Introduction: My China Lessons

Since the opening of China to foreign commerce in the late 1970s, Beijing’s central planners have presided over the largest and most rapid transfer of wealth in human history. It was primarily Western companies that made this possible, as a decades-long torrent of money and technology flowed into China’s state-centric economic system.

The numbers are staggering. If we count official foreign direct investment (FDI) figures along with estimates of unofficial capital flows via offshore financial centres—such as Hong Kong, the Cayman Islands and the British Virgin Islands—at least US$6 trillion flowed into China over a 30-year time frame.1,2

That is a conservative estimate. If we factor in forced technology transfer and stolen intellectual property just from American private and public entities, the number comes to at least US$10 trillion, or more than half the value of China’s entire gross domestic product (GDP) in 2023.

The U.S. Trade Representative (USTR) has estimated that China’s forced technology-transfer practices cost the U.S. economy hundreds of billions of dollars more per year, while agencies such as the National Bureau of Economic Research claim that China’s ongoing cyberattacks on U.S. companies drain off billions more.

These vast transfers of wealth were feasible because of the spread of powerful and affordable new technologies, combined with the Chinese Communist Party’s (CCP) iron-willed and methodical pursuit of its modernisation goals.

I would come to learn all these things first hand, as my professional career landed me right in the middle of this historical inflection point. I arrived in Hong Kong in 2003 as an American expat, two years after China’s accession to the World Trade Organization (WTO). I would eventually become a partner at KPMG, the global accounting and consultancy firm, and would take over as the regional head of its Asia Trade and Customs Practice.

In my work, I provided multinational companies with advice on their global operations, which often meant that, for economic and practical reasons, their supply chains would pass through China. There were foreign trade zones to manage and a host of cross-border transactions to monitor. There were customs duties, indirect taxes and trade agreements to optimise.

After China’s successful accession to the WTO, companies ramped up their investments and began directing higher-valued activities into China. By 2017, according to PWC, the global consultancy, about 80% of the corporate R&D money spent in China came from foreign multinationals, most of them American and European.

During my tenure in Hong Kong, global trade hit a historic high. Except for the year following the global financial crisis, in 2009, seven out of my first eight years on the job yielded double-digit growth rates in the value of world trade. And between the U.S. and China, the annual value of bilateral trade in goods and services had crossed the US$ half-trillion threshold.

By the mid-2000s, incredibly, Walmart, the world’s largest retailer, was importing so much from China that it accounted for more than 11% of China’s annual exports, according to the Brookings Institution.3

Meanwhile, as foreign money and technology continued to pour into China, so did international talent. The professional services industry, composed of management consultants, accountants, tax planners, head-hunters, academics and lawyers, quickly soaked up the economic opportunities. Large consulting firms such as Accenture, KPMG, PWC and McKinsey became fixtures in China’s business landscape.

Scholars have yet to fully gauge the magnitude of influence that consultancies had in accelerating the growth of China. In just over four decades, firms like mine served up a menu of mostly neoliberal economic advice to thousands of companies—and to Chinese government entities—as foreign money saturated Beijing’s centrally planned landscape, funding greenfield sites, joint ventures and technology transfers. This transformed China into the world’s largest manufacturing and supplier base and made it the world’s top exporter.

I did not fully understand it at the time, but in my position, I was simultaneously enabling history’s most remarkable period of trade and globalisation and, unwittingly, contributing to the eventual upending of the Western-led rules-based order.

THREE IMPORTANT LESSONS

Soon after settling into life in Hong Kong, my worldview became conflicted. I arrived as a true internationalist: As the son of a U.S. diplomat, I had grown up in eight countries on three continents, studied international relations in college and my first job had been with U.S. Customs at one of the world’s busiest trading ports—Los Angeles.

From my desk in LA, as a trade specialist, I watched the phenomenon of globalisation unfold, from the late 1980s until the late 1990s, when I left the government for the enterprising world of consulting.

From Hong Kong, I began to witness, close up, the incongruities (incompatibilities, actually) between China Inc.’s nonmarket economy and Western laissez-faire capitalism.

Over time, three lessons emerged from what I will call ‘my China classroom’.

The first lesson was that most foreign business executives naively construed geopolitics and business as separate issues. Most Western CEOs had no understanding (and still do not) of the resoluteness of China’s five-year plans and the CCP’s longstanding quest to achieve Chinese self-sufficiency.

The truth was, Beijing had been pre-emptively decoupling from its chief benefactors, playing the ‘long game’, as Rush Doshi would call it, by shrewdly calculating what it could extract from others and how to prevent them from taking from the Middle Kingdom.

My second lesson taught me how deeply nationalism had permeated the business landscape. Most of my Chinese colleagues and friends (regardless of whether they had been educated in the West) quietly harboured a deep-rooted sense of national pride and grievance.

I learned about the ‘Century of Humiliation’ narrative, which posits that for eight centuries, from the Han dynasty to the early modern period in the nineteenth century, China had been the world’s largest, wealthiest and most sophisticated world power. It was the European colonial empires and China’s next-door neighbour and long-time tormentor, Imperial Japan, that brought its global prominence to an end.

The Century of Humiliation, from 1849 until 1949, as it is widely taught to school children, ushered in a series of catastrophes, including the Opium Wars with Britain and the ravages of the Sino-Japanese Wars. Seven decades after the ascension of Mao and the CCP in 1949, these themes continue to influence China’s policymaking.

Other similarly influential views had seeped into the national narrative. Not surprisingly, one was the unapologetic call for ‘China’s Return to Greatness’, with the underlying theme that China was reclaiming its rightful place again at the top of the world order.

Parallel to this were increasing references to the ‘decline of America and the West’. When the global financial crisis hit in 2007–2008, it emboldened China’s technocrats even further. With the meltdown of financial markets and the symbolic collapse of Lehman Brothers, the 158-year-old Wall Street investment bank, the Western economic model came under further disregard.

These themes are harnessed by the modern-day communist party to stoke righteous indignation and invigorate nationalist policies. This has been a decades-long campaign, starting in the classroom and buttressed by a barrage of carefully crafted and censored narratives across the Internet, on millions of blogs, and on influencer platforms. Present day Western business executives are shocked to learn that China’s ‘Millennial’ generation (born 1981–1994) and ‘Generation Z’ (1995–2010) are far more nationalistic than their parents.

Foreigners who have not worked and lived in China simply do not understand the extent to which nationalism fuels the ‘return-to-greatness narrative’ and, in turn, how it is driving modern policies around economic nationalism and China’s quest towards self-reliance.

Here, intellectually, is where I committed a common mistake made by Westerners. I tried to dismiss these narratives as sentimentalist and assumed they would fade away as China integrated with the West.

How could they not? To experience China as a foreigner in the early 2000s was to be an ambassador for all the good things that free trade and cross-border exchange could offer. Surely a rising tide would lift all ships, as John F. Kennedy had said.

I did not fully realise it at the time, but to witness the beginnings of great power competition during my early years in China changed me from an avowed internationalist to a practical realist. Meanwhile, the paradox of the Free World’s economic entanglement with China would grow more complicated and more challenging with the passage of time.

I can trace my realisation of this paradox to a single defining moment, late one night in Shanghai, in 2004, when I strolled down an almost empty Nanjing Road West, under razor-edged high rise buildings and towering electric billboards. The immense scale of it was exhilarating, but I knew I was living dangerously;...