Desmond Shum is the author of Red Roulette – An Insider’s Story of Wealth, Power, Corruption and Vengeance in Today’s China. In this book Shum describes his personal experience working in senior roles in Chinese companies and the Guanxi with people in the Chinese government and the ruling Communist Party that was required to ensure business dealings were successful. He describes the widespread and systemic corruption that permeates the Chinese Communist Party’s relationship with private business and the resulting high level of influence the party and the government exercise on private business.
1) How has China changed over the last five years?
- It is as important to identify how China hasn’t changed. “Political power continues to trump all” and the fundamental power structure dominated by the untouchable red aristocracy is unaltered. The control from the centre is perhaps even greater than ever and the need for an impeccable ‘guanxi’ (a personalized social network of power) is both more critical than ever to successfully do business in China and more difficult to secure.
- In operational terms, legal boundaries are increasingly blurred. It’s impossible to do business without the active co-operation of mid-level bureaucrats ‘who will dance with you in this grey-zone’. The latter are hard to secure because, although at the top-level anti-corruption moves are always politically motivated, lower down there is a real idealistic drive from Xi Jinping to cleanse the system, making on-the-ground bureaucrats less inclined to being ‘influenced’. (To date 4 million bureaucrats have been punished).
- Since the 2008 global financial crisis, the Chinese state has become wary of the western financial model, increasingly favouring its own model of direct financing via state owned enterprises. Alternative financial methods risk finding themselves in the impossible position of competing head-on with the state sector.
2) How do you assess the current crack down on tech companies?
- The tech companies have got too big and too powerful. Their activities have strayed into politics and media, regarded by the CCP as its exclusive territory – the crackdown is in direct response to this.
- In today’s world, power lies with whoever holds the data. In China only the State has the right to access and control aggregated data. New legislation is ensuring this is the case.
3) Where do you see China in 5 to 10 years from now?
- China’s future is now inextricably linked to the will of one man, Xi Jinping. Xi can be described as a ‘romantic leftist’ with a vision to implement social re-engineering and the power to do so. Xi speaks of achieving ‘common prosperity’ which involves reducing inequalities and wealth re-distribution.
- He has in his sights the three ‘mountains’ of the middleclass: 1) education; 2) housing and 3) medical care. A state-imposed crackdown of the first literally wiped-out the private tutoring industry overnight. No reason to think similar measure aren’t coming for the private medical sector. As for housing, a real desire to bring down residential prices is combined with the need to maintain a degree of financial confidence in the sector. Policy direction will therefore be very hard to read.
- Social engineering aims to break the status quo, creating huge uncertainty and very adverse conditions for entrepreneurs to build business. This equates to an investment climate that is becoming increasingly unfavourable and unpredictable – both for private and institutional investors.
