Deng Xiaoping’s socialism within the Chinese characteristics attempts to reconcile capitalism with socialism. However, in your book you find the entrepreneurs are prioritizing the Communist Party over everything else. For example, Yin Mingshan, founder of Lifan Industrial Corporation declined many international cooperation opportunities including foreign investment banks. Were there examples in the past, or would there be situations where placing politics in command created economic inefficiencies? 

Part of our interest in writing the book is critiquing prior US and Western understanding of China and its policies. With reform and opening, business was so excited to get access to the 1.4 billion Chinese consumers. We overlooked the fact that even with reform and opening, there was still a significant amount of political control in China. We need to understand the opening, but also the fact that it's has always been very much fused with the CCP and with political control as well. 

With regards to the examples that we gave, we have a lot of interesting stories about these people like Jack Ma or Ren Zhengfei, and others who may be less well known like Yin Mingshan. In some ways, those are mainly illustrative of the statistical relationships we found in our academic papers. The research for our book dates back about a decade. We did a lot of academic peer-reviewed research that examined tens of thousands of entrepreneurs and companies. We tried to take those relationships we found and illustrate with more evocative examples we found from secondary sources. Also, we did a bunch of interviews with entrepreneurs and business leaders ourselves on the specific questions we address in the book. 

Part of our critique is that in much work on China there is a confirmation bias where people mainly look for evidence that confirms their existing beliefs. We felt that starting from representative statistical research is important, because it helps you understand what the underlying phenomena are. And then you can find how that compares to what you are hearing, either in the media or otherwise. Based on this we believe there is a lot of hopeless optimism and wishful thinking as there is an over emphasize on stories we in the West want to hear.

On the inefficiency point, there is a lot of evidence of inefficiencies in state-owned enterprises. We do talk a little bit about them towards the end of the book. But there's been a lot of studies of how their financial performance is not as strong, they are less efficient in a number of different dimensions, less innovative, etc., because of having more than one objective. Their objective is not just profitability like most businesses, but it's a variety of social objectives, like social stability or maintaining employment in their region. So, we thought that looking at the private companies, the ones that weren't explicitly controlled through ownership by the state, would be a little bit more interesting because it‘s also where there is less explicit political control.

Is it possible to strike the right balance between free enterprise and political control in a one-party state? Is the balance dynamic?

I think it's always changing. I think that the current day has been a step backwards from what might be more optimal. Maybe 10 years ago, I think there was a better balance, if one wants to say things are good or bad. Because entrepreneurs then had more freedom to experiment and innovate. The e-commerce and social media systems that emerged around large companies, like Alibaba, Tencent, ByteDance, even Meituan. China has led in areas like fin tech and platforms and should be recognized for that world-leading creativity and innovativeness. The manufacturing infrastructure that is developed in China, most famously, in southern China is also truly an incredible set of innovations in business process, and in technology and management of supply chains. But those days of innovation may be over now, as entrepreneurs are much more constrained by the state and the party. 

The state-owned firms (SOEs) are extremely common in China, how does this tie into Maoism?  Is their continuing existence attributable to Maoism or something else? 

Its standard goes back to Marx and Lenin – state control of the economy and part of that is through ownership and other aspects. All the important industries: finance, telecommunications, and energy are mostly state-owned companies and state monopolies. Lenin called those commanding heights, the parts of the economy that are the most important and essential. A later CCP slogan was “grasping the big and letting go of the small”, which focuses on consolidating this control of key industries a bit more. These firms serve a very strong social support function from taking care of employees, kids and health, even education in some places. SOEs may not be economically efficient as we view things in the West, but they provide social stability for the state and the party.

The private firms for the longest time were the growth and innovation engine for China. Many now have to have branches of the CCP within their firms, which dates back to how Mao and the CCP ran the military. That's one reason why Jiang Zemin brought the private entrepreneurs into the party. It is a way to co-opt them in part, but also, recognition that entrepreneurship has played an important role in the economy and growth. 

More generally, certainly, SOEs are a clearer way that the state has control over the economy. For the private sector it is a bit more informal and a bit more complex to understand than just simple ownership; there is party membership, political connections like sitting on government bodies and panels and increasing use of party branches as well as “golden shares” where the party and state do take small ownership and board seats in key private companies like Alibaba, Tencent, etc.

Many young people have not lived through Maoist era.  How can Mao’s influence be sustained, both politically and economically?  What are the parallels between Maoism and Xi’s ideological beliefs and political conduct?

One, there is continued emphasis of Mao and CCP ideas through Chinese society writ large. So people through most of their education have to take courses that have a lot of content focused on Mao. Even through university, people are taking such classes. Nationalism and propaganda by the CCP are another. You have a lot of movies and television series that extol Mao and the CCP. There is a lot of cultural production around Mao and his ideas. That is one way that it continues to be sustained. 

Xi Jinping in many ways is very different from Mao but many of the things that he focuses on like nationalism, China's standing up, control of history are similar to Mao. During the CCP centenary, the new official history of the CCP praised Mao even more than the previous one, reducing discussion of some of the disasters of Mao’s time, like the Cultural Revolution and Great Leap Forward. Control of history is important under both Mao and Xi. 

Also the idea of leadership and management through campaigns. You look at how Xi Jinping does things, the people's war against COVID, the war against corruption, even in the semiconductor industry talks about concentrating efforts to do big things in a campaign type style which also is very similar to how Mao would do things. Xi is standing on the shoulders of Mao, and while doing things differently, and a different leader in many ways, he seems much more of a micromanager for example, but the system that he's in has a deep Maoist influence. So he will continue to have resonance with Mao.

What are the challenges posed by lingering Maoism to western firms and investors?

My sense is that the West is hopelessly naive and wildly overly optimistic about China because there is this giant market.  In the US, there is rule of law, there is a concept that the state and the market are discrete entities, and the state does not have control over the market. It can pass laws, but those that go through a process. Political parties are very weak. I'm a member of the Democratic Party, but tomorrow, if I want to join the Republican Party, that's great, they'll be happy to have me. There's no qualifications or education and training I would have to go through. 

Western businesses do not understand the centrality of the CCP to the state and to the market, and even the fact that the military reports to the CCP. Any time Western businesses can expire or disappear without any process. The NBA is a good example of that. It had this controversy, where one of the general managers supported the protests in Hong Kong, and like that, they were outlawed in China despite being successful and popular. I visited the NBA headquarters. I asked what did you learn? And they said, clearly, we underestimated how quick and powerful the government could do things. That is something that businesses have to take into account in a much more sophisticated and detailed way.