In 2025, China's GDP growth rate reached approximately 5%, nearly double that of the US and six times that of France, with hundreds of Chinese companies entering the European market. Ning Leng, a professor of Public Policy at Georgetown University, speaking to Economia.gr, decodes China's state-backed development model, describing a system of private and state activity inextricably linked to the central policies of the Communist Party and the so-called "visibility projects" of local officials.
Through this interdependent state-business relationship, Leng highlights the risk of China's business model clashing with the widening social gap at the base of the Chinese regime, confronting Beijing with significant dilemmas.
Interview by Thanasis Katsikidis
(Published in Economic Review - April 2026)
In your book Politicizing Business: How Firms Are Made to Serve the Party-State in China, you highlight the reciprocal relationship between Chinese companies and the state. What do you believe the West fails to understand about the Chinese model of state-business relations?
My book examines why, when, and how China's party-state demands political services from companies operating within its territory, whether they are Chinese or foreign, state-owned or private. The main takeaway is that the Chinese government has the capacity to politicize any sector at will, resulting in companies frequently being compelled to provide specific services. The political cost of doing business in China is high, hard to predict, and hard to mitigate, which poses a long-term challenge to the government's ability to attract and retain investments. Some of the services provided by companies are relatively well-known, such as monitoring, surveillance, and job creation during economic downturns. However, I focus specifically on two lesser-known types of services that Chinese governments demand from companies: visibility projects and societal control.
By studying the politicization of business, my book arrives at several distinct conclusions regarding China's economic model and state-business relations. First, there is a significant difference between state-owned and private enterprises, particularly in politicized sectors. Private companies generally fall behind state-owned ones in their ability to provide the aforementioned "political" services; correspondingly, in sectors with heightened politicization, we observe the retreat of private capital and its replacement by state capital.
Second, while many assume that the Chinese state is trying to find the right degree of market intervention, I argue that it struggles significantly to do so. The state has made some efforts to curb economic exploitation, but it has imposed very few constraints on systematic political exploitation. The result is that when the Chinese state chooses to intervene in market activities, it inevitably over-intervenes.
Third, businesses in China do indeed try to cultivate good relations with the state, incorporating political activities into their corporate identity, nurturing ties with its members, or participating in political bodies. However, these strategies offer businesses only economic advantages and fail to protect them when the state demands political favors from them. Overall, we should not overestimate the Chinese state's ability to manage its economy or to maintain a truly welcoming environment for private investment.
How has the party's interventionist role within private businesses evolved over the past decade?
Generally, the Chinese Communist Party (CCP) has grown increasingly concerned about potential destabilizing factors in society, including businesses, as China's economic downturn deepens. Indicative of this is President Xi's push to expand party bases within private enterprises, including foreign companies. It remains difficult, of course, to assess the extent to which these party bases shape business decisions, but regarding their monitoring function, their role is clear: they can monitor signs of social instability, such as mass layoffs, unpaid debts to investors, or delayed wages for employees and contractors. They likely also act to prevent behaviors such as capital flight and closely scrutinize companies' transactions with foreign actors.
This distrust toward private enterprises has deep roots. Since the launch of China's economic reforms in 1978, the CCP has repeatedly oscillated on the degree of autonomy to grant private entrepreneurs, ultimately settling on what I call a "somewhat credible commitment"—reducing economic exploitation just enough to attract investment, while preserving the right to intervene politically whenever the party deems it necessary. A case in point is "Article 2" of China's new law for the promotion of the private economy (2025): "Efforts to promote the development of the private economy must follow the leadership of the Communist Party of China." Businesses in China have never been granted full economic autonomy.
Why is there a need to politicize business while simultaneously encouraging individual innovation and entrepreneurship?
There are two primary motivations for the politicization of business: first, regime stability, and second, the personal career interests of government officials. Businesses can both enhance and damage regime stability. In the first case, they do so by creating jobs and providing monitoring, surveillance, and censorship services. In the second, they threaten it by leaving the regime exposed to financial risks and mass unrest, or when they themselves become symbols of inequality and corruption that undermine public trust in the party. Therefore, the state politicizes business to ensure that companies contribute to stability rather than undermining it.
