiveness-where-investment-happens-and-why
By
Competitiveness has moved to the top of the global agenda, and investment is its indicator and its outcome. In the context of dramatically diverging investment patterns globally, companies and regions can pull seven levers to level up.
Chapter 3
What it would take to rebuild competitiveness
In the past, different endowments allowed different economies to be more competitive: cheap labor here, cheap energy there, innovation strength or deep capital markets with low financing costs elsewhere. Today, some countries—China chief among them—have unusually large advantages across an unusually broad set of production factors, resulting in a lead in almost all the investment cases we studied (see sidebar “China: Low macro productivity, high micro productivity”). This shrinks the space for specialization in other large economies and means that narrowly targeted responses will be insufficient to overcome the large cost differences. In this chapter, we map out some possible pathways to restore competitiveness.
A step change in production factors would be needed to bridge half of the cost gap with best-in-class countries
Europe was successful in the industrial age, thanks to high degrees of automation that compensated for higher labor costs, quality leadership in manufacturing, and competitive energy costs, but those advantages are eroding. The United States long accepted large imbalances in manufacturing, instead focusing on technology and services in which it leads globally, although it is now working to address import dependencies. For its part, China has arguably been too successful in manufacturing industries and now struggles with excess capacity, low capital returns, internal and external imbalances, and a need to sustain growth through domestic demand.
All regions will have to step up to achieve their stated goals. To gauge what it would take to restore cost competitiveness, we ran a directional what-if scenario on the input factors in the ten investment cases. This exercise was an attempt to determine what combination of changes could make these investment cases viable again in advanced economies. It is not a prediction of what will or even should happen.
First, our assumptions:
- For capital expenditures, we assume that half the current gap in construction cost and time would be closed, as would the entire gap in equipment costs. We do not assume full convergence of construction costs because part of the gap reflects structural differences in labor cost structures and standards. We do assume that permitting reform, modular construction, greater standardization, and stronger delivery practices could narrow the gap materially without compromising social and environmental standards.
- For materials, we assume that half the current gap in material cost could be closed by deploying innovative materials, leaner lower-waste processes, and new production technologies. However, fully closing the gap is unlikely due to geography and access to raw materials—for example, steel and polyethylene would see no cost reduction.
- For labor, we assume a step change in productivity of about 30 percent related to broader adoption of AI, automation, and better operating models. We also assume a 10 percent reduction in overall labor cost by, say, reducing social contributions and related nonwage charges through reforms in financing or by making it easier to restructure companies.
- For energy, we assume a sharp reduction in gas and electricity costs in Europe to levels more similar to those in China, which has managed to deliver competitively priced energy through a different system architecture despite a lack of natural energy resources.
- For time to market, we assume a level playing field, reflecting the fact that companies in advanced economies could theoretically move at speeds already achieved in China, as leading disruptors across industries have demonstrated.
A coordinated push across all these factors could close 50 to 70 percent of the cost gap in the United States compared to best-in-class locations and roughly 30 to 60 percent of the gap in Europe. This could bring many investment cases materially closer to viability.
Beyond cost, companies and countries could innovate, specialize, and level unlevel geographic playing fields
Even heroic assumptions about achieving these goals do not translate to sufficient change to fully close the gap, however. To escape pure cost competition, companies and policymakers could work by regaining innovation leadership and specializing in differentiated goods and services that play to a country’s strengths or can sustain premium pricing that offsets higher costs.
Where the gap remains too wide to achieve a country’s aims, macro-level interventions could level the playing field. Such intervention could include reducing exchange rate distortions, using selective trade policy, deploying industrial policy, and renegotiating any policies that currently tilt the global balance in investment.
Until competitiveness is restored, navigating today’s unlevel playing field will require companies to think through tough trade-offs between investing where costs of production are low, ensuring supply chain resilience, and achieving longer-term competitive goals. Understanding the lessons offered by the lowest-cost and best-in-class locations today can raise competitiveness everywhere.
The alternative option to deal with differences in competitiveness and levelized cost is, of course, to simply accept them, along with the trade deficits—and surpluses—that come with them (see sidebar “What is the alternative to restoring competitiveness?”)
Countries seeking to catch up with global investment leaders can push or pull seven levers
Restoring balance to investment around the globe requires more than simply addressing cost differences. Companies and countries can deploy seven levers to level the playing field, though the mix of levers will vary across regions depending on the domestic context and geopolitical priorities.
