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The China paradox

Since former U.S. President Richard Nixon redeemed his legacy by defrosting and strengthening the relationship between the United States and China, China has rapidly advanced in terms of technology, economic power and manufacturing capability to become a superpower in its own right. Our recent news is filled with worries of U.S. debt to China, trade wars with China, industrial and perhaps political espionage perpetrated by China and the like. At the same time, it has become fashionable amongst Americans to visit China and take pictures along the Great Wall of China or before the famous Stone Soldiers to cross these off one’s bucket list.

At the same time, tourists are wary. The government is always watching, as evidenced by cameras snapping pictures of you at every intersection. You are not allowed to access Google or Facebook; the Chinese firewall disallows use of any application that does not allow the Chinese government to monitor and control its use. The bogeyman of Communism that we were all raised to fear during the Cold War has hidden his face behind the mask of tremendous economic success and progress. Austerity and sacrifice for the common good has been replaced by in-your-face individual prosperity and conspicuous consumption. How is this compatible with the tenets of Marx and Lenin? Author Paul Clifford terms this state of affairs “The China Paradox.”

In March, I had the opportunity to visit Shanghai as part of the Katz Executive MBA program, and I was amazed, fascinated and surprised by what we saw and experienced.

Clifford’s book “The China Paradox” outlines China’s 1949-1978 economic crisis and the many ways that China’s totalitarian Communist government weakened and destroyed China’s commercial, industrial and educational capabilities by eliminating all Western influence, penalizing the intelligentsia, entrepreneurial and merchant classes and transferring all control of industry and commerce into centralized bureaucratic hands. This was followed by the disastrous adoption of the Soviet economic model, and the subsequent rise of state-owned enterprises (SOEs) as a result of the first Five-Year Plan. These SOEs were inefficiently run due to vertical leadership and barriers to horizontal cooperation and direct communication between stakeholders in the enterprises. In addition, profits were diverted from profitable arms of the enterprise to unprofitable ones to buoy them; no attention was paid to making poorly functioning units more efficient and profitable or to eliminating them. Consumer dissatisfaction was rampant, a cycle of perpetual poverty was established, and the government argued via propaganda that frugality was noble as a way of normalizing the poverty that it had created rather than admitting its mistakes and changing course.

Deng Xiaoping in 1978 steered China toward an economic “opening up” in order to resurrect the Chinese economy, but China remains mindful of the demise of the Soviet Union. While China embraces perestroika (economic reform), the Communist party cunningly and completely rejects glasnost, or political reform. A key Chinese proverb states “as soon as you relax things, there is chaos, but when you control things, they die.” The Chinese government, via the Communist Party, has discovered a happy medium between relaxation and control to ensure the success of Communism amidst economic progress: an iron fist in a silk velvet glove.

The standard of living between urban dwellers (Shanghai) and denizens of the countryside is vastly different, to the point where rebellion could occur if the country mice could see how well the city mice have it. China handles the problem of inequality by sequestering its citizens so they cannot see the inequality with the Hu Ko system, in which your birthplace determines your fate. If you are born in a backwards province, your education, work and life must all take place there, and permission to transfer to Shanghai is a rare and much coveted privilege. If you were born in Shanghai, your life is essentially golden. Shanghai has a shadow population of up to 6 million undocumented persons who have moved there illegally or who were never declared due to the old one-child rule.

China is very agile in solving business and industrial problems; the government is very responsive with little red tape when your business is in their interests. Factories go up quickly, changes happen quickly, and the government greases the wheels so that corporate problems are minimized and business runs smoothly. Westerners thus often find it a joy to do business in China.

China is not interested in solving the world’s problems or the world’s poverty. It is more interested in solving its own. It is not concerned with ethical problems with other governments and makes no pretense of being so. For example, China has invested incredible amounts of money in Latin American and African nations. China will take natural resources from these countries, but does not accept more advanced products. The Chinese government does not appear to care about corruption or authoritarianism in these partner nations or the impact doing business there may have on local citizens. Its mission is profitability.

China’s new mantra for its citizens is this: Wealth is noble and good. Think of Gordon Gekko running the Communist party; citizens are taught to hustle, and worth is determined by material success. This may have been anathema to the old Communist regime, but it works for the new one. There is always a sinister undercurrent of “big brother is watching,” though, and this keeps power with the Party.

