The China Paradox

Paul G. Clifford, Non-resident Senior Fellow, Harvard Kennedy School, and President, Paul G. Clifford & Associates

Chapter 1: The Hybrid Model at the Heart of a Vibrant New China  1

Chapter 2: Early Attempts at Industrialization: The Empire and the

Republic  9

Chapter 3: The First Decades of the People’s Republic: The Soviet Model

… and Worse  17

The Fate of China’s Capitalists: From Ally to Enemy  18

The Dysfunctional Soviet Model Is Embraced  20

And Worse … Beyond the Soviet Model  26

The Brutal Assault on Intellectuals and Science  30

The Dead End of the Mao Years  35

Chapter 4: Wrongs Are Righted, the Reforms Take Shape  39

Setting the Boundaries of Change  46

The Initial Reforms—Limited and Tentative  47

The Reforms Go into a High Gear  51

The Reforms Lose Steam (2002 Onward)  52

China’s Economic Planning Today  53

Chapter 5: What to Do with the State-Owned Enterprises?  57

Weaning the SOEs Off the State (1978–93)  57

Central Planning Fades Away  60

Addressing Ownership and Governance (1993–2003)  62

Selling off the “Dogs”  62

Transforming the Large SOEs  64

Can SOE Culture Be Changed?  72

SOE Reform Falters (2003 Onward)  74

A New Type of SOE Shows the Way Forward  78

Chapter 6: The Private Economy Emerges Unannounced  83

TVEs—Engine for Growth as the Reforms Took Shape  84

POEs Flourish, Especially If Far from the Capital  87

Wanxiang—A Pioneering Private Company Forges Its Own

Path  88

Huawei—A Private Firm as “National Champion”  91

Private Firms Sustain the Economy  93



Chapter 7: Magnet for Foreign Investment  95

Why Did China Welcome FDI?  96

Why Has China Been so Attractive to Foreign Investors?  97

China Has Its Cake and Gets to Eat It, Too  99

Win-Win in the Auto Industry  100

Why Did China Neglect Logistics and Resist Its “Opening Up” to

FDI?  107

The Motorola Breakthrough  111

Why FDI Will Stick with China  115

Chapter 8: Business Models at the Heart of China’s Emergence  119

Model 1. Learn and Catch Up  119

Disappointment in Auto and Semiconductor  121

The Model Works Well—In Consumer Products, High-Speed Rail,

and Nuclear Power  124

Model 2. Picking off Underperforming Overseas Assets  129

Obstacles to China ODI  130

Model 3. “China, Inc.” in Emerging Markets  135

The Government/CCP  136

Financial Institutions  137

Chinese Firms  140

A Little-Known Firm from Anhui Grows in Africa  141

Transportation, Mines, and Downstream Industry  146

How to Assess the China, Inc. Business Model in Emerging

Markets  148

Model 4. Novel Product or Technology Breakthrough  149

Implications for the Emergence of Chinese Firms on the Global

Stage?  153

Chapter 9: What Could Disrupt or Sustain the China Paradox?  155

Peace, Stability and the CCP  155

The CCP Has Survived and Adapted  156

How Well Is the CCP Functioning Today?  157

The CCP Is Embedded in Businesses  159

China’s Fault Lines and Tensions  161

The CCP and China’s Future  161

The Rule of Law  166

Culture, Education, and Civil Society  168

A Cocktail of Confucianism and Leninism  169



Anything Goes, as the Market Latches onto Newfound

Freedoms  170

Corruption, Moral Turpitude, and Social Alienation  171

Education Falls Short  173

Business Education Flourishes  175

Economic and Financial Stability  175

Confronting the Environmental Crisis  179

The Mega Domestic Market  181

Gleaming New Ground Transportation Infrastructure  181

Government-Sponsored Research and Development  182

The Mobile Handset Example  186

China’s R&D Results Are Patchy  188

Connecting with the Consumer  190

Prospects of Deepening Economic Reform?  192

Chapter 10: Conclusion  197

Endnotes  207

Index  219