The Promise of the Revolution: Stories of Fulfillment and Struggle in China's Hinterland
by Daniel B. Wright. Lanham, MD: Rowman & Littlefield Publishers, Inc., 2003, 216 pp. $24.95 softcover, $65.00 hardcover.
Not three feet of flat land, not three days without rain, not a family with three grams of silver, goes an old Chinese saying about Guizhou, one of China's poorest provinces. Daniel Wright spent two years living in Duyun, a small, gray city in southeastern Guizhou. His stay there was funded by a fellowship from the Institute of Current World Affairs, his aim "to gain an in-depth understanding of life as it is lived by the people." In return, he wrote fascinating monthly briefs on his observations of daily life among different strata of Guizhou society. These briefs formed the basis for The Promise of the Revolution: Stories of Fulfillment and Struggle in China's Hinterland.
Wright talked to village elders, proud to have witnessed the Red Army pass through on the Long March in 1935, as well as to their grandchildren, who couldn't care less about such ancient history. He stayed with farmers scratching a scant living from the shallow mountain soil, but found that, in nearly every family, everyone of working age who could be spared from the farm was off working in a city, whether in nearby Duyun or farther away in one of the great coastal cities. He spent a few days chatting with migrants working as pushcart haulers in Duyun and joined the annual crush of migrants returning to work in Guangzhou by train after a visit home for Chinese New Year.
He met rural families unable to afford to send their children to school and interviewed officials from the China Youth Development Foundation and Project Hope, which support rural schools and grant scholarships to students too poor to pay the necessary fees. He even visited Qiannan Computer Vocational-Technical School, a "school established by social forces" (a politically correct term for a private school).
Like other Chinese localities, Guizhou is trying to reform its state-owned enterprises (SOEs), most of which are the legacy of Mao Zedong's "Third-Line" policy, which moved entire factories to remote parts of the interior to protect them from foreign attack. Wright talks with current and former SOE workers, some of whom have gone into business for themselves.
Wright conveys government officials' hope that tourism will help absorb some of the unemployed in Guizhou, which has plenty of natural beauty. He recounts a trip to a resort on a rare bit of grassland tucked away in the mountains, as well as former Premier Zhu Rongji's advice to those trying to develop tourism in Guizhou: "Just focus on making good use of your abundant natural resources.... There is no need to invest in all kinds of crazy stuff (luanqibazao), like fancy hotels.... Just make sure you build decent bathrooms, and keep them clean...."
Wright observes the resurgence of religion and the emergence of the local nouveau riche—and checks out who plays, and who works, at the Guiyang Golf Club.
One of the most valuable aspects of The Promise of the Revolution is Wright's ability to let the people he meets speak for themselves. Even when he paraphrases, their voices come through loud and clear. Here he describes the daily grind facing his neighborhood "milk lady":
Every morning at 7:00 A.M., Li Fangfang and her husband ride their three-wheel, flatbed bicycles to a wholesale milk distributor, package and load 2,000 six-ounce bags of fresh milk onto their bicycles, and prepare the delivery list. Ms. Li then rushes home to prepare lunch for her child. Just after lunch, she and her husband begin their deliveries. From 1:00 to 8:30 P.M., the two of them on separate routes, Li Fangfang and her husband deliver fresh milk to over 400 families. Their reward for this back-breaking work, which Ms. Li and her husband now do seven days a week, is only 20 yuan (U.S. $2.40) between them, per day.
...Six hundred yuan per month, she says, is barely enough to make it, and that's if they are very careful with their money, and no one gets sick. If a family member were to fall ill, they have no medical insurance.... Though she speaks with long sighs between her sentences, I could hear a healthy sense of fight in her voice: "No matter how difficult it is, I'd rather work for myself than for some factory boss who becomes wealthy off my hard work. Though not much, at least the money we make is our own," she said.... Our neighborhood "milk lady," in her effort to adjust to the blows government reform has dealt her, is not about to give up.
Few foreign businesspeople get outside of China's main cities, yet that is where most Chinese still live—in rural areas, towns, and small provincial cities. And, as Wright discovered, that is where some of the simmering tensions that now have the full attention of China's leaders—rural economic stagnation, disintegrating education and healthcare systems, excess labor and high unemployment, intense resentment of corrupt and high-handed local officials—are beginning to come to a boil. Readers who want to know what life is like for ordinary Chinese outside of the big cities should delve into this slim, well-written, engaging, and eye-opening volume.
