December 18, 2022

From a Twitter thread I wrote on October 14, 2012:

1. I’m reading “Red Roulette” by Desmond Shum. While it’s fascinating, I’m a bit concerned that people will read it and think that is how all business in China gets done. Some thoughts:

2. Shum describes a business world in China in which connections to high-ranking party officials is everyone, where all politics is business and all business is politics.

3. I have no doubt that in certain sectors, such a real estate, finance, media, and access to raw materials, this was and is true. In fact, I have no doubt it’s becoming more true across all sectors of China’s economy.

4. To some degree, certain sectors like real estate, where access to land and zoning rules are crucial, are like this everywhere. Though even more so in China.

5. However, my experience in China was that there are many other business sectors where government officials took little interest, as long as you were bringing in jobs, tax revenue, and foreign investment – which is exactly what made them appealing.

6. Most of the entrepreneurs I dealt with had to maintain “good relations” with local and provincial officials, but mainly so they would be left alone – which they largely were. Occasionally they needed access to cheap land for a new factory, but that was about it.

7. Their biggest challenges – and the key to success – wasn’t currying the favor of the Party, but building a brand and a customer base, and working on their technical ability to move up the value chain.

8. I don’t known if you could become a billionaire by keeping your nose down this way, but certainly many people in China became millionaires this way.

9. Of course, there was plenty of rent-seeking, trying to get subsidies or bank funding by delivering on some aspect of the Five Year Plan. For many, in my view, is was a distraction from where their real focus should have been.

10. And of course, I worry that this is changing in China, with rent-seeking and political favor becoming more and more crucial to building a “successful” business, large or small. I see this as very detrimental to China’s growth prospects, not a “feature” of their unique model.

11. In any case, I see Shum’s tale as akin to movies like “Wall Street” or “The Wolf of Wall Street”. It’s not that they aren’t true – they are. But they aren’t typical of the experience of most people working in finance, either.

12. I’ve worked in finance in NYC for nearly a decade, and I don’t know anyone like the people in Wolf of Wall Street. I worked and invested in China for over a decade, and while I certainly heard of people like Shum, it wasn’t the world I operated in.

13. With that in mind, it’s a great read and I highly recommend it.

14. I’m grateful to see some people who I used to know and work with in China “like” this thread, suggesting that they share my impressions as well.