The low human rights advantage and the failure of globalization: the challenge of China Inc.

Over the past 3 decades, globalization has profoundly shaped international economic integration through trade liberalization, investment flows, and the expansion of transnational supply chains (Hill and Hult, 2019). Proponents, including former U.S. President Bill Clinton, envisioned it as a pathway to mutual prosperity, heightened interdependence, and the global spread of liberal democratic norms (Clinton, 2000). This optimism rested on several core assumptions: economic openness would generate internal pressures for political liberalization, market efficiencies would outweigh state intervention, and the liberal international order would consolidate over time. Yet these assumptions have proven increasingly fragile, as evidenced by rising trade tensions, deindustrialization in advanced economies, and persistent geopolitical vulnerabilities (see, e.g. (Buckley, 2023; Howard-Hassmann, 2005; Luo, 2024; Petricevic and Teece, 2019; Stiglitz, 2017; Witt, 2019; Witt et al., 2021)).

In this paper, we contend that a critical yet underappreciated factor undermining globalization lies in the structural challenge posed by totalitarian political economies, most notably the Chinese Communist Party (CCP)–led state. We develop the concept of the low human rights advantage, originally proposed by historian Qin Hui (Qin, 2007), as a central explanatory framework for China's rise and its destabilizing effects on the global free market–based system. Distinct from traditional comparative advantages such as low labor costs or economies of scale, this advantage arises from a totalitarian regime's capacity to suppress civil liberties, expropriate assets, and mobilize labor, land, and capital with minimal institutional resistance, thereby enabling structurally unequal competition with market-based economies.

To deepen this analysis, we integrate Li's China Inc. Model (Li, 2022), which conceptualizes China as a unified corporate entity governed by the CCP. In this framework, the Party functions as the headquarters of a national conglomerate, overseeing state-owned enterprises, nominally private firms, and foreign subsidiaries, while citizens are treated as managed personnel rather than rights-bearing individuals. This organizational arrangement allows China to operate with the agility of a firm and the resources of a nation, endowing its firms with state-like capabilities that fundamentally alter the terms of global competition.

From this perspective, globalization's failure cannot be reduced to distributive outcomes or shifting comparative advantages. Instead, it reflects a deeper theoretical oversight: the neglect of political asymmetry. Liberal democracies compete under constraints imposed by human rights, the rule of law, and institutional accountability, whereas totalitarian regimes can convert repression into economic efficiency. Because meaningful competition presupposes shared rules, this asymmetry has produced systemic distortions, including hollowing out of manufacturing in advanced economies, technological dependence on autocratic suppliers, and escalating geopolitical risks.

By synthesizing the low human rights advantage with the China Inc. Model, this paper advances the literature on globalization's limits. We argue that China's ascent—driven not merely by scale or policy but by the systematic institutionalization of low human rights—is a primary structural cause of globalization's breakdown. Sustainable global integration, therefore, cannot rest on economic openness alone; it requires political conditionality, including minimum human rights and rule-of-law standards. Absent such integration, the global political and economic order will continue to erode as totalitarian systems exploit openness while rejecting its normative foundations.

The remainder of the paper proceeds as follows. Section 2 critiques globalization without political integration and reviews the emerging deglobalization literature. Section 3 elaborates on the concept of the low human rights advantage. Section 4 examines the structure and operation of China Inc. Section 5 presents two historical cases of the low human rights advantage: the antebellum United States and apartheid South Africa. Section 6 concludes with a discussion of the theoretical and policy implications.

Globalization, defined in international business literature as the increasing integration of global production and consumption (Hill and Hult, 2019), was driven by two structural forces: the dismantling of trade barriers following the collapse of the Communist Bloc and technological advances in transportation and communication that sharply reduced the costs of moving goods, capital, and information. This process gave rise to what Friedman famously described as a “flat world” (Friedman, 2005), in which national borders were expected to matter less for economic activity.

Early international business theory was anchored in a liberal internationalist framework. Economic integration was assumed to promote political convergence, while firms were expected to operate in an increasingly neutral, efficiency-driven global environment. Multinational enterprises (MNEs) were modeled as profit-seeking actors responding primarily to cost differentials, with states serving as facilitators rather than strategic competitors.

Underlying this framework was a broader modernization logic: economic openness and development would generate pressures for political liberalization, ultimately aligning political institutions across countries (Acemoglu and Robinson, 2006; Boix and Stokes, 2003; Clinton, 2000; Hill and Hult, 2019; Inglehart and Welzel, 2005; Lipset, 1959; Nolan, 1994; Przeworski and Limongi, 1997). Political integration was therefore treated as endogenous to economic integration rather than a necessary precondition.

This consensus has eroded. Contemporary IB scholarship increasingly frames recent developments through the concept of deglobalization, commonly defined as a structural weakening of interdependence among nations (Witt, 2019). Rather than cyclical downturns or temporary disruptions, scholars now emphasize a durable shift away from efficiency-driven globalization toward fragmentation shaped by geopolitics and national security concerns.

