This book, by James McGregor, paints an interesting picture of what the failure to reform the Chinese political and economic systems has done to China by 2012. The title sums it up clearly: No Ancient Wisdom, No Followers. In short, the Chinese political leadership and Chinese society are in completely new territory, and judging from the author’s work, are very poorly equipped to handle the challenges they face. This increases the likelihood that strange unpredicted events will occur. 2012 looks like that year, starting with the fall from grace of Bo Xilai, and will reach a climax in November, with the announcing of China’s new leadership. At the same time, Chinese netizens have been very publicly venting their anger and frustration on a range of issues on Sina Weibo.
Mr. McGregor works at APCO, a western public relations and lobbying firm with an office in Beijing. Previously, he had worked at Dow Jones China and with the US Chamber of Commerce in Beijing. He has spent more than 10 years in China, which means that he knows the ins and outs of business in China, and how the Chinese government works, and most importantly, how the Chinese Communist Party works. Most western businessmen avoid politics and political subjects, but when it comes to China, an understanding of how the party works is essential to understanding what is going on in China, especially in Beijing.
The author brings this knowledge and experience to this book, and his frustration with the current Chinese system is almost palpable. Just to name a few:
- Western companies are routinely forced to transfer technology in order to get market access.
- Technology is frequently stolen from western companies.
- Chinese government entities and companies don’t renegotiate contracts they don’t like. They just ignore the parts they don’t like, while sticking fastidiously to the parts they think are in their best interests.
- The problem has become so serious that the EU is considering filing WTO cases even when EU companies don’t file complaints out of fear of being blacklisted by the Chinese government.
- The US government is increasingly convinced that China is only going through the motions in trade and investment forums.
Most seriously, McGregor points out how the WTO (World Trade Organization) agreements, and of which China became a member in 2001, no longer work. In order to save the system, he urges a major revision.
McGregor traces the problem back to the Chinese Communist Party organization, which calls the shots when it comes to setting Chinese government policy. The book makes it clear that while policy is set at the party level, government ministries and local governments have different degrees of latitude when it comes to implementation and interpretation. Unlike in the west, where disputes are settled by an independent judiciary, since there is no independent judiciary in China, many issues are settled behind closed doors where non-party members have no access. While the system has worked up till now, recent events suggest that this closed-door approach is failing to work, not only for westerners, but also for Chinese citizens.
The book points out that the main impediment to reform of the system is China’s state-owned enterprises (SOEs), which have benefited very much from the system as it is currently set up, and don’t want it to change. Most of these companies are inefficient, and without access to cheap state capital, would not be profitable. In the past decade though, and especially after the Wall Street financial meltdown of 2008, they have had access to huge amounts of almost-free capital, most of which has been invested in urban real estate to generate quick returns, creating financial bubbles in the process. A very significant amount in excess of US$100B has also been sneaked out of the country and is stored in private bank accounts and overseas investments by those who have benefited from the current setup.
The book is very good at bringing the frustrations of working in China from the western business’s point of view, and anyone with an interest in business in China should read it. The fact that Mr. McGregor is not an academic or journalist with a limited understanding of China is particularly refreshing. Not only does he understand Chinese business; he understands how policy sets the tone for business in China.
If there is anything missing, it is the Chinese perspective. Westerners can always leave China, but while there are many Chinese who do leave China, there are also those in China who are sticking it out and pressing for internal changes and reform. While outsiders know very little about what is going on internally at the party level, we can be sure that this is going on right now with the new party succession, and will continue after it is announced, when the new leadership builds up its new team and then makes policy changes.
No Ancient Wisdom, No Followers brings a very realistic view of the challenges of doing business in China in 2012 from a western business perspective. Regardless of whether you are already in China, or are contemplating setting up in China, you should read it.
You can buy the book by clicking on the image above.