The second motivation is the personal political benefit of government officials. China is an authoritarian state, but it is governed by a "campaign" logic, wherein officials constantly strive to win the support and approval of their superiors in the party-state hierarchy. A popular, yet underappreciated, strategy in this endeavor is the implementation of visibility projects. These projects are often funded by companies, both state-owned and private, which also constitutes a form of politicization.
In the eyes of the state, these demands do not inherently clash with the encouragement of innovation and entrepreneurship. In practice, however, they do. Granting the state the legal authority to intervene in business activities inevitably opens the door to policy capture and using this power not to correct market failures, but to secure political and personal gains. This is precisely why most states limit themselves to regulating businesses rather than intervening directly: regulation constrains behavior without giving officials the tools for exploitation.
I would like to focus on the "visibility projects" you mentioned earlier, which are demands the government places on companies and are also of particular interest in your book. Can you provide some examples?
Visibility projects are a political distortion of development and are highly characteristic of China’s developmental trajectory. A prime example is the "bridge versus tunnel" case. In the 2000s, the city of Qingdao sought to connect the two sides of a bay with a road network to ease traffic flow. Experts recommended building an undersea tunnel as the more practical solution. However, a tunnel is not "visible," and a mayor absolutely does not want to be "invisible" in urban planning. Thus, the mayor insisted on building a bridge alongside the tunnel. The bridge ended up being rarely used due to weather conditions and cost over $2 billion. Knowing that the bridge would look like waste on the government's books, the mayor had a state-owned enterprise absorb the cost. Therefore, it was a waste of resources, but it served its true purpose: boosting the mayor's political visibility to party superiors.
These projects prioritize visibility and image, often at the expense of investments that are less "visible" but more essential for sustainable development. Consequently, many government officials advance their careers while offering minimal returns to companies; yet companies are often forced to bear the costs so that the officials themselves can avoid being accused of wasting resources.
You also described another form of political service: societal control, which sometimes involves the suppression of protests. How does this dynamic state-business relationship work in practice?
Protests are a common phenomenon in China, and they are frequently directed both at a company and at a government perceived to be collaborating with business or failing to enforce regulations. Protests targeted at both the state and business are observed in cases of environmental degradation, public health harm, or, more recently, failures in the real estate and investment fund sectors, where companies are unable to repay retail investors.
Interestingly, the state officials I spoke with did not view protests as inherently threatening. Many saw them as a political test – an opportunity to demonstrate their governance capabilities and earn a promotion. What matters is how officials choose to handle them, and companies, both private and state-owned, have their own distinct roles in helping officials manage these protests.
When protests can be resolved through financial compensation and regulatory enforcement, officials prefer to work with private companies. Private firms, fully aware of their weaker position relative to the state, are generally willing to play the role of the scapegoat – accepting fines, compensating protesters, and temporarily suspending operations. In return, local officials typically do not demand that they radically reform their practices.
However, when officials decide that the use of force is necessary, they prefer to work with Beijing-backed state-owned enterprises (SOEs). A powerful SOE provides political cover. Violent suppression can be framed as protecting state interests rather than serving the agenda of an individual official.
Therefore, in sectors where appeasement is feasible, private companies are favored; but in sectors where the use of force is likely, state capital is preferred. As the level of frustration or protest shifts from one sector to another, who controls business is constantly in flux, and the decisions made do not aim for what is best for the economy, but for what is safest and most politically useful for the government.
Delving a bit deeper, how does the party influence a company's day-to-day decision-making? Can you share an example of a company that was asked to alter a decision in order to align with government priorities?
The party uses both the carrot and the stick. Carrots include subsidies, tax breaks, preferential land-use deals, and favorable regulations. These practices tend to be used when the political service resembles bribery, a service that is not essential for regime stability, primarily benefits individual officials, and can only be provided by a handful of companies.
One example comes from Chengdu in 2010, where the city’s party secretary decided to build the world's largest shopping mall as his visibility project – a project that was not going to yield a profit. He turned to a real estate developer he had known for years and asked him to build it at a loss. In return, the developer was rewarded with cheap land acquisitions in other areas.