A growing body of work identifies a turn from liberalism toward realism. Witt (2019) and Petricevic and Teece (2019) argue that states have reasserted dominance over markets, prioritizing national survival and technological sovereignty over cost minimization. Trade, investment, and value chains are increasingly securitized, transforming interdependence from a source of mutual gain into a strategic liability.

This transformation is often characterized as a Kuhnian paradigm shift. Traditional models rooted in liberal internationalism struggle to explain why deeply integrated economies now actively restrict trade, investment, and technology flows. The “geopolitical turn” has elevated techno-nationalism, security screening, and strategic decoupling above the logic of trade liberalization.

Recent scholarship moves beyond describing trade conflicts to analyze the structural reordering of the global economy. Luo (2024) conceptualizes the current era as one of “global disorder,” marked by a transition from market logic to security logic. Global value chains are no longer neutral efficiency mechanisms but tools of national strategy.

This shift fundamentally alters the challenges facing multinational enterprises. Firms must now manage not only the traditional “liability of foreignness” but also a “liability of origin,” in which their home country shapes their legitimacy and risk exposure in host markets.

Other scholars identify the institutional mechanisms driving this reconfiguration. Edman and Stevens (2025) frame the transition as a conflict between market logic and nationalist or state-security logics. Buckley (2023), extending internalization theory, argues that the global economy is fragmenting into regional or ideological blocs, forcing firms to internalize political risk alongside production decisions. Buckley and Casson (2020) similarly emphasize that managing origin-based political exposure has become a core strategic function of the modern MNE.

Despite its analytical advances, this literature exhibits a fundamental limitation. By framing deglobalization as a clash of abstract logics—liberalism versus realism, market versus state—it treats global disorder as an impersonal condition rather than the outcome of deliberate institutional design and strategic action.

Most studies describe fragmentation as a systemic response to external shocks, yet they stop short of identifying the specific actor whose structural evolution rendered the liberal order unstable. The result is a diagnosis of symptoms without a clear account of causation.

This omission is consequential. Understanding globalization's failure requires recognizing China not merely as an authoritarian participant but as a totalitarian state with world-market-dominating manufacturing capacity (Pei, 2021). Unlike smaller or less integrated authoritarian economies, China's scale allows the party-state ^[1] to mobilize national resources with extraordinary coordination. Its system—better described as high-tech totalitarianism—combines traditional repression with advanced surveillance and social engineering (Feldstein, 2021).

Accounting for approximately 30% of global manufacturing output (Deutsche Bank, 2025), China possesses a form of command efficiency that enables rapid industrial reconfiguration and the strategic weaponization of global value chains. In this framework, the state is not an external regulator but a proactive corporate actor that has internalized the market itself—a “nation-as-firm.”

A second limitation of the literature concerns human rights. Labor, property, and political rights are typically treated as ethical or normative considerations rather than as structural economic variables. Yet for the Chinese party-state, the capacity to suppress individual rights is a core source of competitive efficiency.

By eliminating legal and political frictions, the state can mobilize labor, land, and capital at speed, absorb adjustment costs internally, and release overcapacity onto global markets—options unavailable to liberal democracies constrained by the rule of law and political accountability.

This blind spot reflects the legacy of modernization theory, which assumed that economic development would naturally produce political liberalization. China's experience has decisively refuted this assumption. Globalization strengthened totalitarian control rather than eroding it, as market mechanisms were harnessed to enhance state power.

The resulting paradox—globalization's apparent failure despite the predictions of comparative advantage—has puzzled economists and IB scholars (Stiglitz, 2017; Witt, 2019;Witt et al., 2021). Existing explanations emphasize inequality, deindustrialization, or geopolitical rivalry (Autor et al., 2016; Milanovic, 2016; Rodrik, 2018), but they do not integrate political asymmetry into the core logic of global competition.

This paper advances a comparative political economy perspective that centers on political integration as the missing pillar of globalization. By allowing totalitarian systems to participate fully in a liberal economic order without reciprocal commitments to human rights and the rule of law, globalization created a structurally uneven playing field. The result is that countries with suppressed rights are more competitive in international trade.

While several countries have exhibited this pattern (see Section 5), it is most pronounced in China, given the Chinese Communist Party's long-standing reliance on low human rights practices and the sheer scale of China's economic power. Although political scientists have examined aspects of the China model, international business scholarship has addressed it only briefly and often in a simplified manner (McNally, 2012; Nölke and Vliegenthart, 2009; Ten Brink, 2019; Witt and Redding, 2013). Without explicitly theorizing China's role, discussions of globalization and deglobalization remain incomplete.

According to the United Nations, human rights are “rights inherent to all human beings, regardless of race, sex, nationality, ethnicity, language, religion, or any other status. Human rights include the right to life and liberty, freedom from slavery and torture, freedom of opinion and expression, the right to work and education, and many more. Everyone is entitled to these rights, without discrimination” (United Nations, 2025).

Freedom House rates people's access to political rights and civil liberties in 208 countries and territories through its annual Freedom in the World report. Individual freedoms—ranging from the right to vote to freedom of expression and equality before the law. The score ranges from −1 (least free) to 100 (most free). China's score is 9/100, lower than Russia (12/100), Iran (11/100), and Cuba (10/100), and higher than North Korea (3/100) (Freedom House, 2025).

