S27: China, Inc.

The Five-star Red Flag flutters in the wind, The song of victory is so resounding; Sing of our beloved motherland, From now on marching towards prosperity and strength.

• What have we learned about the business history of China?
• What is the China model? Are we in a new global order?
• What can China’s past tell us about its future?

Choose a year:

• 1800
• 1850
• 1900
• 1950
• 2000
• 2025

• What changed about doing business in China? What didn’t change?
• What can a case study approach reveal? What are we still missing?

• Qing Empire: Unchallenged at the center of East Asian world
• ~325 million population, largely agrarian empire
• Agriculture, handicraft manufacture, domestic business organization and practices

• Treaty of Nanjing (1842)
• Taiping Civil War, deadliest civil war in world history
• Age of unequal treaties; sovereignty and self-image fractured
• Self-strengthening movement: “Western learning, Chinese essence”

• Rise of Japan as new regional hegemony
• Carving up China after Boxer Rebellion
• Devolution of power: New armies, new provincial assemblies, new lijin (transit tax)
• Company Law (1904), and new concentrations of wealth (in treaty port cities)
• Nationalism: anti-Manchu sentiments, overseas Chinese

• Sovereignty restored after a “century of humiliation”
• Unfinished civil war: Tensions across Taiwan Strait
• Leaning to one side: Planned economy
• Many setbacks: Great Leap Forward, Cultural Revolution, etc.
• Market Maoists: Endurance of private economy

• Dual track economic reform; rejection of Big Bang liberalization
• Strong industrial policy + improvisation and local experimentation
• Overseas Chinese capital: Hong Kong and Taiwan
• Right place, right time: Huge educated labor force; shift in global economy after Cold War

• Reforms allowed property sales, triggering a massive real estate boom but also corruption and inequality.
• Local governments funded themselves by selling land to developers.
• After 2005, land sales became a vital revenue source for local governments, sometimes involving forced evictions.
• Imbalance in the center-local fiscal relationship: local governments forced to find off-budget revenue sources to fund their needs

• After 2027 or so, China’s working-age population will start to decline, and its dependency ratio will start to worsen: more social spending, lower demand, downward pressure on innovation and productivity growth.
• China is getting old before it gets rich.

• China faces a human capital crisis: In 2015, 70% of working-age adults in China had not finished high school. This makes China’s population less educated than many developing countries.
• Despite rapid growth in tertiary education, basic education is not prioritized.
• Structural constraints: Household registration system (hukou), under-funding (due to fiscal rules that limited local gov budget), etc.

• The dictator’s dilemma: Has Xi Jinping’s power grab debilitated the party’s ability to learn from its own mistakes? From the Great Leap Forward to Zero Covid
• Who will succeed Xi Jinping?
• How to empower a successor so that he can survive after Xi’s departure?

China’s higher education system:

• has produced over 55 million graduates between 2021-2025.
• 60.8 percent gross enrollment rate (2025)
• 12.22 million college graduates (in 2025), more in future years
• Largest pool of STEM graduates

• China has emerged as the leading global power in emerging technologies: robotics, battery supply, biotech trials, quantum computing, AI output, and narrowing gaps in semiconductors and chemicals.
• Many indicators: Number of patents, publications, university ranking.
• Driven by bold industrial policy, government subsidies, and ecosystem integration.

• Many challenges facing the Chinese economy – e.g. real estate bubble, land finance – are downsides of earlier successes.
• Xi recognizes China’s many vulnerabilities – from corruption to supply chain chokepoints – and are marshaling resources to make the country more resilient.
• Tightening control combined with strategic liberalization and international engagement (BRI)
• While Xi’s succession remains uncertain, China’s pursuit of wealth and power is likely to continue.

Wang, Dan, and Arthur Kroeber. “The Real China Model.” Foreign Affairs, August 19, 2025.

• What is “deep infrastructure”? Is it the real China model?
• How does it compare with other “models” – state capitalism, market socialism, socialism with Chinese characteristics?
• What, if anything, can America / the world learn from China?

Rewards:

• Reaffirms reliance on state-led investment as the engine for both growth and welfare
• Accelerate the cluster development of strategic emerging industries – notably, AI, bio-tech, new energy, advanced materials, aerospace, and more.

Risks:

• Investment in industry, at the expense of the service sector and demand-side policies.
• Overcapacity could worsen “involution” at home and protectionism abroad.
• Limited redistribution: Growth is the prerequisite for welfare, not its consequences.

CCP’s goal:

• an advanced socialist market economy in China by the year 2035
• an advanced socialist society by 2050

Discuss

• What needs to be done? List top priorities
• What role should private businesses play?
• Can China do it?

Posen, Adam S. “The New Economic Geography.” Foreign Affairs, August 19, 2025.

• Are we entering a new world order? What are its emerging contours?
• What are the implications for doing businesses – in China, with China, or elsewhere?

Short-term

• Tariffs and trade war
• Rising protectionism
• Democratic decline

Medium- to long-term

• Emerging technology: AI, quantum computing, etc.
• Demographic decline
• Climate change
• From economic inequality to political discontent

• Where do business, national, and global interests converge? Where do they conflict?
• Specifically, what concepts, values, and laws should be the future of business?
• What new opportunities do you see on the horizon? Why?

• See-saw narratives: “Chinese economy is going to collapse”; “China will take over the world”
• Western commentary, which swings from one extreme to another, often tells us more about America’s self-perception, than China’s reality.

Think like a historian:

• Against short-termism
• Against linear narratives: end of history, boom and gloom
• Against moral binaries: authoritarianism vs. democracy, capitalism vs. socialism
• Against dogmas: “Free market”, “shareholder value”, etc. – all have their histories

Why History?

• Context
• Complexity
• Contingency
• Curiosity
• Compassion