In the run-up to President Hu's visit to Britain, author James McGregor looks at how his country is changing

Sunday November 6, 2005
The Observer
China is simultaneously the world's largest startup and the world's largest turnaround. The country can draw on a 2,000-year tradition, but also on Western business know-how and technology - that is why it has been able to make progress so quickly.
If you think about the last decade of China's economic and social development in terms of comparable changes in the history of the United States, you can feel the wind on your face. China is at once undergoing the raw capitalism of the robber baron era of the late 19th century; the speculative financial mania of the 1920s; the rural-to-urban migration of the 1930s; the emergence of the 'first-car, first-home, first-fashionable clothes, first-college education, first-family vacation, middle-class consumer' of the 1950s; and even aspects of social upheaval similar to the 1960s.
It almost seems as if Deng Xiaoping, China's leader from 1978-1997, used Harvard Business School's turnaround guidelines as his blueprint. Consider just a few:
• Establish a sense of urgency. This was easy after the Cultural Revolution. The Communist party had to change course or lose power.
• Form a powerful guiding coalition. Deng empowered practical reformers but also left veterans of the Long March [1949 - it preceded the formation of the People's Republic under Mao Zedong] with enough of a grip to apply the brakes.
• Create a vision. Deng challenged the country to quadruple per-capita GNP from 1980 to 2000, a goal achieved four years early.
• Communicate the vision. Day and night, the state-owned press celebrates progress and exhorts new goals.
• Institutionalise new approaches. All major reforms, from farming to housing to finance and privatisation, were tested and refined as local experiments before being spread nationwide and surrounded with regulatory structures.
The start-up side of the equation is where foreign businesses and governments come in. China needed capital, technology, manufacturing expertise, management know-how, and overseas markets for its products. Like all start-ups, the Chinese have progressed through frantic trial and error, making it up every day, copying and modifying the practices and products of others, always sprinting to capture the market first, always aiming at the next pile of quick profits.
Given their cultural proclivities, I'm not surprised that I have never met a real communist in China - somebody who believes in the abolition of private property or the philosophy of 'from each according to his ability, to each according to his need'.
'Mao Zedong Thought' is still a core part of China's official ideology, and the 'Yan'an Spirit' of self-sacrifice and simple living is still the professed ideal for Chinese officials. The Chinese Communist party has recently tweaked its liturgy to protect private property and to state that the party is the vanguard of all Chinese people, not just the workers and the peasants.
But officials still endure endless speeches and propaganda study sessions where the words of Marx and Lenin are swirled into ever more creative combinations. They then climb into their Audi or Mercedes saloons and check stock prices on their mobile phones as they head home to apartment buildings named Beverly Hills, Park Avenue or Palm Springs, where their sons and daughters with Harvard or Wharton MBAs wait to discuss privatisation deals.
For most party officials, life is guided by the proverb zhi lu wei ma (point at a deer and call it a horse) - which means saying one thing and doing another is a way of life because the party believes that to do anything else would risk destabilising the system.
The 1989 Tiananmen Square massacre was a tragedy but also a turning point. It was caused by a deep split between conservatives and reformers in the party. Conservatives won the battle but lost the war. In the aftermath of Tiananmen, the party accelerated privatisation and market reforms because its credibility was shredded and could only be rebuilt by quickly improving people's lives.
Throughout the 1990s, in fact, the Communist party has resembled trickle-down Republicans. Private enterprise was not only allowed but the newly rich became celebrated as the country's new model workers - except when they were being jailed for corruption. The nation's resources were turned away from social programmes and into the construction of mind-boggling amounts of infrastructure aimed at supporting a market economy that could compete in the world.
I was once told that an ideal Chinese government should be like a strong water-skier behind a boat. The raging entrepreneurial drive of the Chinese people is the boat. The government is the skier who drags along behind, every now and then yanking on the rope with enough force to alter the boat's direction a bit if it heads off course.
All of this isn't a cynical exercise. If the business community is the 'old boys' network' in the west, the Communist party is the 'old boys' network' in China. While few, if any, officials believe in communism, they do believe in the system, that it should be protected and that it should, and can, be improved. The party today operates much like a corporation in the way it makes decisions and deals with people. Bright young officials are selected for ideological indoctrination and management training, and moved through increasingly responsible positions. Like a corporation, there is some democracy at the top of the party and almost none at the bottom.
This fairly modern system is grafted on to ancient attitudes and practices, however. China is largely ruled by its deeply ingrained culture. For the party, this is manifesting itself in the wealth that the political aristocracy is rapidly accumulating, wealth being a necessity to keep their families on top in a market economy. Nobody will ever admit this publicly, but it is quietly accepted that the families of senior Communist party officials will use their status and connections to quietly build assets.
This unspoken practice could be viewed as a permutation of the of the old 'inner court and outer court' system that dates back to the Han dynasty 2,000 years ago. In those days, the inner court was the extended imperial family and its trusted retainers. They had a right to the nation's wealth and controlled the military and the entities responsible for policing the government bureaucracy, or outer court. Today, the inner court is the top several hundred Communist party leadership families that emerged from the revolution. The Chinese military and government watchdog organisations today report to the party, not to the government bureaucracy, the equivalent of the old outer court.
The speed at which China went from communism to embracing capitalism should be no surprise. This is a country where the traditional greeting for Chinese New Year is gongxi facai (congratulations on getting rich). At weddings, guests line up at a table outside the reception hall where their red gift envelopes of cash are ripped open, counted, and recorded as everybody in line watches.