The concept of the low human rights advantage captures a crucial yet understudied structural feature of the global economy: totalitarian regimes' capacity to leverage repression as an economic asset. Unlike traditional comparative advantages based on factor input, such as labor costs, resource endowments, or technological capacity, this advantage derives from political asymmetry—specifically, the ability of a state to violate or suppress human rights in order to lower costs of factor input, centralize control, and enhance efficiency (Li, 2022; Qin, 2007, 2025).

This advantage is not equivalent to merely having cheap labor, as we will elaborate later. Many democratic developing democratic countries also possess inexpensive labor forces due to the low living standards, yet they do not enjoy the same systemic economic leverage as totalitarian states like China. What distinguishes the low human rights advantage is that it is rooted in a regime's ability to restrict individual freedoms, seize land and assets, mobilize resources nationwide through coercive coordination, and compete globally.

In China, the dominant theoretical foundation for what this study terms “low human rights” can be traced to the legacy of communism. Classical Marxist theory treats private property as the root of class exploitation and calls for its abolition, replacing it with collective ownership and a system oriented toward the “common good” (Marx, 2007 (1867); Marx and Engels, 1848 (1906)). Within this framework, individual rights are subordinated to collective objectives, and political authority is vested in a vanguard organization—the Communist Party (Chinese Communist Party, 2017).

Although contemporary China has moved far from orthodox Marxism in its economic practices, the ideological legacy of communism continues to provide a source of political legitimacy and institutional justification. In particular, the primacy of the Party over society and the subordination of individual rights to collective goals remain embedded in the system.

Organizationally, the Communist Party differs fundamentally from political parties in democratic systems. It is a highly centralized and disciplined organization with formal membership, hierarchical control, and extensive mechanisms for ideological training and monitoring (Chinese Communist Party, 2017; Dickson, 2016). Entry into the Party typically involves a prolonged process of evaluation and political vetting, and members are expected to demonstrate loyalty and adherence to Party doctrine. Internal discipline is enforced through both formal and informal mechanisms, which may operate outside conventional legal procedures (Chou and Nathan, 1987; Li and Farrell, 2025b).

From both theoretical and practical perspectives, institutional features commonly associated with liberal democracies—such as individual rights and the rule of law—are viewed by the Party as threats to its one-party rule. This stance is explicitly reflected in official documents, including the 2012 “Document No. 9,” which criticizes Western constitutionalism and related concepts (Chinese Communist Party, 2012; Shirk, 2018).

As a result, the Party maintains a position above the legal system and retains broad discretion to limit individual rights when deemed necessary for political stability or regime security (Dickson, 2016; Nathan, 2003). This institutional arrangement extends across society, affecting not only ordinary citizens but also business actors and even Party members themselves. In this sense, the system's approach to rights is not selective but systemic, shaping the broader political and economic environment in which firms operate.

Having low human rights does not inherently or automatically make a country economically advantaged.

Historical examples of low human rights regimes, such as traditional African slave economies or feudal serfdom in medieval Europe, clearly lacked competitiveness. Similarly, human rights in today's North Korea exhibit even lower human rights than those in contemporary China. However, these entities do not engage in market economic activities, nor are they integrated into the global economy; therefore, they essentially do not compete with other economies, such as the United States or today's China, in the global marketplace. Consequently, no competitive advantage can be claimed in such cases. The competitive advantage of low-human-rights regimes can only be realized through economic integration with market economies, especially those with higher human rights.

Temporally and spatially, it is also important to note that the competition between entities with differing human rights standards under globalization must be understood as a horizontal, synchronic comparison rather than a diachronic one. Comparing present-day conditions with the past in the same country is irrelevant in analyzing economic advantages between countries. For example, compared to the pre-reform Mao's China, today's CCP allows greater human rights, but that does not make today's China a high-human-rights country, and when the Chinese complain about the current human rights situation, they use high-rights countries as references. It is safe to say that few of them want to go back to Mao's era.

Contemporary China is not the only example of the low human rights advantage under conditions of economic integration. As Section 5 shows, the slave-based economy of the American South and apartheid South Africa outperformed neighboring economies by leveraging this advantage. These historical cases help illuminate the structural logic underlying contemporary China in the context of globalization. While other cases could be cited, contemporary China remains the most prominent and systematic example of this dynamic.

Below, we outline the institutional and structural mechanisms through which China's low human rights advantage manifests.

An important practice of the low human rights advantage is the control of people's residence and movement. The theoretical basis for it is the principle of total control (the proletarian dictatorship) and the superiority of urban industrial workers (which it deems the major base for the communist revolution) over rural peasants. In practice, the CCP established the “hukou” (household registration) system early on in the 1950s, which classifies people into “urban residents” versus “rural residents” in designated places (Qin, 2025; Zhang, 2013). Urban residents have the privilege of working, living, schooling, receiving food rations, accessing medical services, and other benefits that rural residents do not have. People can only reside in their designated places, such as an urban town or a rural village; if they wish to relocate to another place, they must get the state's permission. It is relatively easy for a resident to change their status from urban to rural, but virtually impossible to change it from rural to urban. Being a rural resident is to be condemned to the bottom rung in China.

