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Why China’s Path to Global Superpower Status May Remain Elusive: Challenges in Foreign Investment and Soft Power Deficiency

Image via Frederic Brown/Associated Press

In 2001, the United States ushered China into the World Trade Organization, hoping to inspire the communist state to join the liberal economic order. In the decades since, China’s economy has experienced astonishing growth. In 2023, the state boasted the world’s second-highest GDP, totaling 17.7 trillion dollars. By 2035, the Chinese economy is forecasted to surpass that of the United States. 

China’s surging GDP has prompted speculations that it will become a global superpower, paralleling or exceeding the United States. China’s rapid economic growth, however, has not been accompanied by a transition away from its authoritarian political system. In the coming years, the failure of the Chinese Communist Party (CCP) to adopt political reforms may discourage foreign investment and undermine China’s soft power. 

Since taking office, Chinese President Xi Jinping has promoted the “Chinese Dream”—his propagandist campaign to restore Chinese civilization and bolster the state’s economic and military might. During his speeches, Xi applauds China’s rapid economic growth and embraces the idea of a resurgent China that can challenge US global hegemony. 

 In the United States, some of the media and populace remain skeptical that China will continue its rise. This sentiment may be attributed to Sinophobia, exacerbated by volatile narratives spun by the West during the coronavirus pandemic and the failure of Western media to distinguish between the Chinese political elite and the broader Chinese population. 

While some of this skepticism may be rooted in prejudice, it is undeniable that there are significant challenges standing in China’s way. Determining the magnitude of these challenges is difficult because the CCP has started hiding data that contradicts the state’s narrative of a thriving economy. For instance, after China’s total fertility rate dropped from 1.30 in 2020 to 1.09 in 2021 (substantially below the 2.1 benchmark that ensures a stable population), the state censored reports referencing these statistics. China is also planning to suspend the release of youth unemployment data after the youth unemployment rate surged to 21.3 percent in June 2023.

Notably, the tightening of state measures in the field of foreign investment is now hampering the very source of economic strength that has been driving China’s growth. Foreign investors provide China with investments, technology, and managerial expertise. They are motivated by the sheer size of the Chinese consumer class, the world’s most populous, consisting of 899 million people and opportunities for low-cost country sourcing. The popularity of low-cost country sourcing stems from intense competition between businesses and globalization increasing accessibility to low-effective markets. In China, the cost of skilled labor is low—between 50 to 75 percent lower than in the West—while unskilled labor can be up to 95 percent cheaper. While foreign investments from countries such as the United States, Japan, and South Korea play a pivotal role in China’s economic rise, stakeholders’ concerns over intellectual property theft and corruption remain acute. 

Contrary to the belief that China allows American companies unrestricted access to its vast consumer base, some foreign companies actually struggle to maintain their businesses. For instance, many foreign automobile manufacturers often find that they must form partnerships with their Chinese counterparts in order to enter the Chinese auto market. This facilitates the legitimization of forced technology transfer to Chinese firms, granting state-owned enterprises the ability to replicate foreign technologies. Moreover, by leveraging China’s cheap labor and efficient factories, these enterprises can effectively push foreign investors out of the market by offering products at more competitive prices. Essentially, Xi Jinping is gambling that an economy rooted in intellectual property acquisition can be sustained within a totalitarian state. This strategy operates on the premise that legal challenges related to intellectual property theft can be suppressed by government claims that state-owned enterprises willingly share technology in exchange for access to China’s market.

The absence of actual private companies in China creates an inherently unlevel playing field for foreign firms operating in the country. Through various laws governing foreign investors, the state reserves the right to steal any data and seize any assets. The Military Civil Fusion policy maintains that any private company can be turned into the arm of the People’s Liberation Army. A revised Anti-Espionage Law went into effect on July 1, 2023, expanding the definition of espionage to include the sharing of intelligence related to national security interests. China has purposely kept the law vague, allowing the state to act at its own discretion. For example, the law prohibits consulting firms from conducting market assessments, such as gathering data on financial investments of major businesses in specific sectors and significant majors or acquisitions. Since many companies rely on these due diligence firms to decide whether to expand their operations in China, the new laws will likely cause a decrease in foreign investment, weakening China’s economy.

China has also taken concrete steps to enforce these regulations, even before they were officially enacted. In March 2023, Chinese authorities detained five staff members at the Beijing office of the Mintz Group, a global investigation firm specializing in background checks. The purpose of the authorities’ investigation was unclear, and the government ignored requests for explanation. Later in April, Chinese authorities paid an unannounced visit to Bain & Company’s Shanghai office, where they interrogated employees and confiscated their phones and computers. These incidents, widely reported by international news outlets, reflect Xi Jinping’s efforts to strengthen government control over information and project an image of China as hostile to foreign businesses, eroding the formula for growth China developed in previous decades.

Another law, the new Anti-Foreign Sanctions Law, aims to counter foreign sanctions by denying those involved in implementing the sanctions visas and the ability to engage in commercial transactions with Chinese institutions. The law also allows for the seizure of their property in China. This legislation raises a critical concern: By complying with Western sanctions, companies may be exposed to countersanctions or other retaliatory actions. These two laws are just a few examples of how law enforcement is rendering the country more and more inhospitable to foreign investors and their investments. These strict regulations and the risk of unknowingly violating the law also discourage Chinese nationals from continuing to operate their businesses in China, prompting them to relocate their businesses and seek immigration opportunities in other countries. 

Rather than relying on soft power, China often uses coercion and financial incentives to force countries to align with its political agenda. While Chinese factories and labor are efficient, China might never be able to achieve global influence because of its repression, lack of innovation and creativity, and constant dents to its reputation.

Protest and dissent have been ineffective at prompting a change in China’s authoritarian policies, triggering crackdowns and thus demonstrating the state’s suppression of free speech. The CCP maintains strict control over the discussion of politically sensitive topics, particularly content related to Hong Kong. The PRC has reneged on its commitment to maintain the “One Country, Two Systems” policy until 2047 by enacting the 2020 National Security Law that enables mass surveillance, curtails free speech, and authorizes the extradition of pro-independence dissidents. Before this, China demanded the expulsion of four members of the Legislative Council for supporting democratic reform. What’s more, China did not air the NBA’s preseason games in response to a tweet by Daryl Morey, in which he expressed support for protestors in Hong Kong. 

China’s suppression of freedom and mass surveillance practices also inhibit technological innovation. The ‘Great Firewall,’ which blocks access to websites like the BBC and Instagram, limits the flow of information, isolating potential Chinese innovators from the wealth of knowledge available abroad. The majority of innovation in China occurs in a top-down sequence, where the state first acquires technology from foreign companies and then promotes national innovation through subsidies to state-owned enterprises while neglecting private startups. 

The state’s heavy censorship in contemporary Chinese culture also actively undermines its soft power. The result is the dissemination of content that strictly aligns with China’s official communist ideology, stifling creativity and diluting ideas to the point where they lack the influence required to resonate with foreign markets. Given how entrenched the government is in content export to other countries, it becomes exceedingly challenging to distinguish Chinese culture from the CCP, making it difficult to establish a positive impression abroad. 

China possesses a wealth of bright minds and a rich cultural heritage, yet the very economic and political measures aimed to position the nation as the beneficiary of the global shift toward the East have erected insurmountable barriers. The stark contrast between China’s use of blunt, hard power and its ability to appeal through soft power presents challenges to its integration into the global landscape. Thus, achieving true global dominance remains highly unlikely, as Xi’s policies may subvert the ascent of his state.