Given the distrust of the political system resulting from the Cultural Revolution and the corruption and constant change in the reform era, many Chinese place their trust only in money. This was most bluntly put to me by a cynical and scruffy 29-year-old cigarette smuggler surnamed Yang whom I met one day while wandering the streets in the city of Wuhan between meetings. A week earlier, two policeman had been shot when they tried to extort money from a street vendor. When I told Yang that I was American, he told me of the shooting as if it were a positive event.
'America is great because guns make everybody equal. Freedom in China is a pocketful of money,' he said, showing me a six-inch-thick wad of 50-yuan notes. 'In China, you either have money or you have to be obedient.'
Sitting in my apartment in Beijing today, I find myself constantly amazed at how normal business in China has become, both in terms of international practices and the traditional Chinese way of doing things. The start-up and turnaround aspects of China's economic rebirth are blending together. Fifteen years ago, when I arrived in Beijing, the coming of winter was signalled by the piles of cabbage on every street corner - the only vegetable available until spring. People would shove cabbages under stairwells, windowsills and beds in their chilly cement-floored flats, and eat them throughout the winter, cutting away more and more rotten leaves to find palatable bits as winter progressed.
Today street corners in Beijing are littered with department stores, mobile-phone shops, foot-massage parlours, Starbucks kiosks and fashionable pedestrians who must sprint when crossing the street to avoid being mown down by one of the millions of new Chinese car owners.
I live in a new but nondescript apartment building on the city's east side. My Chinese neighbours are entrepreneurs or executives for multinationals who often buy one apartment to live in and one to rent. On weekends we all converge on the dozen or so pirated DVD shops in the neighbourhood where any Hollywood movie of note is available with Chinese subtitles for $1 a disc. Our building, like nearly all residential apartments in major Chinese cities, has broadband access to the internet, where porn is plentiful but non-sanitised news and political sites are usually blocked.
In the winter, my neighbours store away their fake Callaway golf clubs, bundle up in their fake North Face parkas, grab their fake Prada purses, lace up their fake Nikes and speed away in their Chinese-made Buicks and Audis to meet friends at first-rate restaurants serving Italian, Thai, Japanese, Indian, California-fusion, or French cuisine, unless they are seeking comfort food and opt for Chinese bistro and a warm plate of sea slugs, chicken feet or peppered pork intestines.
A couple of decades of averaging 9 percent annual growth has transformed China in terms of material goods. It has created a society of haves and have-nots, with significant poverty remaining in many rural areas and rust-belts and tremendous wealth evident in cities large and small across China. The majority of the population is much better off.
Government social programs are weak but fast economic growth and the country's strong family system have so far provided a safety net. In poor villages I have visited in western China, most people have televisions and other conveniences because they have children who have gone off to the cities to work in factories or on construction projects who send much of their income home.
A country that was until recently poor but safe has become one that is unsettled and insecure. There is nothing to believe in but making money. Personal introspection is not a strong suit in Chinese culture. Discipline is the first thing people learn in life, not happiness. In traditional Chinese philosophy, emotions damage your body. Anger hurts your liver, too much happiness hurts your spleen, worry hurts your lungs. Kids are taught not to cry. Adults are supposed to suppress, suppress, suppress.
The saving grace of China, and the allowable release valve, is that the people have a fabulous sense of humour. When I was a reporter visiting different cities, I would sometimes seek out and drink beer with migrant worker peasants. They typically lived 10 or more in a room in plywood hovels as they worked 12-hour days building luxury high-rises. Instead of complaining to me about the unfairness of their lives, they would tell me jokes and tease one another.
One of the first expressions a foreigner will learn in China is chi ku (eating bitterness) because the Chinese take great pride in their ability to endure hardship. Many hardships are endured today because rapid economic improvements of the past 25 years have made Chinese people optimistic that life will continue to get better.
Some foreign businesspeople in China are very deeply integrated into the Chinese business scene. Foreign businesses are no longer an oddity, but a part of the fabric of Chinese commercial life, though the foreigners themselves are still outsiders in the eyes of Chinese society.
A young man I met a few years ago from my hometown of Deluth, Minnesota, learned this at a wedding. In the mid-1990s, Mark was an English teacher at a Chinese school in the coastal city of Quanzhou in Fujian province, across from Taiwan. One day a student invited Mark to attend his brother's wedding, to be held in a village in the mountainous interior of Fujian, about an eight-hour bus ride from Quanshou. On the day of the wedding, Mark was a little nonplussed when he arrived at the banquet hall to find bride, groom, and entire wedding party waiting on the kerb to greet him.
When he was escorted into the banquet hall, Mark was even more surprised when everyone in the room rose and applauded. He was seated at the head table, then invited to accompany the bride and groom as they made the rounds toasting each table. By the end of the banquet, Mark was more than a bit drunk and revelling in his inexplicable celebrity status. As they walked out of the banquet hall, Mark's student put his arm around Mark's shoulder and said into his ear: 'Thanks for coming, you really added great atmosphere.'
Now Mark understood: he was nothing more than an exotic decoration. As foreigners living and doing business in China, we really should remember that in the eyes of many Chinese, we are here only to add a bit of atmosphere - and some technology, know-how, and money, of course.
In viewing China as the world's biggest startup and turnaround, and considering the role of foreign business and Chinese tradition in the process, it is helpful to remember a slogan from the Qing dynasty that was often quoted by Mao: gu wei jin yong, yang wei zhong yong (make the past serve the present, make foreign things serve China).
• Extracted from One Billion Customers: Lessons From the Front Lines of Doing Business in China by James McGregor, published by Nicholas Brealey Publishing in paperback original at £14.99 on 17th November.