Since the CCP's “reform and opening” in the 1980s, along with the broader societal thaw, rural residents began moving to cities in search of work. The CCP also realized the need to have them fill the manual jobs created by the economic reform, so it has allowed them to do so, but has refused to grant them urban resident status. Without a city “hukou,” the rural migrants are deprived of the normal social and economic services in the city where they live, including schooling and housing, making them de facto illegal immigrants (City Monitor, 2018). This policy has created a huge labor army that marches to all urban centers in China, forming the backbone of China's manufacturing, construction, and service sectors. They are minimally paid, overworked, and can be mobilized and discarded at will, granting the state a uniquely flexible and disposable labor force. This system provides a huge pool of cheap, flexible, and efficient labor unavailable in democratic economies, where internal migration and even international illegal migration are permitted and protected by civil rights (Chan and Buckingham, 2008; Fan, 2008; Solinger, 1999; Wang, 2005).

Communism despises private property ownership and believes that the communist state can confiscate it in the name of revolution for the greater good of society (Marx and Engels, 1848 (1906)). In China, all land is owned by the state. The state's near-absolute control over land and property allows for widespread expropriation in the name of economic development. Municipal governments, often under pressure to meet growth targets, forcibly seize land from citizens with minimal compensation and resell it to developers or state-backed enterprises (Ho, 2005; Sargeson, 2013; Yep, 2013).

The forced land seizures show that the term “low human rights” must not be narrowly interpreted to mean only the suppression of labor rights while ignoring property rights violations by the party-state. Nor should it be confined to labor-capital relations in which capitalists are presumed to enjoy high human rights protection while workers suffer (Hurst, 2009; Rithmire, 2015).

This mechanism reduces production and transaction costs, enables rapid urbanization, and attracts foreign capital—all without the checks and balances of legal recourse that property holders would enjoy in liberal democracies.

Communism demands absolute obedience from all people. The Chinese are taught from an early age to obey official orders. Challenging authority is forbidden and harshly punished. All these communist indoctrinations have made Chinese workers highly disciplined and able to follow orders effectively and efficiently. In manufacturing operations and production, this trait is an advantage (Li et al., 2017). The cross-country index of obedient culture is not available. Hofstede's power distance and individualism/collectivism indices may serve as indirect measures of obedience. High power distance and low individualism scores may indicate high obedience. China's power distance score is 80/100 (the U.S. is 40/100), and its individualism/collectivism score is 20/100 (the U.S. is 91/100) (Hofstede, 2025).

Consistent with its low human rights ideology, communism denounces indulgence and consumption. Consumption and enjoying life have been viewed by the CCP as a bourgeois lifestyle and should be criticized. Consumption is only necessary for production. Following this ideology, China has been a production giant and a consumption dwarf.

For example, China accounts for 19% of the world's GDP, 32% of global manufacturing value added, but only 12% of global consumption (Deutsche Bank, 2025).

Low consumption has helped China achieve a high savings rate (43% of GDP in 2024) and, in turn, capital accumulation and investment (World Bank, 2024).

Relatedly, people do not have the right to freely convert their Chinese currency to other currencies. Furthermore, the CCP sets the yuan's exchange rate well below its purchasing power (Shan, 2025), thereby depriving Chinese workers and consumers of their earnings and purchasing power. According to various estimates, the Chinese yuan's purchasing power parity is about 3.5–3.6 yuan per international dollar (or U.S. dollar), compared with the nominal exchange rate of 7–7.2 yuan per dollar, which is largely set by the Chinese government. In other words, the yuan is undervalued by about 50% (see, e.g. (World Bank, 2025)).

Together, these elements constitute a coherent and robust low human rights advantage—a mode of economic participation that thrives on the absence of personal freedoms, artificially suppressed consumption, and obedience. It allows the state to mobilize labor, capital, and land more rapidly and cheaply than its democratic counterparts, and to direct these inputs toward globally competitive outputs. Furthermore, all these factors are outcomes of the totalitarian political system, not decisions made by capitalists, and they are not characteristic of capitalist societies in the classical sense.

For a closed economy based on low human rights, it faces several fatal limitations: it prohibits the economic incentive to produce, misallocates resources due to the lack of market signals, and lacks access to innovation. As a result, it cannot achieve economic growth (Hill and Hult, 2019). North Korea today and China before the reform are good examples. Thus, in isolation, unfree countries cannot outperform free countries economically.

However, once economic integration occurs between free and unfree regimes—under globalization—those constraints on the low human rights regimes are effectively neutralized. Profits from trade and piece-meal wages, albeit low, provide strong incentives for firms and workers to produce. Technologies flow to coerced economies, either through the pursuit of high returns or forced or illegal transfer, compensating for their lack of innovation. Similarly, the consumption deficits that limit growth in unfree regimes can be overcome through external demand from consumer-rich democracies. In such conditions, the unfree economy gains access to earning incentives, innovation, and demand without having to liberalize politically.

