McKinsey, Chinese Capitalism, and the National Security State

The mega-consulting firm McKinsey is in the China news, which is pretty much always a bad thing.

As far back as 2018, McKinsey had been linked to the Made in China 2025 initiative—a declaration of Chinese industrial policy announced in 2015 amid Chinese concerns about its vulnerability to Western coercion and a pronounced need to bet on Chinese firms’ future in certain high-technology sectors.

But McKinsey’s role as a technical instrument that rationalized and provided intellectual support for Made in China 2025—maximizing its efficiency, if you like—was previously unreported.

According to FT, McKinsey is tied directly to a report that was used to advise China’s National Development and Reform Commission (which came out with the Made in China 2025 recommendations) that:

China lagged behind advanced economies…but could catch up if Beijing pursued industrial policies including tax incentives and mandating the use of Chinese-made products in critical areas.

A reliance on foreign suppliers to build China’s cloud infrastructure could lead to the theft of sensitive [Chinese] data from military, economic and government departments and undermine [PRC] national security…

The report also suggested tighter collaboration between military and civilian technology sectors, and urged the CCP to direct subsidies to domestic “internet of things” firms to “eventually take control of the industry from foreign firms.”

Nobody should find this alarming, or at least not anything other than business as usual. At the time this advice was offered, it aimed at a money grab, not the buildup of the Chinese national security state. McKinsey recognized that state capitalism could be a temporary fix to the problem of sustaining economic growth amid a prolonged period of global secular stagnation.

I talk about this a bit in Pacific Power Paradox, but US policymakers used to view Made in China 2025 as threatening only to the extent that it involved China’s partial withdrawal from the global economic order. If China was going to become a self-sufficient economy or play any role in the world system other than being its factory, well that freaked out Obamians and China hawks alike.

But that rationale for finding Made in China 2025 menacing doesn’t hold up logically when US policy is mirror-imaging it by forging its own nationalist economy come what may for the rest of the world.

The real problem with McKinsey isn’t that it has “ties” to Made in China 2025. The real problem is that McKinsey’s working both sides of China as a problem, and that says something foreboding about how the world system is changing.