Capital expenditures: Release the brakes and industrialize construction
Capital expenditures play a decisive role in decisions to invest in infrastructure and energy projects such as nuclear power plants and solar PV. They also play an important role in capital-intensive manufacturing industries, including batteries, semiconductors, pharmaceuticals, and data centers. In the industries we analyzed, construction timelines and costs in the United States and Europe are often substantially higher than in many Asian countries. For example, semiconductor fabs can cost almost twice as much to build in Germany and the United States as in Mainland China and Taiwan, and recent nuclear plants in advanced economies have come in at roughly three times the cost of the latest projects in South Korea.
A meaningful share of these gaps is explained not only by higher input prices but also by how projects unfold. Comparing advanced economies and China, a large part of the gap reflects lower capital delivery efficiency rather than more expensive labor, steel, cement, or equipment. In other words, part of the disadvantage comes not from what advanced economies build with but from how they build, which is shaped by slower permitting processes, longer development cycles, more bespoke engineering, and less learning from one project moving to the next.
By removing friction from the construction phase, governments could materially reduce cost and construction timelines without compromising high environmental or social standards. By streamlining approvals and inspections across multiple agencies—for example, by standardizing documentation and centralizing submission processes—building timelines can be shortened. Adequate staffing, training, and use of AI in document review can lead to material acceleration. Preapproving sites and putting in place infrastructure can further shorten project timelines. Advanced economies have shown that they can move much faster when urgency is high. For example, Germany’s new LNG import terminals began operating 200 days after the war started in Ukraine thanks to fast-tracking permitting and deploying modular floating infrastructure.
Companies can build faster and at lower cost by adopting proven tactics already used at scale in various markets. Reusable blueprint designs, modular construction, and prefabricated units can cut the costs of bespoke engineering and speed up on-site assembly. In the United States, for example, data center developers are increasingly using scalable reference designs, modular construction, and off-site assembly to accelerate project completion by as much as 50 percent, reducing capital spending by 10 to 20 percent on average. Commercial incentives in contracting that link directly to delivered output and project progress can also increase motivation to improve productivity by minimizing paid-to-wait time and cost overruns.
Advanced economies retain strengths in construction such as complex engineering, stringent quality assurance, and high safety standards that result in assets with tight tolerances and reliable long-term performance. The challenge is to combine those strengths with faster, more repeatable, and more industrialized delivery.
Labor: Push the productivity frontier and lead on AI deployment
Labor policies in advanced economies differ from those in emerging economies, and overcoming those differences is challenging. Theoretically, wages or prices in China could increase in tandem with the productivity of its workers. The alternative, letting wages fall in advanced economies, is neither desirable nor feasible. The only way to narrow gaps in labor costs is to achieve step changes in productivity in advanced economies with technology adoption, process redesign, and workforce upskilling. However, state-of-the-art factories are similar around the world, so these steps alone will not guarantee a lead. If US semiconductor fabs achieved Taiwan-level productivity, for instance, it would close 10 percent of the gap with Mainland China.
Reinventing production processes with AI and advanced automation could increase worker productivity, promote faster development of better products, and help companies grow. At this point, however, the share of businesses identifying AI as key to transforming their organization is larger in China than in any other major economy.
Policy change could support businesses seeking greater labor productivity and lower labor costs. For one thing, policy could have a direct impact on the cost of hiring employees by amending which costs are borne by employers and employees. In Europe, nonwage costs and payroll taxes such as social security contributions range from less than 5 percent in Romania to more than 30 percent in France. Second, policy has a direct impact on labor market flexibility. In Germany, restructuring costs are high and dynamism limited, which weighs on productivity compared to countries such as the United States with more flexible employment policies. Denmark’s flexicurity program—which allows employers to dismiss workers in response to changing market conditions while also providing workers with a safety net between jobs and supporting rapid reintegration into the workforce—is an example of an alternative in Europe.
Energy: Secure abundant, competitive, clean energy and locate heavy industry near energy sources
Energy is a decisive factor in competitiveness, and energy costs differ significantly between regionsprices were 25 percent depending on their resource endowments. Oil is easy to transport and trades at near-global parity, but gas prices diverge structurally. Regions lacking connection to gas pipelines pay three to four times more to cover the costs of liquefying and shipping LNG, which also influences electricity prices. Historically, this was a challenge primarily in Asia, but after the collapse of Russian pipeline gas supplies in 2022, also in Europe’s industrial heartland. Disruptions such as the recent US-Iran conflict further exacerbated this gap. For example, gas prices in Europe and Japan were roughly 50 percent higher than before the outbreak of the conflict in May 2026, but US natural gas prices were 25 percent lower than the average price in 2025, a reflection of plentiful domestic supplies.
