The Next Cold War: China vs. Your Bottom-Line

Over the last twenty years, China’s growth—and its expanded influence on the global stage—has fundamentally changed how the world works. The seeds of China’s transformation were first sowed when The Middle Kingdom joined the World Trade Organization in 2001. In the two decades that followed, China’s “quiet rise” had less to do with manufacturing prowess and brokered trade agreements, but rather, a quest for global dominance by the Chinese Communist Party to co-opt what Western leaders have long considered their most powerful tool in the fight for liberal democracy—capitalism—to expand its illiberal influence worldwide.

In her new book, Beijing Rules, Axios’ China reporter, Bethany Allen-Ebrahimian, takes readers on a journey through the shadowy corridors of international diplomacy and into a murky world where Western institutions are being strong-armed into capitulating to Beijing. Her book, which The New York Times says “smartly combines analysis of China’s efforts to infiltrate Western institutions via authoritarian economic statecraft with a look at why the West is vulnerable to such influence campaigns,” offering an unsettling glimpse into a future where liberal democracy may find itself firmly under the thumb of authoritarian capitalism.

In an era where international businesses are increasingly intertwined with China’s vast market and supply chain, Ms. Allen-Ebrahimian advises executive leaders and boards to consider far-reaching implications beyond profit margins, which impact the very fabric of the societies in which they operate. An essential read for those responsible for shaping the direction of large, international enterprises, her reporting underscores the critical need for corporations to navigate this complex landscape with vigilance, ethics, and a deep understanding of the potential consequences of their decisions on the future of democracy and freedom.

IQ had the opportunity to speak with Ms. Allen-Ebrahimian, who paints a vivid picture of the alarming compromises made by institutions that should uphold democratic values—and the potential loss of freedoms we often take for granted.

IQ: Can you provide a brief overview of the main thesis of your book, Beijing Rules—and what inspired you to write about China’s quest for global dominance through capitalism?

Ms. Allen-Ebrahimian:  It is a concept that I call China’s authoritarian economic statecraft, which essentially means the way that the Chinese government has created some innovative ways of controlling access to its economy in order to shape the behavior of individuals, governments, companies, and multilateral institutions to bring them more in line with the Chinese Communist Party’s core interests.

I initially wrote the proposal for this book in 2019 after I had been reporting for several years about China’s political interference operations abroad. I wanted to build a more comprehensive framework for understanding the way that Beijing projects power beyond its borders.

What I found was that China’s economy was really where a lot of its power lies. Yes, it’s developing its military. Yes, it’s working on creating more of a diplomatic block, but still, and I think for several decades to come, the Chinese government’s primary form of power extension abroad is its economy.

IQ: In your book, you discuss how the Chinese Communist Party coopted capitalism to expand its influence worldwide. Could you elaborate on some specific examples?

Ms. Allen-Ebrahimian: One example from the beginning of my book—and also the beginning of the pandemic—is when the former Prime Minister of Australia, Scott Morrison, called for an independent inquiry into the origins of the pandemic.

At the time, it was a core interest of the Chinese Communist Party to deny that the pandemic had even begun in China, and their government was trying to reshape that global narrative.

After Morrison issued his statements, the Chinese government slapped a medley of tariffs on Australian exports, including wine, coal, and barley. This was an obvious authoritarianism. In this case, it was something that affected or related to the health and well-being of every single person in the world, and yet these economic measures were pursued for authoritarian political goals.

IQ: One of the central ideas in your book is the divorce of political values from market structures. Could you explain how this separation has contributed to the rise of authoritarian capitalism and its impact on global economics?

Ms. Allen-Ebrahimian: What I’m referring to—which was particularly driven by the U.S. during the Reagan administration and adopted by other Western democracies such as the U.K.—is the idea that free markets, deregulation and lightly-regulated capitalism itself was somehow equal and equivalent to liberal democracy.

The assumption was that if a country has free markets and a capitalist-based economic system, it will inherently lead to a liberal democracy—and that one cannot exist without the other. If that is the case, then you do not need to have policies that put democratic guardrails on economic behavior because as long as it is free, it is inherently liberal and democratic.

We now know that simply was not true, but in any case, that kind of divorce of political values and economic behavior created a void in international and domestic economic behaviors. The Chinese government has since come to fill that void with its own authoritarian political values.

Moreover, the Chinese government has created a global economic regulation framework by which it has attached its authoritarian behaviors to economic behavior.

Let me be specific about what I mean by that: Every single CEO of every company in the world that has business interests in the Chinese market knows that if they comment, Tweet, or exhibit certain behaviors that go against clear Chinese Communist Party red lines—their bottom line will suffer. This has been one of the most successful public relations campaigns in history. Everyone seems to acknowledge this, but there is not countervailing democratic framework to push back against it.

A key tenet of neoliberalism and free market economics is that the only job of a company is to create profit for their shareholders as long as they are doing so in line with legal regulations. A problem arises when there is an outside force, such as a foreign government that is controlling aspects of their profit. If we as a democratic society want to protect our values, then we must change the way we regulate economic behavior so that companies are essentially protected from bad actors by law.

IQ: Can you discuss China’s impact on multinational corporations? Thus far, how have they navigated the complex landscape of doing business in China while attempting to adhere to democratic values?

Ms. Allen-Ebrahimian: It is very challenging for companies right now and I think it is getting tougher and tougher. What we are seeing from a national security perspective, is that the U.S. and E.U. countries are pursuing policies that are more similar to an industrial policy aimed at strengthening competitiveness in certain strategic industries, which is aimed at preserving national security in the face of a threat from the Chinese state. One example is the 2017 National Intelligence Law in China, which requires that individuals and entities in China hand over data and provide assistance to China’s intelligence agencies—and to keep that assistance a secret.