Summarizing our above discussion, we derive the following description of the low human rights advantage: it consists of three core institutional mechanisms—labor repression, state discretionary expropriation, and centralized political control—that reduce factor costs and enable coordinated resource mobilization. However, these mechanisms generate a competitive advantage only when combined with access to global markets, which provide demand, technology, and capital.

Thus, this advantage is not incidental to China's global rise—it is integral to it. During China's accession to the WTO, many Western leaders supported it, driven by profit motives and the hope that economic growth would catalyze democratic reform in China (Clinton, 2000). Instead, the opposite occurred: the CCP intensified its control over society, expanded its role in the economy, and deepened its totalitarian rule even as it opened up economically. The tools of repression were not abandoned; they were economically optimized through control.

This section lays the groundwork for understanding how China's totalitarian political economy, far from being a barrier to globalization, became a catalyst for its success within a system that privileged market openness without enforcing political reciprocity. In the next section, we explore how this logic is institutionalized and scaled up through the concept of “China Inc.”—a model of governance that positions the CCP as the central executive of a national conglomerate operating on the global stage (Li, 2022).

The concept of China Inc. (Li, 2022) provides an analytical lens for understanding China's role in the global economy. Rather than viewing China as a conventional state-led economy, this model conceptualizes the country as a unified corporate entity, with the Chinese Communist Party (CCP) functioning as its management. The Party orchestrates economic activities with the efficiency and strategic focus of a hierarchical business organization, while the population serves as the firm's employees. By integrating the low human rights advantage into its operational framework, China Inc. achieves a level of coordination and control unattainable in liberal democracies, fundamentally reshaping the dynamics of global competition.

This framework rests on a central institutional fact: the CCP exercises total control over China, extending from organizations to individuals' political, economic, and social lives (Chen, 2013). The Party's oft-cited slogan—“party, government, army, society and education; east and west, south and north, the Party leads all”—captures this comprehensive dominance (China Media Project, 2017). Economic activities are therefore not merely regulated by the state but are substantively governed by the Party.

This control is evident in the business domain. The party-state regulates firm nomenclature, reserving terms such as “China,” “People's Republic,” and “national” as state property that cannot be used without approval (Ministry of Justice of the PRC, 2004). It also directly intervenes in capital markets, including through state investment and administrative orders instructing private brokerages to buy or sell equities (Radio Free Asia, 2024). These practices illustrate that markets in China operate under continuous political supervision rather than impartial regulation.

Importantly, governing China as a corporation is not simply an ideological preference but the result of the CCP's organizational learning. Pure reliance on political control through mass campaigns and ideological mobilization proved disruptive, economically inefficient, and ultimately incompatible with sustained economic growth. Yet allowing the free market to operate autonomously would foster economic independence among firms and individuals, posing a direct threat to one-party rule. Adopting corporate logic offers the Party an optimal institutional solution. It avoids the disruption and stagnation associated with recurrent political movements while preventing individuals and firms from gaining the autonomy inherent in a genuine free-market economy. At the same time, it preserves material incentives, competition, and performance-based discipline—key drivers of economic expansion—within a tightly controlled hierarchical system.

All firms in China have lost their independence to varying degrees, depending on their ownership status and relationship with the party-state.

State-owned enterprises lack independence from the government, as the state controls their property rights. Their budget constraint is soft, and they enjoy the strongest state support and act on behalf of the party-state. They resemble business units of China Inc.

Privately owned firms in China have more autonomy than SOEs. De jour, the owners have the property rights of their firms. De facto, the party-state controls them. For example, business registration is not automatic; investors need the party-state blessing to register a firm. The party-state can decide the firm's operations and fate, essentially acting as a controlling shareholder. Thus, the role of private firms is as subsidiaries of China Inc. Private firms with close relationships with the CCP enjoy more support from the CCP than ordinary private firms.

Foreign firms operating in China are also effectively subsumed into the China Inc. framework, functioning as franchisees subject to the CCP's unilateral terms. Market access is contingent on their attitude toward the party and following the terms set by the party-state, which may include partnering with state-approved entities, localized data storage, and adherence to political sensitivities, such as avoiding commentary on Xinjiang or Taiwan, and certainly not criticizing the party, the de facto corporate leadership.

For example, companies like Tesla and Apple have navigated these constraints by aligning their operations with CCP priorities, such as establishing local manufacturing or censoring content on digital platforms (Li, 2022). Non-compliance carries severe repercussions, as seen in the case of H&M, which faced boycotts and market exclusion in 2021 after raising concerns about forced labor in Xinjiang. This asymmetrical relationship underscores the low human rights advantage's global impact.

In the China Inc. Model, the CCP serves as the central executive, with the General Secretary acting as the CEO and the senior official committees, such as the Politburo, functioning as the board of directors. This hierarchical structure extends to governmental ministries, which operate as functional departments of China Inc., executing the top management's strategic directives. For example, the CCP Central Department of Publicity (Propaganda) acts like the public relations department of China Inc., managing the information flow and promotion of China Inc., and the Ministry of State Security collects trade secrets and commercial technologies for China Inc., and the CCP Central Department of United Front Works develops networks and opportunities for China Inc.

