China's Political Economy and International Backlash: From Interdependence to Security Dilemma Dynamics

Contrary to expectations that economic interdependence might lessen security conflict between China and the U.S. and its allies, much of the contestation between China and several OECD countries has focused on firms and economic links. This paper explains the intensification of economic contestation between China and several OECD countries by showing how changes in China’s domestic political economy have generated security dilemma dynamics. Since the mid-2000s, the Chinese Communist Party’s approach to the economy has become increasingly securitized, such that the developmental goal of economic growth, which required accommodation of the private sector, has been overshadowed by a strategy of political control and risk management for regime survival. We term these changes “party-state capitalism,” and identify two signature manifestations: 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 the state and private capital and resulted in several forms of backlash, including intensified investment reviews, campaigns to exclude Chinese firms from prominent sectors, and novel domestic and international institutions to address perceived threats from Chinese actors. We conclude that the uniqueness of China’s model has prompted significant reorganization of the rules governing capitalism at the national and transnational levels.