In the near term, LNG-dependent countries in Europe and Asia could secure LNG and piped gas from more diversified sources, increase biomass and biogas use, extend the life of nuclear reactors, and accelerate electrification by building the required transmission and storage infrastructure as well as by promoting demand-side flexibility measures. Some countries are also considering deferring the phase-out of coal generation.
However, countries cannot become energy competitive when relying on LNG that is structurally at least twice as expensive as piped gas, and solar power that is only half as efficient as in sunnier regions. Structural options for Europe’s industrial heartland and other energy-disadvantaged regions include building additional gas pipelines, developing domestic shale gas, and deploying nuclear reactors, while also accelerating long-distance grid interconnections and shifting parts of industry to regions with structurally lower electricity costs. Many power-hungry projects are already under construction in the Nordics and the Iberian Peninsula rather than in the Rhine-Ruhr valley that would traditionally attract such industries in Europe. Governments could accelerate and support such a shift by facilitating transformation and developing new, competitive activities rather than cementing the status quo through subsidies.
Innovation can also help overcome disadvantages in energy and materials access. For example, novel solid-state battery technologies could reduce the cost gap relative to the established lithium-ion value chain in China. Similarly, nuclear fusion, if achieved, could address issues arising from fission production. While neither success nor sustainable competitive advantage is guaranteed, thinking outside the box and investing in experimentation and engineering can increase competitiveness.
Time to market: Step on the accelerator and remove regulatory complexity
As innovation cycles accelerate and competition heats up in tech-intensive industries, speed has become a core determinant of competitiveness for companies and countries. This is particularly true in the important arenas of competition, where innovation execution can make or break a business case, as well as in capital–intensive industries in which a large share of the gap in construction costs between countries is linked to speed or delays. Since many businesses in advanced economies are multinationals with global footprints, their strategy includes opting for the most competitive locations for getting things done whenever possible. If one place requires six months more to secure approvals for new products or a permit for building a production facility, all else being equal, companies will invest where they can move faster. Similarly, if starting a new business or restructuring an old one is too slow or expensive, investments will move elsewhere.
Regulatory reforms could enable companies to move faster; especially, in Europe, where regulatory barriers are highest. Yet most companies could speed up on their own by compressing product-development cycles, shortening capital-project schedules, and reducing the time needed to move from concept to scale. R&D, for example, could embrace iterative ways of working and parallel development processes. If German automotive companies replicated key elements of the Innovation Execution operating models used in Chinese automotive manufacturing, they could reduce development timelines by more than half, effectively decreasing their levelized costs by 25 percent. American EV disruptors are an example of companies that successfully operate in this way, even in a market where other automotive manufacturers don’t.
Innovate and differentiate to avoid competing on costs alone
In many industries, even heroic efforts to narrow the gap in levelized costs will not level the playing field. Companies in these industries could nonetheless invest profitably in Europe and the United States, where they can sustain higher prices because of performance advantages, customer proximity, and brand recognition and trust. Even bulk commodities industries such as polyethylene often offer distinct performance profiles that limit direct substitution between suppliers; prices of advanced semiconductor chips differ by up to 30 percent depending on where and by whom they are manufactured.
An effective way to secure a premium is to offer a product competitors cannot match in quality or in specifications. This requires innovation. For example, complex pharmaceutical therapies command higher gross margins than traditional small-molecule drugs because they are harder to develop and replicate, giving manufacturers pricing advantages and effective commercial exclusivity windows of ten to 14 years after regulatory approval. Factors such as customer proximity, brand recognition, and trust can further strengthen such an advantage for producers.
AI may turbocharge the processes companies use to develop and provide new products. It is accelerating everything from software development to new drug discovery and is changing how companies interact with their customers. This could lead to faster product development cycles, improved products, and ultimately stronger pricing advantages for companies that are early adopters, affecting global competition especially as access to frontier models becomes less universal.
Policy can enhance or hinder domestic producers’ capacity to innovate. Recent MGI research highlights the factors underpinning so many successful US inventions, including a favorable environment for foundational and applied research as well as for commercializing innovation. Increasing innovative capacity is even more urgent in Europe, which has been successful in creating ideas but less successful in scaling and deploying them. Previous MGI research with the World Economic Forum laid out important public-sector reforms to strengthen Europe’s innovation and investment environment for future technologies (see sidebar “How Europe can strengthen its innovation position in future technologies”).
