International Implications of China’s Domestic Political Economy
Although China’s economy has long been prominent on the global stage, recent events have introduced it to the international security dialogue. This shift has massive economic consequences. For example, rural communities around the U.S. will need to uninstall Huawei equipment at their own expense to comply with emerging restrictions on the company’s technology. More broadly, Chinese investments in OECD countries are being overhauled in the name of national security. These events demonstrate that getting China wrong is both unsafe and expensive.
The blurred nature of China’s state-private divide is one reason for this shift. Panelists expressed that although the Chinese government presents data that distinguishes between state and private companies, this divide is not as important in China as it is elsewhere. Agency relationships, however, should not be considered so broadly as to state that the Chinese government controls all of its companies. All companies of a certain status have state connections, but those connections’ natures and metrics for success differ. Furthermore, it is unclear how the state-private culture influences international affairs, necessitating that researchers determine causal mechanisms. Overall, this culture has three arms: delegation, subsidization, and control. Combining the former two results in moral hazard among Chinese investors, whereas combining the latter two produces capital flight.
In the coming years, Chinese businesses increasingly will face the dilemma of deep versus broad market access. This dilemma asserts that although having ties with the Chinese state improves companies’ regulatory risk at home, such ties increase regulatory risk abroad. For example, companies like Huawei enjoy favorable conditions domestically, but their association with the Chinese state hurts their market access. Additionally, China’s expansion into the global business sphere has exposed the world to Chinese management methods, but not necessarily in a favorable way. Whereas foreign companies—notably Japanese automakers like Toyota—have moved to pay higher wages in the U.S. than their American competitors do, Chinese companies pay less, harming their reputations outside of China.
Although private Chinese companies generally adapt to their environments abroad, they still have to deal with their domestic situations. One of their most important considerations is the lack of institutionalization in Chinese policymaking. Examples such as the Belt and Road Initiative and Made in China 2025 demonstrate that major Chinese policies are often vague, uncoordinated, and experimental. This lack of institutionalization asserts that the CCP’s primary aim in policymaking is to preserve its own discretion rather than commit to a defined set of rules over time.
Finally, the panel discussed the importance of properly quantifying China’s economic power to understand its international reach. Although GDP never has been a perfect measure of economic strength, it has flaws that are particularly glaring in China’s case. For example, the digital economy—a key sector of Chinese growth—is not captured in GDP, meaning that this figure may drastically underestimate China’s economic resilience. Additionally, panelists expressed that the academic community should pay attention to Chinese data politics seeing as data has become a source of political control in recent years.
Throughout their discussions, panel members expressed that much of the evidence was based on anecdotes or high-profile cases. Moving forward, it will be most useful to examine these questions empirically, even if doing so requires that data not be particularly recent.