The China Inc. Model extends beyond organizations to encompass the population. Individuals in China are not citizens who enjoy the full citizens' rights under the rule of law and democracy; they cannot criticize the party-state, they cannot freely exchange their local currency into foreign currency, and they must have a hukou card or need special permission to reside, work, and attend schools in a location. An example of comprehensive personal control is the Social Credit System, which records and evaluates residents' activities, and rewards “good” and punishes “bad” behavior (Stanford Center on China's Economy and Institutions, 2025).

China's National Intelligence Law requires all organizations and citizens to support, assist, and cooperate with state intelligence work (Chinese Government, 2017).

All these restrictions and responsibilities make people in China resemble employees of a corporation, who undertake assignments and give up certain rights, such as the right to criticize the CEO, in exchange for working for the company.

This corporate-like governance is further enabled by the following institutional mechanisms, each reinforced by encroachment on the rights of individuals and firms. The CCP Constitution and laws require firms with three or more party members to establish a party branch and to provide “necessary conditions” for CCP activities. This allows the party to monitor and influence firms, and ensure their alignment with CCP policies and state interests (Chinese Communist Party, 2017; Chinese Government, 2024). State laws give the party-state broad authority to access firms' financial data, including bank records. And firms in China must share data with the state (Chinese Government, 2017; Stanford Center on China's Economy and Institutions, 2025). Furthermore, advances in information technology have made information access and control more effective and efficient (Greitens, 2024).

While the China model has achieved high growth, it has had a far-reaching impact on the world (Guthrie, 2012; Wu, 2017).

From an institutional perspective, the way the CCP manages China is distinctly different from that of liberal democracies. In liberal democracies, the state is the rule-maker and enforcer of economic activity, whereas individuals and firms are the players in the economy.

In China, the party subsumes the state, and the party-state is the rule-maker, enforcer, and player in the economic arena, and acts as the de facto controlling shareholder of all entities in China.

The China Inc. Model affects the global economic order by allowing the Chinese party-state to operate as both a sovereign regulator and a market participant. In state-to-state interactions, the Chinese state can act like a corporation, swift and agile, without internal checks and balances that democracies must face. In firm-to-firm competition, Chinese firms can behave like a government entity, with the backing of the Chinese state in financing, intelligence, and logistic support that only a state can afford.

Under this model, the Chinese manufacturing economy can be grouped into three types that impact the world.

First are the industries deemed strategic by the party-state. They are guided and supported by the government, such as high-speed rail, energy, high-tech, banking, and biotechnology. The party-state support for these industries is realized through its industrial policies. Because the government directly manages the economy, these policies are not merely advisory; they function like corporate strategic decisions that the entire nation must execute (Li and Farrell, 2025a). The process involves the state designating an industry as key, shielding it from foreign competition, selecting domestic champions, and mobilizing national resources to develop it. Leveraging China's massive market to quickly achieve economies of scale, these strategic industry players outperform rivals abroad and dominate the global markets (Wen, 2019). Using this strategy, China has quickly and successfully developed the industries of solar power, high-speed rail, and EV batteries, for example (Li and Farrell, 2025a).

The second type is the supply chains China has built. In key industries, the state invests in building comprehensive chains. Examples include green energy, critical minerals, advanced manufacturing and electronics, chemicals, and pharmaceuticals. In the lithium-ion battery supply chain, key raw materials such as cobalt and lithium are often sourced from politically unstable, corruption-prone African nations, such as the Democratic Republic of Congo. Western free-market firms tend to limit their direct involvement due to high operational risks, ethical concerns, regulatory pressures, and potentially lower short-term profits, whereas Chinese state-backed entities leverage government support—through diplomatic deals, financing, and infrastructure investments—to secure mining rights and develop integrated supply chains (Nantulya, 2025).

The party-state uses China's control over the supply chains of key industries as an effective tool to gain advantage in international relations and trade and investment, such as its control over rare earth element exports (U.S.-China Economic and Security Review Commission, 2025).

The third type comprises fully competitive, decentralized industries such as apparel and toy manufacturing, where margins are thin, and entry barriers are low. China's weak labor protection, limited social safety nets for migrant workers, and permissive enforcement environment create a survival-of-the-fittest ecosystem. Firms unable to meet extreme cost pressures exit, while survivors achieve exceptional efficiency and ultra-low costs. Collectively, these producers have come to dominate global markets with low-priced goods, displacing higher-cost competitors in countries with stronger labor protections (Chan, 2001; Gereffi, 1999; World Trade Organization, 2025).

Business firms, by their nature, aim to produce goods or services beyond the needs of their owners and employees. Thus, overproducing, or overcapacity, is built into China Inc.

In 2025, China's trade surplus in goods reached $1 trillion for the first time, underscoring China's dominance in the global economy from high-end vehicles to low-end T-shirts. A Wall Street Journal article attributed the achievement to “decades of industrial policies and human industriousness” (Cheng, 2025). In our framework, these industrial policies are business strategies and thus an intrinsic part of China Inc., and the low human rights conditions contribute to the industriousness.

