Compared to Nazi Germany and the Soviet Union, China presents an entirely new challenge to the democracies because it is closely intertwined with the latter economically and socially. The CCP’s increasingly dictatorial turn cannot be explained by Xi Jinping’s personality, but the CCP’s logical development. The only way for the democracies to effectively protect themselves from, and counter, the CCP’s expansion is to form an alliance and take collective actions to demand that the CCP make meaningful changes toward respecting human rights, the rule of law, and fair and open markets. To be effective, the democracies should adopt a “tit for tat, delink-ready” strategy in pushing the CCP to make desired changes. Collectively, the major democracies have more bargaining power than the CCP, and thus should stand firm on their demands from the CCP. For MNCs, the book offers several tips to help them in formulating China-related strategies based on the perspectives of China, Inc. and China’s reliance on the relation-based system. For management scholars, the book opens new research areas in the theory of the firm, institutional theory, and other theoretical issues.

China, Inc.’s reliance on the low human rights environment domestically and free trade internationally creates a contradiction that is difficult to resolve. The ideas of democracy, human rights, and rule of law that come into China along with trade encourage Chinese people to demand political changes, which the CCP rejects. The CCP’s strategy to suppress domestic demand for democracy is to expand its influence globally. If the international community acquiesces to the way the CCP rules China, it will not only help mute the demand for political changes in China but also facilitate the party-state to achieve dominance in the world. This chapter reviews the strategies and tactics used by the CCP to influence the world, including using bribery and foreign aid, influencing the influencers, waging the great propaganda war, building a broad united front alliance, using the “Russian doll” method, practicing coercive diplomacy, and invoking the “insulting China” tactic to silence criticism.

This chapter discusses China’s legal system and governance environment. In terms of its legal system, China is weak when it comes to developing a rule-based governance structure in which the laws are independently and impartially enforced. The author will review what hinders China’s legal development from cultural, economic, and political perspectives. The author’s central argument is that in the absence of a rule-based system, China has been relying on a relation-based system in which transactions and disputes are governed by private relationships. Understanding relation-based governance is key for foreign investors to protect their interests. The author addresses under what conditions the relation-based system can be efficient, and whether it will be replaced by the rule-based system in China.

This chapter discusses how culture affects economic development. Based on historical, political, and economic reasons, China today has a strongly pro-economic growth culture. Historically, the Confucian culture of frugality, hard-working, and respecting the family is conducive to economic productivity. Politically, the authoritarian political system has shaped a population that is relatively more obedient and deferent to authority – traits that contribute to efficiency for low-skilled work such as manufactu¬ring. Economically, decades of poverty under Mao’s rule made people extremely motivated to work hard to make money. All these factors fueled China’s high economic growth. The chapter also draws attention to the fact that Mao had left an indelible imprint on today’s business leaders in China, a unique and important phenomenon that the international business community should be aware of. It also shows that a “Mao plus Deng” effect – Mao’s lawlessness and Deng’s call to get rich – is the root cause of property rights violations and especially the persistent problems of product safety and counterfeit goods in China.

This chapter first explains how the Chinese Communist Party is organized and controls the political system. Unlike the political parties in mature democracies, the Chinese Communist Party is a Leninist party that resembles a secret society, characterized by monopolistic communist ideology, strict hierarchy, exclusive membership, and two unique party organs: the Propaganda Department, and the United Front Work Department. In such a political system, the party eclipses the entire society, including the government, creating a unique party-state that imposes absolute rule over China. The chapter further shows that, leveraging its total control, the party-state creates a low human rights environment in China that enables the party-state to achieve its objectives with few costs and little resistance. In the past four decades, China’s economy grew rapidly, creating a large middle class. However, due to its total dependence on the party, the newly emerged middle class is in no position to push for democracy and the rule of law.

The long and intensifying global expansion of the CCP has made the democratic countries increasingly uncomfortable and concerned. Virtually all the democracies realize that this current relationship with China cannot be sustained. Furthermore, they feel that their open societies are especially vulnerable to the CCP’s expansion, which is exacerbated by a lack of reciprocity: while the CCP/China can freely promote its views and enjoy full legal protection in their countries, they are restricted in China. Their citizens can be imprisoned and their firms can be shut down in China without due process. A China going global under dictatorship is more dangerous to the democracies than a closed one. If a dictatorship is closed, it will degenerate into infighting. For political, economic, and social reasons, China depends on its interactions with the democracies more than vice versa. The success of China, Inc. relies on the democracies to allow it to selectively use international rules in its favor and disregard them if needed. This is beginning to change.