What struck me most about our visits to the GM, Bosch and Coca-Cola plants was what was not said. We were presented with an overwhelmingly positive view of the joint ventures and indeed of the Chinese government. While this is not surprising for a corporate visit, each visit emphasized showing visitors the efficiency, production capabilities and technological advances of each company. Our reception at the water treatment facility was incredibly gracious and meant to be a charm offensive, but certain things stood out. The CEO lectured about his plant in Mandarin without an interpreter, though we could follow mostly via his slides. The question/answer session was translated. To have requested an interpreter might have been rude, and as he had been so gracious to greet us personally in a receiving line as we entered, we also were gracious and said nothing. It is the unspoken code of respect; ultimately, he is in charge. Similarly, although the Chinese government is gracious and permits foreign investment and capitalist ventures, ultimately, it is unquestionably in charge.

Our visit to the Coca-Cola enterprise was excellent in that we had a lovely tour in terms of learning how to appeal to the Chinese consumer and how Coca-Cola was competing with local drink manufacturers. But what we did not get was the history of Coca-Cola in China and the initial government pushback against what it saw as an arm of American imperialism ( and its transition to approving a joint venture deal despite concerns about spreading ill health through its products in an effort to gain technology and foreign exchange. The Chinese government is exceedingly pragmatic. Members of the Communist party are seeded throughout enterprises; the state is always watching. The officials from the development park were cagey to say the least when asked if there were adequate medical facilities for the nearly million people who resided there; one must never lose face in China, and one must never let the government lose face.

Recent incidents of the Chinese government kidnapping and imprisoning its own prominent citizens for crimes against the state such as tax evasion (actress Fan Bingbing) and corruption (numerous corporate executives — to the point where this has actually been named “disappearing boss syndrome”) serve to remind capitalist Chinese that while they may have economic freedom, the state is still in control of their freedom and their very lives. None of the site visits or lectures mentioned these risks of doing business in China. The recent government kidnapping of Interpol Chief Meng Hongwei ( shows that no one is above the law in China; all government and corporate executives must be in complete subordination to the Communist party or risk the consequences.

The growing economic power of China and the accumulation of wealth and foreign debt by the government allows it to employ such heavy-handed tactics publicly without fear of reprisal or losing face on the world stage, whereas it might not have done so out of diplomatic restraint in the past. The growing economic power of the Chinese consumer, the sudden dramatic rise in his standard of living and the current government maxim that “wealth is honorable” ensures the silence of the Chinese citizen toward these actions. The social credit system further subjugates all citizens, corporate or private, to government control. The past few decades have established China as an economic leader to the point where it does not care what the world thinks of its politics, and holds some of the world hostage via debt.

The obesity rate in China is rising, mostly via adoption of the Western diet, fast food and soft drinks as a mark of financial success. The traditional Chinese diet has very little added sugar. We noticed that after our initial cravings subsided, we acclimatized quickly to the unsweetened life and actually liked it better. Even Chinese soft drinks made by Coca-Cola had barely any sugar to suit the Chinese palate. As you can imagine, traditional Chinese food is completely different than American Chinese food with its heavy sauces and sugar. Meats and lightly battered shrimp were marinated in wine and grilled. Many continuously replenished small dishes were served on a giant Lazy Susan and you would serve yourself, rather than individual dishes. This emphasized the Chinese importance on the collective rather than the individual.

Chinese pollution is significant; we all had sore throats and congestion by day three or four in Shanghai, if not right away. The government has made it a mission to reduce air pollution, at least in large metropolitan areas. Electric and hybrid cars and buses are the standard in Beijing, and this reduces noise pollution as well. Administrative hassle also helps: Buying a car is easy; getting a permit is difficult. However, ground, soil and water pollution continue, and it is difficult not to imagine public health consequences.

While we did not have the opportunity to visit hospitals in China, we did have a speaker who is involved with a UPMC-China joint venture to set up advanced medical care services for wealthy Chinese to stop them from spending their health care dollars abroad as they currently are wont to do. Western expatriates in China often travel to Singapore or Australia for medical care as do well-heeled Chinese, citing quality, training and resource concerns with the Chinese health system. The healthcare market in China is like most other markets in China: the wild west, but subject to government control and supervision. Watch this space for more developments as Western health care institutions increasingly turn to China as a profit center much in the way that other businesses have done in the past decades.

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