China’s leaders appear convinced they do not need “the West” anymore, or only very selectively. And where they depend on such global connections, they seem confident that they can co-opt and disunite foreign counterparts to maximize China’s state interests. Under such conditions, Beijing makes cooperation with China more conditional, expecting compliance in return.
While the CCP-led government is driving this development, growing domestic (cyber) nationalism and an increasingly difficult environment for foreign residents and business are likely to have an amplifying effect. Fueled by years of intense patriotic education, but also the real successes of China’s government, its hardline global posturing and the propaganda surrounding it, emotions and societal perceptions will shape relations with China much more than in the past.
This more nationalist, non-compromising and self-centered China will seek to further limit and excessively control access to information and political actors in China as part of its risk management strategy. It is a key characteristic of the Xi Jinping era that externals know too little about the internal deliberations and divergences within the Chinese leadership. While tight control of narratives, and the space for debate, might make sense seen from Zhongnanhai, Chinese leaders will know less and be faced with growing myopia abroad. This is likely to result in a greater possibility for tensions to escalate and for accidents to occur.
More specifically, international counterparts will need to prepare for:
Integrating and competing with a party-state economy that is expanding globally
As the CCP expands control over the economy, foreign business needs to prepare for further politicization and greater need to toe the party-line. Companies will have to further localize while acting as “good corporate citizens” on CCP terms. In Beijing’s eyes, this means shifting profits and value-added production to domestic actors and proving their investment utility by contributing to Chinese domestic development.
Hopes that international agreements or internal pressure will lead to a level playing field for foreign companies in China remain pipedreams. They will need to compete with Chinese firms in an extremely challenging environment. In effect, foreign firms are not only competing with their peers but often with integrated industrial systems. In China, realizing the ideal of 'competitive neutrality' remains an illusion. A networked party-state capitalism drives innovation and leverages domestic advantages in strategic industries while selectively deploying international competition at home.
China’s leaders aim at dominance in an expanding set of strategic industries by achieving full control of relevant value chains. This can involve diverse actors and different modalities of party-state influence, but the underpinning goals are clear: control, reducing dependence, import substitution and, eventually, global market dominance.
Engaging with a digital power player and norm-setter aiming for self-reliance
Western actors – private companies, non-governmental organizations, and individuals – situated in China are affected by the expansion of digital control mechanisms. Data is collected and often insufficiently protected. New regulations and initiatives strive to further allow the government access to data and make monitoring more comprehensive.
Digital interconnectedness with the outside world remains critical to achieving the party’s 2035 goals for “socialist modernization,” core tech autonomy, full informatization and digital economy. The party has to juggle access to ‘open’ cyberspace with its own model of cyber sovereignty. The long-term solution is to ensure foreign interactions increasingly take place on China’s terms.
European businesses in China will need to further localize operations to comply with different rules and political pressures. Where this proves impossible, they will face hard choices about prioritizing or even choosing between key international markets.
China has made setting technical standards and norms in cyberspace a key goal. European stakeholders will meet and compete with forceful Chinese initiatives in relevant UN forums, governance and technical standards bodies. China’s digital infrastructure footprint in parts of the developing world will grow rapidly, creating challenges on the ground for European governments and businesses.
Facing-up to a comprehensive Chinese national security state with global reach
National security will become the dominant paradigm in China’s foreign relations. With Xi’s ‘security first’ perspective permeating institutions in and interactions with China, international counterparts are likely to be surprised by increasing intransigence in exchanges and cooperation.
When security gains are a predominant goal, costs in the form of worsened bilateral relations become more tolerable. Xi’s China will not just be more assertive and proactive in its foreign relations but potentially aggressive – where it perceives key interests under threat. More diplomatic partnerships and cooperative arrangements are likely to be disrupted by China’s ‘security first’ approach.
The biggest impact for Europeans will result from China’s steady shift towards ‘extra-territoriality’, the intent to proactively control behavior and narratives beyond China. China will claim and police formerly domestic red lines more forcefully abroad - leaving public and private sector counterparts torn between competing value imperatives.