Three fundamental misconceptions
When we first travelled to China in the early 1990s, it was very different from today. Many people wore Mao suits and cycled everywhere; only senior Chinese Communist Party officials used cars. In the countryside life retained many of its traditional elements. But over the next 30 years, thanks to policies aimed at developing the economy and increasing capital investment, China emerged as a global power, with the second-largest economy in the world and a burgeoning middle class eager to spend.
One thing hasn't changed, though: Many Western politicians and business executives still don't get China. People in business and politics often cling to three widely shared but false assumptions about modern China. These assumptions reflect gaps in their knowledge about China's history, culture and language that encourage them to draw deeply flawed analogies between China and other countries.
Myth 1: Economics and democracy are two sides of the same coin
Many Westerners assume that China is on the same development trajectory that Japan, Britain, Germany and France embarked on in the immediate aftermath of World War II. According to this view, economic growth and increasing prosperity will cause China to move toward a more liberal model for both its economy and its politics, as did those countries.
It's a plausible narrative. But this argument overlooks fundamental differences between China and the United States, Japan, Britain, Germany and France. Those countries have since 1945 been pluralist democracies with independent judiciaries. As a result, economic growth came in tandem with social progress.
In China, growth has come in the context of stable communist rule, suggesting that democracy and growth are not mutually dependent. China has also defied predictions that its authoritarianism would inhibit its capacity to innovate. China has become an economic titan, a global leader in technology innovation and a military superpower, all while tightening its authoritarian system of government — and reinforcing a belief that the liberal narrative does not apply to China. China is not an authoritarian state seeking to become more liberal but an authoritarian state seeking to become more successful.
Myth 2: Authoritarian political systems can't be legitimate
Many Chinese believe that their political system is more legitimate and effective than the West's. This is a belief alien to many Western business executives. The Chinese system is not only Marxist, it's Marxist-Leninist. Many Westerners don't understand what that means or why it matters. A Marxist system is concerned primarily with economic outcomes. Leninism, however, is essentially a political doctrine; its primary aim is control. So a Marxist-Leninist system is concerned not only with economic outcomes but also with gaining and maintaining control over the system itself.
That has huge implications for people seeking to do business in China. If China were concerned only with economic outcomes, it would welcome foreign businesses and investors and would treat them as equal partners, agnostic as to who owned the intellectual property or the majority stake in a joint venture. But because this is also a Leninist system, those issues are of critical importance to Chinese leaders. This plays out every time a Western company negotiates access to the Chinese market. We have both sat in meetings where business executives expressed surprise at China's insistence that they transfer ownership of their IP to a Chinese company. Some have expressed optimism that China's need for control will lessen after they've proved their worth as partners. That's not likely, because in China's particular brand of authoritarianism, control is key.
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Recognising that the authoritarian Marxist-Leninist system is accepted in China as not only legitimate but also effective is crucially important if Westerners are to make realistic long-term decisions about how to deal with or invest in the country.
Myth 3: The Chinese live, work and invest like Westerners
China's recent history means that Chinese people and the state approach decisions very differently from Westerners. But because human beings tend to believe that other humans make decisions as they do, this may be the most difficult assumption for Westerners to overcome.
Let's imagine the personal history of a Chinese woman who is 65 today. Born in 1955, she experienced the terrible Great Leap Forward famine in which 20 million Chinese starved to death. She was a Red Guard as a teenager, screaming adoration for Chairman Mao while her parents were being re-educated for being educated. By the 1980s she was in the first generation to go back to university, and took part in the Tiananmen Square demonstration. In the 1990s, she took advantage of new economic freedoms, becoming an entrepreneur. She bought a flat — the first time anyone in her family's history had owned property. She took a job as an investment analyst, but left that company for a competitor. By 2008 she was buying consumer goods that her parents could only have dreamed about. In the early 2010s she started moderating her previously outspoken political comments on Weibo as censorship tightened up. By 2020 she was intent on seeing her grandson and granddaughter (a second child had recently become legal) do well.
Had she been born in 1955 in almost any other major economy in the world, her life would have been much more predictable. But looking back over her life story, one can see why young Chinese today may feel a reduced sense of predictability or trust in what the future holds. Many Chinese consumers prefer the short-term gains of the stock market to locking their money away in long-term savings vehicles. In contrast, the government's discount rate on the future is lower and explicitly focused on long-term returns. China's history explains the paradox that the rulers and the ruled in China operate on very different time frames. For individuals who've lived through harsh times they could not control, the reaction is to make some key choices in a much more short-term way than Westerners do. Policy makers, in contrast, looking for ways to gain more control and sovereignty over the future, now play a much longer game than the West does.
Many in the West accept the version of China that it has presented to the world: that ideology in China no longer matters. The reality is quite different. At every point since 1949, the Chinese Communist Party has been central to the institutions, society and daily experiences that shape the Chinese people. And the party has always believed in and emphasised the importance of Chinese history and of Marxist-Leninist thought, with all they imply. Until Western companies and politicians accept this reality, they will continue to get China wrong.
Written by: Rana Mitter and Elsbeth Johnson
© 2021 Harvard Business School Publishing Corp. Distributed by The New York Times Licensing Group