—Virginia A. Hulme
Virginia A. Hulme is associate editor of the CBR.
Corporate Governance and Enterprise Reform in China: Building the Institutions of Modern Markets
by Stoyan Tenev and Chunlin Zhang. Washington, DC: World Bank, March 2002. 168 pp. $25.00 softcover.
Corporate Governance and Enterprise Reform in China: Building the Institutions of Modern Markets is the most comprehensive account of Chinese corporate governance practices available today. The work clearly delineates the governance problems that China is facing while it builds modern financial institutions and efficient capital markets and explains why the current efforts to clarify the ownership rights of Chinese firms are crucial to the nation's overall economic reform program. Although the work expresses only the authors' opinions, its sponsorship by the International Finance Corp., where Stoyan Tenev is head economist for East Asia, and the World Bank, where Chunlin Zhang is a senior enterprise restructuring specialist, demonstrates the central importance of governance issues in emerging market economies.
According to the authors, the poor performance of state-owned enterprises (SOEs) stems largely from the flawed ownership and control system. SOEs often have inadequate incentive structures, and local governments shield corporations from market discipline. The authors argue convincingly that the establishment of an effective corporate governance system would help rectify these problems. Indeed, the creation of the State Asset Management Commission at the 2003 National People's Congress illustrates the government's efforts to streamline control of SOEs.
Tenev and Zhang launch their discussion of the state of corporate governance in China by summarizing the role of corporate control in the country's economic reforms since 1978. Initial efforts to boost efficiency through managerial performance incentives failed to produce significant results because the managers faced no penalties for poor performance. Further efforts to diversify ownership by corporatizing firms confused the matter because firms were left under an array of local government and ministerial claimants that both owned and regulated the companies. This blatant conflict of interest produced incentives for local governments to influence and protect companies under their jurisdiction.
The book tackles several critical aspects of corporate reform in China, including the corporate governance of small and medium-sized enterprises; ownership and control of large listed corporations; and the role of the stock market, transparency, and information disclosure. Tenev and Zhang assert that dominant state ownership and the government's ability to appoint managers and directors is the most important impediment to better corporate governance and improved capital market efficiency. The authors examine the level of state control of publicly listed firms and demonstrate that by controlling roughly two-thirds of all equity shares, the state effectively maintains control over 95 percent of all listed firms. The book methodically examines the size, structure, composition, and characteristics of Chinese boards of directors, a crucial level of analysis for understanding the mechanics of corporate control.
Tenev and Zhang present several important recommendations for improving corporate governance in China. Paramount among these is reducing the political control over firms by separating the state's corporate control from its cashflow rights. Tenev and Zhang propose several methods for reducing state ownership in a systematic manner, including equity swaps, auctions, partnerships with institutional investors, and converting existing state shares into preferred nonvoting shares. These approaches could protect the state's financial interests while freeing firms from government control and minimizing financial market disruptions. Next, the authors argue that allowing foreign and domestic institutional investors to play a larger role in the financial markets will have a stabilizing effect, as the presence of these investors will likely influence the managerial structure and corporate governance practices of firms. In fact, large qualified foreign institutional investors have recently been approved to purchase domestic A shares. Finally, the authors advocate strengthening the rights of minority shareholders to voice their opinions, to determine the timing and agenda of board meetings, and to bring civil lawsuits and class actions against fraudulent corporations and directors.
The main weakness of the book is that it includes only sparse references to and examples of actual companies and their practices. Fuller use of anecdotes and illustrations would provide a richer understanding of the issues. Increasingly, Chinese firms are publicly disclosing information about their boards of directors, management compensation, stock option ownership, and minority shareholders. Indeed, a firm-level perspective on corporate governance is essential to understanding the practical implications of these issues.
This book would be useful to readers generally interested in China's contemporary economic reforms. It is strongly recommended for readers with a keen interest in corporate control and financial institution-building, as it provides an expert overview and analysis of some of the core issues that the Chinese government will be attempting to resolve over the coming years.
—Richard Daniel Ewing
Richard Daniel Ewing is a non-resident fellow of Chinese studies at the Nixon Center in Washington, DC, and a finance major at the Wharton School of the University of Pennsylvania.
Open for Business: Lessons in Chinese Commerce for the New Millennium
by Jane C.M. Kuo. Boston, MA: Cheng & Tsui Co., 2001. 344 pp.