This means that companies now must navigate an increasingly complicated regulatory environment across different economies, which means that they are facing a greater degree of political risk no matter what they do.

This creates a scenario where the West—particularly the U.S. and its partners—are heading towards what could become an economic arms race with China, in the sense that both sides are trying to create ever sharper and more innovative economic tools to pursue their geopolitical interests and trying to get more countries on their respective sides.

Meanwhile, companies are trying to navigate this without having to choose between sides. Some companies have chosen between sides, such as LinkedIn which left China after facing too many issues in the market and not enough profit margin.

IQ: What advice would you give to CEOs and boards of directors on how to strike a balance between pursuing lucrative opportunities in the Chinese market and ensuring that their companies are not unwittingly contributing to the spread of illiberal influence, as you’ve described in your book?

Ms. Allen-Ebrahimian: I think that companies based in the West need to clearly and frequently convey their concerns to government lawmakers and say, look, we want to do the right thing. These are the pressures we are facing in the Chinese market and we want your help.

Globally speaking, it is absolutely the case that the U.S., for instance, cannot do this on its own. One thing that the Biden administration has been pursuing is trying to work together with U.S. allies, partners and like-minded countries to take collective action.

Additionally, the E.U. has come a long way as well. Six years ago, it would have seemed unthinkable for the E.U. commissioner to say that we need to focus on a de-risking strategy with China, but we have seen France, Germany, the U.K., and the Netherlands realize that the economic playing field with China is not equal.

In fact, very recently the E.U. launched an investigation into Chinese made electric vehicles because of the prevalence of Chinese government subsidies that have made it very difficult for E.U. automakers to compete. We also see a lot more discussion and joint statements on a multilateral level discussing the Chinese government’s economic coercion. For example, at the G7 summit in Hiroshima, Japan a few months ago, there was a joint statement about how to collectively pursue economic resilience. And there was a follow-up statement a few weeks later about how to challenge economic coercion. Now, these statements did not list China by name, but that is obviously who it was talking about and laying out some potential joint steps. So, we are seeing movement in this direction.

IQ: What is the biggest blind spot for global enterprises right now, in terms of China’s ability to exert its influence worldwide?

I think that there was this really widespread perception and belief for a long time among Western companies that they had to be in the Chinese market—it was do or die. The fear is that if you are not in the Chinese market, then you will be outcompeted by everyone else.

There is also the idea that there are infinite riches glittering across the Pacific, if we can just get in. This has fostered a belief that no matter what you sacrifice to stay in the Chinese market will be worth it in the long term.

That is one reason, for example, that the Chinese practice of forced technology transfers (wherein U.S. companies hand over certain aspects of their technology under the guise of a Chinese joint venture) that U.S. executives agreed to over and over again because they believed that they would still be able to get a lot of money out of it.

But, in reality, even the U.S. trade representative’s office is talking about how detrimental this has been to U.S. companies. In the end, a lot of U.S. and Western enterprises end up getting ‘hollowed out’, and those desired riches never really materialize.

IQ: Let’s say that nothing changes in the next five to ten years. What does the future look like in terms of China’s increased influence over the West, its values, and the overall global economy?

Ms. Allen-Ebrahimian: One thing it would mean is that it becomes harder and harder for the U.S. and multilateral sanctions to have any effect. In addition to the kind of ideological efforts that China is making to extend the legitimacy of authoritarian systems, it is also working very hard and explicitly to sanction-proof its own economy and to help other economies as well. We have seen that very clearly after Russia’s invasion of Ukraine, where the Chinese government has offered Chinese markets as a buffer or lifeline to the Russian economy to keep it afloat. And we are seeing many different kinds of efforts along this line.

For example, a growing number of international transactions are being conducted in Chinese Yuan. That is not because the Chinese government has a short-term or even medium-term goal of replacing the U.S. as the world’s reserve currency, but rather as a kind of ad-hoc channel for evading sanctions—something that becomes easier to do to avoid traversing through the dollar-dominated international financial system that the U.S. sanctions regime can access.

So, as these trends continue, it will become more and more difficult for like-minded democracies to try to use their economies to affect political influence around the world, which China is pushing against. We can also expect if this is what happens, we will see a continued degradation or erosion of human rights mechanisms in international institutions, and also within countries that have close ties to China because they have less incentive and will face less punishment for doing things like rounding up journalists, detaining political dissidents, shutting down free speech or extraditing people back to China for political reasons. And so you see people’s lives and freedoms around the world being slowly eroded.

IQ: You talked about the importance of a democratic market framework to protect the values held by free-market economies. How can executives of large global enterprises play a hand in advocating for—or shaping—a framework that could ultimately protect their businesses?

Ms. Allen-Ebrahimian: Something that we often talk about, for example, is how big tech companies—specifically in the U.S.—are on the forefront of these trends. Former Google CEO Eric Schmidt has advocated for Silicon Valley to talk to Washington and work with policymakers in order to share their concerns and their expertise about what they are seeing in their fields—which includes working with the U.S. government to essentially shape industrial policy.

Those policies could include how we can maintain an edge across emerging technologies and how we can strengthen our companies. Maintaining a healthy economic infrastructure in the U.S. could allow companies to be stronger in their competition with China. The main goals here are economic prosperity and national security.

If the U.S. and Western companies work together with their respective governments in a way that promotes democratic values, then that strengthens the resolve behind democratic values on a global stage, especially since we are basically competing between democracy and authoritarianism.