A Deal With the Dragon - The American Spectator | USA News and Politics
A Deal With the Dragon
by
Xi Jinping at press conference in Berlin, July 5, 2017 (360b/Shutterstock)

The Rise of China, Inc.: How the Chinese Communist Party Transformed China into a Giant Corporation
By Shaomin Li
(Cambridge University Press, 346 pages, $30)

The symbiotic relationship between China’s government and the Chinese Communist Party (CCP) enables China to function like a corporate entity which reaps the financial rewards of its authoritarian structure. President Xi Jinping, who also serves as the secretary general of the CCP, enjoys absolute power as its de facto CEO.

That’s the central claim of Shaomin Li’s The Rise of China, Inc.: How the Chinese Communist Party Transformed China into a Giant Corporation. Li, a professor of international business at Old Dominion University in Norfolk, Virginia, juxtaposes China’s legal system, in which every transaction is filtered through the CCP, against the Western rules-based model, which limits power through separate government branches. He delineates the historical events that catapulted China from the brink of financial collapse in the 1970s to the world’s largest economy with a current purchasing power of $23 trillion and provides context on how the West unwittingly facilitated China’s ascent to the catbird seat.

The pivotal moment for China came in 1976, when, after the death of Chairman Mao Zedong, his successor Deng Xiaoping implemented market reforms and opened the financially struggling country to foreign capital investment and trade partnerships while downplaying its communist ideology and human rights violations. 

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Then as today, the Chinese do not have personal liberties. They cannot secure a home, attend school, or start a business without the government’s permission. Those who defy the CCP are often punished with social isolation, housing and income deprivation, prison, and even death.

Yet China’s successful bid for membership in the World Trade Organization in the late 1990s was championed by President Bill Clinton, who said, “The more China liberalizes its economy, the more fully it will liberate the potential of its people — their initiative, their imagination, their remarkable spirit of enterprise.” Clinton and many others heard the 1989 pro-democracy protests in Tiananmen Square as a clarion call to democratize China.

But they were wrong about China’s intentions. They overestimated China’s interest in economic freedom and underestimated its leadership’s ability to manipulate narratives to their advantage. They also misunderstood China’s class structure. Since the state controls all means of production, the middle class works hard not to acquire property rights or personal liberties but to please the state so that it will reward them with goods and services. 

And they were wrong about how China does business at home and abroad. The CCP has de facto ownership of all firms in China, including state-owned firms; firms with close ties to the CCP, which act as subsidiaries; and private firms, which function as joint ventures with the CCP. The CCP, which controls 56 percent of China’s GDP, is the country’s largest employer, with 173 million employees out of a population of 1.44 billion. The CCP’s control of production resources, along with limited regulatory requirements and a low regard for human rights, facilitates greater dexterity, higher productivity, and lower labor costs than the democratic powers enjoy.

China also benefits from the party-state’s tremendous influence apparatus, which includes a propaganda department with a $7 billion annual budget. The CCP’s United Front Work Department (UFWD) mobilizes politicians, academics, and business leaders outside of China to support its cause under the rubric of sharing Chinese culture. China has infiltrated Western universities by funding over five hundred Confucius Institutes in 146 countries. The “Thousand Talents Plan,” which provides financing to industry experts to set up research centers in China, is another vehicle for siphoning Western intellectual property, technical innovation, and management know-how. 

Li highlights China’s practice of punishing trade partners by accusing them of using language that “hurts the feelings of Chinese people” in response to actions and positions that challenge the CCP and its interests. In April 2020, when the Australian government called for an investigation into China’s involvement in the origins of the COVID-19 outbreak, a Chinese court sentenced an Australian citizen, Karm Gillespie, to death for drug trafficking. China also restricted the importation of Australian coal, wine, beef, barley, and cotton and threatened to limit Chinese leisure and academic travel to Australia.

Although the United States and the other democracies have benefited financially from trade access to China’s vast population and cheap supplies, they have only recently begun to attempt to hold China accountable for its business and human rights violations. In March 2018, President Donald Trump imposed trade sanctions on $50 billion in Chinese imports in retaliation for China’s theft of intellectual property. President Joe Biden continued these tariffs, but on February 23, the Department of Justice announced that it would discontinue Trump’s China Initiative, a program implemented in 2018 to safeguard the United States against potential economic espionage, predatory investment, and propaganda from China. The DOJ argued that the China Initiative unfairly targeted the Chinese people and announced plans to replace it with a broader, non-country-specific program.

In addition to explaining the workings of China, Inc. for the general reader, Li’s book is a practical treatise for multinational corporations (MNCs) considering partnerships with China. He advises that MNCs choose direct investment opportunities, in which the investor receives firsthand information from the company, over riskier indirect portfolio investments, in which the publicly available reporting and auditing information is poor.

Li concludes by asking who has the most to lose if the democracies suspend all trade partnerships with China. A return to a closed-market status would crater the Chinese economy and put the country at risk of infighting for resources. But Li concludes that the democracies are still better off politically and economically with an open China. He proposes that these countries form an alliance and demand that China “practice democracy, follow the rule of law, and respect human rights.” And if China refuses or retaliates with punitive measures, the alliance must respond with a “tit for tat” response with “appropriate punitive measures to effectively pressure the CCP to make desired changes, and they must be ready to go all the way to delink with China.” 

The Rise of China, Inc. provides a vivid and at times shocking portrait of how China leverages the agility of its party-state structure to enrich its economy, export its communist ideology, and silence opposing voices. Although Li still maintains that an open China is more desirable than a closed society like North Korea, he makes a persuasive case for the democracies to band together to force the Red Dragon to play fair or be thrown out of the game.

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