For decades, cheap products and low borrowing costs (due to China's reinvesting its trade surplus in the debt market) have benefited consumers in mature economies. In turn, these countries have been losing their ability to manufacture and, to a great extent, have been relying on China to finance their lifestyle. Leaders of major economies, from the U.S. to Europe, have sounded an alarm about this unsustainable relationship with China (See, e.g. (Bao, 2025; Shambaugh, 2024; The Guardian, 2025)).

The low human rights advantage is not unique to contemporary China. Historical evidence suggests that, under conditions of market integration, systems that suppress individual rights can achieve significant economic competitiveness. Two illustrative cases are the antebellum United States and apartheid South Africa.

In the nineteenth century, the United States contained two distinct economic systems: a free-labor economy in the North and a slave-based plantation economy in the South. While the North led in industrialization, the South dominated export markets through large-scale cotton production, driven by strong demand from the British textile industry (Beckert, 2014; Wright, 1978).

Within this context, slavery functioned as an economic institution that enabled large-scale coordination and intensive labor extraction. The plantation “gang system,” which organized enslaved workers under centralized supervision, allowed planters to achieve high measured productivity despite the absence of free labor incentives (Beckert, 2014; Fogel and Engerman, 1995 (1974)).

Crucially, the Southern economy operated within an integrated national and global market, allowing it to combine coercive labor with capital, transportation, and technology developed in the North. This created an asymmetric dynamic: the slave system could absorb the advantages of free-labor economies, while the North could not adopt slavery without undermining its own institutional foundations (Beckert, 2014; Wright, 1978). As a result, the South generated substantial export surpluses and appeared highly competitive for a sustained period.

This efficiency, however, was conditional. It depended on external demand and borrowed innovations, and it coexisted with deep institutional tensions that ultimately contributed to the Civil War. The case shows that coercive labor systems can achieve high performance when embedded in open markets, even as they generate instability.

A comparable pattern emerged in twentieth-century South Africa under apartheid. Following 1948, the state constructed a system of racialized labor control that restricted mobility, political rights, and bargaining power for Black workers, while remaining integrated into global markets (Feinstein, 2005; Posel, 1991).

Pass laws and influx controls limited where individuals could live and work, creating a geographically constrained and politically suppressed labor force. These institutions reduced labor costs and ensured a stable supply of workers for mining, agriculture, and manufacturing (Seekings and Nattrass, 2008; Wilson, 1972). At the same time, the costs of social reproduction were shifted away from employers, further lowering production costs.

This domestic repression was combined with global economic integration. South Africa exported minerals and industrial goods while importing capital and technology, thereby benefiting from external demand despite internal constraints (Feinstein, 2005; Innes, 1984). During the postwar decades, the economy grew rapidly and became one of the most industrialized in Africa (Feinstein, 2005; Maddison, 2001).

As in the American South, these advantages proved temporary. The system generated structural rigidities, including skill shortages, suppressed domestic demand, and rising enforcement costs (Seekings and Nattrass, 2008). Over time, these constraints, together with international pressure, transformed the low human rights advantage into a liability and contributed to the collapse of apartheid.

These cases point to a common mechanism. When integrated into large markets, regimes that suppress human rights can lower production costs, stabilize labor supply, and coordinate economic activity more effectively, while relying on external demand and innovation generated elsewhere. Under such conditions, coercive systems can achieve substantial competitiveness.

At the same time, these advantages are conditional and often unstable. They depend on continued integration with higher-rights economies and tend to generate long-term tensions that undermine their sustainability. This pattern provides a useful lens for understanding contemporary China, where similar mechanisms operate on a much larger scale.

Globalization, once celebrated as a pathway to shared prosperity and democratic convergence, now confronts its limitations in the era of China Inc. The absence of political integration has permitted totalitarian regimes to turn repression into a competitive tool, eroding the liberal order's economic and ethical foundations. This paper has argued that the low human rights advantage—derived from coercive control over people and organizations—empowers China Inc. to dominate global markets as a unified corporate-state entity. Economic interdependence without political alignment has thus failed, creating distortions such as industrial hollowing, dependency, and geopolitical risks, as seen in recent trade volatility. The paper advances three core arguments. First, the low human rights advantage enables totalitarian regimes to outcompete democracies by minimizing costs through repression. Second, China Inc. embodies a new organizational form, merging state, firms, and people to execute highly effective and efficient strategies in the global market. Third, without political alignment, globalization is unsustainable.

The failure of globalization, as we argued, due to the pursuit of economic integration without political convergence, calls for reconsidering how the concept of globalization is defined.

Globalization's prevailing definition—focused on the integration of production and consumption—is incomplete, as it ignores embedded political systems. This oversight has disproportionately advantaged regimes rejecting rights, weakening open societies. To rectify, globalization must be redefined to encompass political dimensions: economic ties conditioned on shared values on rights and governance. Without this, the liberal order self-undermines by integrating subversive actors. This paper provokes a reconceptualization: not just managing globalization, but redefining its essence for a multipolar, value-contested world.