(Vol. 1), 480 pp. (Vol. 2), softcover. Prices: Vol.1 and Exercise Book, $39.95;
Vol. 2 (including exercises), $39.95; CDs for Vols. 1 and 2, $39.95 each.
Open for Business is a textbook for advanced students of Chinese interested in improving their business-related vocabulary. Each chapter takes the following format: first, the text; second, background information on the lesson's topic; third, vocabulary; fourth, grammar and usage explanations; and fifth, a section explaining synonyms. The text and the vocabulary are in simplified characters, traditional characters, and English, while the vocabulary section also has pinyin. Grammatical explanations appear in English; sample sentences appear in simplified characters and English only. The book wraps up with three indexes, all ordered alphabetically in pinyin: vocabulary, terms with grammar and usage explanations, and synonyms. Exercises—fill-in-the-blanks, completing sentences, matching, and reading comprehension questions—reinforce the lessons.
So far, this sounds like most Chinese textbooks. What sets this one apart is its subject matter, which covers a range of topics relevant to China's current business and economic environment, such as private enterprise, market research, marketing trends, brand consciousness, interest and foreign exchange rates, management, foreign trade, China's "pillar" enterprises, and "hot topics" including environmental protection, the Internet, intellectual property rights, and technology transfer. For students of Chinese used to textbooks published in the PRC, many of the example sentences are refreshing:
"Doing business through 'guanxi' can prevent being cheated."
"The constitution has articles that guarantee people's freedom of speech and religion."
"Politics and economics are closely related."
"The government has adopted various measures to prevent bribery and corruption."
"Before signing contracts, companies should carry out due diligence to prevent fraud."
In short, this set of textbooks is a welcome addition to the rather narrow range of options for students of business Chinese.
—Virginia A. Hulme
The Haier Way
by Jeannie Yi and Shawn Ye. Dumont, NJ: Homa & Sekey Books, 2003. 280 pp. $24.95 hardcover.
The story of Haier Group is a great tale of transformation and innovation in China's manufacturing industry. Jeannie Yi and Shawn Ye's account of the evolution of Chinese white goods manufacturer Haier, The Haier Way, is a respectable rendition of how the Qingdao General Refrigerator Factory, an inefficient collectively owned enterprise, transformed itself into the modern appliance powerhouse it is today. Central to the story is the leadership of CEO Zhang Ruimin.
Foreign managers will find that the book's greatest strength is that it reveals successful techniques for managing and integrating formerly state-owned enterprises into entrepreneurial companies in China. Foreigners may find Zhang's use of self-criticism, a vestige of the Cultural Revolution, to motivate the employees of an acquisition target surprising, but such criticism is a common management tool in Chinese companies. Zhang's navigation of labor issues with the employees of the Yellow Mountain Television Co., which Haier took over, illustrates the differences that exist between China's state-owned and entrepreneurial enterprise cultures. Particularly compelling is the story of how Zhang threatened to shut down Yellow Mountain after its employees protested about the introduction of one-year employment contracts renewable based upon performance. Haier challenged the "iron rice bowl" mentality and prevailed against striking workers as well as the local authorities who had initially sided with the workers.
More important, this segment of the book, which describes how Haier solved a myriad of problems and successfully absorbed Yellow Mountain, provides an invaluable roadmap for how to resolve the inevitably delicate integration issues that arise when an entrepreneurial company acquires a state-owned company.
The narrative parts of the book are constructed solidly and seem well-researched, but at times are overly focused on Zhang—Ye and Yi spend much of the book describing Zhang's leadership philosophy and accomplishments. The authors also try too hard at times to validate the Haier business model through comparisons with western business models. Analogies between Zhang Ruimin and Jack Welch often seem strained. In attempting to demonstrate the novelty of Zhang's management, the authors miss a critical point: that it was not so much the substance of Zhang's theories that was key to Haier's success but the manner in which these theories were implemented that give Haier its advantage. Zhang consistently emphasized quality in management, process, and products and integrated all of these concepts through skillful application of Chinese cultural traditions.
As the first to recognize the significance of the Haier story, Yi and Ye deserve praise for bringing to light the first of what will eventually be many Chinese company success stories. For managers of foreign-invested enterprises in China, The Haier Way, is worth a read.
—Auria Styles
Auria Styles is manager, Business Advisory Services, at the US-China Business Council in Washington, DC.
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