China's Party-State Capitalism and International Backlash: From Interdependence to Insecurity

Contrary to expectations, economic interdependence has not tempered security conflict between China and the United States. In response to perceived domestic and external threats, the Chinese Communist Party's actions to ensure regime security have generated insecurity in other states, causing them to adopt measures to constrain Chinese firms. Security dilemma dynamics best explain the subsequent reactions from many advanced industrialized countries to the evolution of China's political economy into party-state capitalism. Party-state capitalism manifests in two signature ways: (1) expansion of party-state authority in firms through changes in corporate governance and state-led financial instruments; and (2) enforcement of political fealty among various economic actors. Together, these trends have blurred the distinction between state and private capital in China and resulted in backlash, including intensified investment reviews, campaigns to exclude Chinese firms from strategic sectors, and the creation of novel domestic and international institutions to address perceived threats from Chinese actors. The uniqueness of China's model has prompted significant reorganization of the rules governing capitalism, both nationally and globally.