Our framework questions the widely accepted view that “economic progress begets democracy” and thus improves human rights conditions (Hill and Hult, 2019; Pei, 2006; Tsai, 2007; Wright, 2010). A key logic behind this argument, supported by the history of democratization in England hundreds of years ago, is that when people become affluent or middle class, they seek legal protection from the monarch and political participation, and they can use their wealth to advance their objectives. The middle class—the result of economic development—has been the driving force of democratization, first in England and later in Western Europe, as political scientist Barrington Moore succinctly put it, “No bourgeois, no democracy” (Moore, 1966). Based on this, scholars and policymakers in democratic countries strongly supported China's accession to the World Trade Organization in 2000, hoping that economic development would create a large middle class, which, in turn, would demand democracy in China (Clinton, 2000). A quarter century later, China indeed has a huge middle class, but democracy remains elusive (Kent, 2004). What the scholars and policymakers missed is that the English bourgeoisie acquired its wealth independent of, or despite, the monarch. This is why they can use their wealth to confront the king. In China, the CCP has perfected one thing since it gained power: control. It controls all aspects of Chinese society, from political activities to economic resources and opportunities. So every achievement or resource a person has in China, from being born, going to a kindergarten, to college, getting a job, or opening a business, is under the auspices of the CCP, and the party can take it away at any time at will. This total reliance on the CCP for life virtually paralyzes any attempt by the middle class to demand any rights from the CCP.

Our framework also questions the well-established theory that free-market economies outperform unfree, state-dominated economies in growth and development (Acemoglu and Robinson, 2006; Bremmer, 2010; Hall and Soskice, 2001; Lin, 2012; Rodrik, 1997). This school of thought assumed that both free and unfree economies follow the free-market rules to compete, and did not consider that China Inc., by mobilizing the whole society as a giant firm, has violated those rules.

It is analogous to a boxing match: Two fighters compete using only their fists, under agreed-upon rules, with an independent referee enforcing those rules. The better-trained and stronger fighter is likely to win. However, if one fighter cheats by kicking, using a knife, and bribing the referee, even though he is poorly trained and weaker, he can easily win. In the China Inc. era, the free-market theory needs to be updated to account for the rules of engagement and enforcement.

Finally, our framework calls for updating the theory of the firm. China Inc. presents a new form of organization: the state as a hierarchy with the boundary of the entire society and a highly centralized governance structure. Decades of China Inc.'s practice indicate that it is a stable, sustainable form of organization, with the firm's agility and the nation's resources enabling it to compete effectively against traditional firms and states worldwide. Can other nations adopt this form? Scholars of organizations need to study this issue (Lin and Milhaupt, 2013; Milhaupt, 2020; Milhaupt and Pargendler, 2019).

Based on our framework, we propose that low human rights conditions can generate economic advantages under conditions of global economic integration. Specifically, countries with lower levels of human rights protection may achieve stronger performance in trade- and investment-driven sectors when they are deeply integrated into global markets. This proposition can be further developed into testable hypotheses using cross-country data on human rights, trade and investment, and economic outcomes.

An immediate question following our analysis is: what should other countries do in the era of China Inc.?

While providing detailed strategies or policies is beyond the scope of this study, we provide a few simplified scenarios to help us understand different paths and their consequences.

The first is that democracies uphold their institutional foundations and demand that China converge with them. In other words, the democratic countries should work together toward political and economic integration. China must improve its human rights conditions and establish the rule of law. These are the requirements for re-globalization.

Secondly, if the CCP refuses to change, the democratic countries may pursue delinking with China, as they cannot match the agility and capacity of China Inc. Delinking, while difficult and painful for the democracies, will exert a substantial negative impact on China Inc., as it relies on the market, technology, and investment from the democracies.

The third is that the democratic countries emulate China Inc. to improve their competitiveness. This is a far-fetched proposal because it runs counter to the very ideals that democracies stand for. The political, economic, and social institutions of the democratic nations are not congruent with running a country like a corporation. However, there are signs that some democratic nations are trying to mimic some of what China is doing.

In December 2025, President Trump signed an executive order that aims to unify laws and regulations on artificial intelligence under a single federal standard (Trump, 2025). “We have to be unified,” Trump said during the signing, citing that there will be only one winner in the AI race, and it will be either the U.S. or China, and China has a unified command center for AI development, and the U.S. needs to do the same (Lukpat and Andrews, 2025).

For firms in high-human-rights countries, the framework suggests several strategic responses. Firms may pursue differentiation strategies to avoid direct cost competition, strengthen contractual governance to reduce knowledge leakage, and prioritize innovation domains characterized by tacit knowledge and first-mover advantages. These strategies help mitigate the asymmetric competition posed by China Inc.

Most importantly, our intention is to help firms in democratic countries better understand the macro picture of China and its role in the failure of globalization. Given the detrimental impact of China Inc. on the free market system, it is in the long-term interests of firms in democracies not to endorse or support it.