On the other hand, the stick includes ad hoc inspections and the selective enforcement of tax, environmental, and safety regulations, and in more extreme cases, forced suspension or closure. These tactics are deployed when companies in a sector within a specific region fail to comply with the "regulation" requiring them to provide some kind of political service, such as censorship. Every internet company operating in China must provide censorship services as a baseline condition for doing business. There is no negotiation, no selective exemption, and no incentive offered in return. Compliance is simply the price of entering the market.
We have recently observed the emergence of China as an "accelerator state," which increasingly supports smaller businesses as well as one-person AI startups. Do you believe that China is radically changing its business model?
I don't believe so. This is not so much a change in the business model as an expansion of the sectors the government chooses to support. In the past, the focus was on heavy industry, then on wind and solar power and electric vehicles, and today it is on technology and innovation. It just so happens that in this sector, companies tend to be smaller.
What would be interesting is whether the state's underlying logic is changing in these new sectors, and I see no indication of that happening. The tech sector offers fertile ground for visibility projects and is central to societal control. Regarding visibility projects, we already see local governments lacking the actual capacity to develop, say, a robotics industry, trying to compensate for this disadvantage by building, for instance, a large robotics park featuring robots as exhibits, just to show they are invested in promoting high-tech. This is a waste of investment, not meaningful sectoral support.
Furthermore, needless to say, these sectors hold immense political value for the regime. Artificial Intelligence is perhaps the clearest example: censorship and information control driven by AI now form the very foundation of regime stability. This leaves the state highly motivated to engage directly in these sectors.
As Chinese companies expand and increase their influence globally, how do you see business competition evolving over the next 5-10 years, particularly in relation to Europe and the US?
This really depends on where these companies are competing – in which regions, in which sectors – and whether we are talking about trade or investment. Right now, I am studying the investments of Chinese companies in South American democracies, and in this context, Chinese firms face a rather interesting mix of advantages and disadvantages. Generally, once they invest in South America, their cost structure changes significantly. Back home, they benefit from loose labor and environmental regulations and favorable treatment that keep costs low, but these do not exist in many South American countries. However, the political cost, which can be massive in China, decreases significantly.
They must also learn an entirely different type of state-business relations within a democratic framework. The political landscape in South America is much more fragmented than what these companies are used to, and labor and land policies are drastically different, making it truly disorienting for them. Sometimes they find it frustrating that there aren't just one or two politicians who can simply seal a deal. Yet, there is another side to the coin: unlike in China, where companies have minimal control over which politician matters or what political services they must provide, in many South American countries, they actually enjoy greater flexibility in these choices.
Thus, in a way, Chinese companies expanding globally avoid part of the political costs I describe in my book, but they also lose certain domestic advantages. The question is whether they can navigate a political environment that is unfamiliar to them. My sense is that this is the greatest challenge they must face as they enter global competition, and not technology, not capital, but politics.
In conclusion, will we see a clash between state-backed capitalism and market-driven models?
I am not sure if it is a clash between two different models. What I see is a growing gap between China’s economic needs and the rest of the world's expectations of China. China is going through one of its worst economic periods since 1978. The high unemployment rate, the collapse of the real estate sector, and massive losses in construction and infrastructure, sectors that, at their peak, contributed about a third of GDP, according to some estimates, are all hitting simultaneously. Weak domestic consumption, driven partly by inadequate social safety nets, and demographic challenges are exacerbating the problem.
All of this forces China to rely more heavily on exports for job creation, while imports are likely to decline as both manufacturing and consumption weaken. And because China's strategic bet is to become the next global leader in technology, it is difficult to imagine it being willing to share its technological advancements even with developing nations – countries it views as important partners. Overall, this makes it very difficult for China to convincingly sell a "win-win" narrative to the world.
My personal assessment is that China's state-backed development model has reached a point of stagnation. If the Chinese government fails to pivot away from heavy investments in infrastructure and manufacturing, which produce immediate, visible economic results, toward meaningful investments in less visible needs, specifically healthcare, pension funds, education, unemployment insurance, and reducing inequality, the aforementioned gap will widen, and China will increasingly come into conflict with other countries. However, what is at stake is not really state-led capitalism versus market-driven models. It is about what this state chooses to prioritize, and where that choice takes China.