Specialize in less cost-sensitive, more critical industries: future-shaping arenas and critical chokepoints
The structural cost gap in many advanced economies, together with increasing costs of capital and growing demand for investment in the capital-heavy AI value chain, make broad-based reindustrialization difficult to justify on financial grounds alone. In this context, specialization becomes even more important, and two criteria are vital: future competitiveness and geopolitical security.
For the first, industries in the next big arenas such as AI, biotechnology, chips and electric vehicles warrant investment because not doing so may foreclose future options. These industries also tend to be less cost-sensitive—AI data centers brought to market today can command much higher revenues than those that come online after delays. South Korea’s bet on memory chips and displays in the 1980s and ’90s illustrates this: Underwritten by patient state capital and industrial coordination, the country established competitive positions that are still strong four decades later. Today, many proponents of AI contend that AI computing infrastructure occupies a unique position in this space, as it is a master input capable of reducing costs and restoring manufacturing competitiveness across the board—but even the AI value chain requires large investments into traditional industries.
The second criterion is for specialized investment in industries that offer greater strategic autonomy and protection from supply chain disruption. The COVID-19 pandemic and the wars in Ukraine and the Persian Gulf have highlighted the fragility of supply chains ranging from energy to semiconductors, while restrictions in access to powerful AI models alerted countries to the strategic importance of leading technology capabilities. Of course, the most resilient system is not the most localized one but the most diverse one. Removing a chokehold is not the only response; counterbalancing chokeholds is also an option.
Level the playing field with industrial policy
An additional option for countries seeking to close their investment gap is to explore a tool kit of policy interventions. The use of industrial policy measures has been on a steep rise since 2011, when the Doha Round of trade negotiations among members of the World Trade Organization failed.
At the same time, the composition of industrial policy has shifted, with national security and geopolitical concerns underpinning more than half of these interventions.
The industrial policy catalogue spans a broad set of interventions that promote favored firms or industries. The main measures are direct and indirect subsidies and incentives that reduce the cost base of domestic or foreign companies investing and operating in a country, as well as trade restrictions such as import tariffs, quotas, and local content requirements that increase costs for foreign producers selling into a domestic market. The policy tool kit also includes measures such as public procurement, price floors and stockpiling to bolster demand, and market regulations and standards that impact the propensity of firms to invest. Export controls, foreign ownership restrictions that protect strategic positions already in place, capital controls and currency interventions that influence relative price levels are other policies counties deploy, as well as, potentially, sanctions and conflict.
OECD research indicates that subsidies have almost tripled since before the 2008 global financial crisis and that Chinese firms receive on average three to eight times more support than firms based in advanced economies. Average subsidies received by firms based in Europe amounted to less than 0.5 percent of annual revenue from 2005 to 2024, compared with roughly 1 percent in North America and roughly 2.5 percent in China. These estimates include grants, income tax concessions, and borrowing at below-market rates, but don’t capture the full scope of government support. For example, China also offers companies access to land or property free or at low rates, amounting to roughly an additional 0.5 percent of GDP in subsidies.
Industry-level evidence illustrates a similar pattern. Support for semiconductor fabrication has increased across all major regions, but China’s subsidies are most generous at 10 percent of revenue on average, despite a more competitive underlying cost structure, as shown in this report. By comparison, semiconductor fabs are subsidized by 2 to 3 percent in the United
Beyond subsidies, the International Monetary Fund estimates that the real effective exchange rate in China was undervalued by 12 to 21 percent in 2025—a finding China has contested. This makes exports cheaper than they would be if valued at market rates and therefore helps domestic producers in a manner similar to subsidies. The downsides of such a strategy are that it can widen external trade imbalances, drive up the prices of imported goods for consumers, and reduce the value of household and business assets on the global market. It can also delay development of stronger domestic demand and intensify trade tensions, as has been the case with China’s export-driven development model.
The playing field is not level today, and there is risk of escalating interventions. In a perfect world, countries could mutually rebalance existing market skews, allowing capital to flow to the most competitive and productive locations. In a period of rebalancing, carefully considered interventions could restore a system that ensures sufficient productive capacity, enriches competitiveness, and advances innovation, building resilience and greater stability around the world.
In a fracturing world, competitiveness matters more than ever. Restoring it where it is lacking will require real change from governments and companies on multiple fronts. The prize is substantial: more growth where it has stalled, more resilience where it is missing, fewer imbalances where they have built up, and more broadly shared prosperity.
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