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Ning Leng, "Politicizing Business: How Firms Are Made to Serve the Party-State in China" (Cambridge, 2025)
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- [00:01]
A
Welcome to the New Books Network. Hello and welcome to New Books in Economics. I'm Peter Lorenson, Associate professor of Economics at the University of San Francisco. Before we get started, I wanted to let you know that we are currently accepting applications for our economics Master's programs here at the University of San Francisco. Our program on International and Development Economics, which I'm currently leading, teaches students how to use how to evaluate the causal impact of development policies using a rigorous toolkit of econometric methods informed by both classical economic theory and behavioral approaches, and including an important fieldwork component as well. It is also distinguished by a major thesis research project closely supervised by full time economics faculty, something you can't generally expect in a Master's program. Our students have a strong record of career success whether they go on to public policy, work the private sector, or decide to continue their academic studies with a PhD. If you or someone you know is interested, please check out the University of San Francisco website or feel free to look me up and contact me directly. But enough about us. My guest today is Ning Lung. Ning is an associate, sorry, Assistant professor at the McCourt School of Public Policy at Georgetown University. She did her PhD in Political Science at the University of Wisconsin, Madison and previously worked as a management consultant. Today we'll be talking about her newly published book entitled Politicizing How Firms Are Made to Serve the Party State in China. Ning, welcome.
- [01:24]
B
Hi Peter, thank you so much for having me.
- [01:27]
A
So, to kick things off, why don't you give us an example of the kind of politicization that you're talking about?
- [01:33]
B
Sure. So politicization in my book refers to how the Chinese state demands political services from companies. So not public services, but political services. One example would be the bridge versus bay decision in Qingdao City in the early 2000s. So this city is hugging a big bay and there are two districts on the opposite sides of the bay. So traveling from one district to the other district, usually it will be by car and it would take a long time. So a new mayor came in in 2000 and then he was like, let's connect these two districts from the opposite sides of the bay to cut the traffic time short. This is absolutely valid and beneficial urban planning idea. The issue is how do we go about it? And this new mayor insisted on building a bridge even though all of the experts in engineering opposed the bridge and said instead we should build an undersea tunnel. And the reason for a tunnel over the bridge is because this is a northern city and it's in the Sea in the ocean that constantly freez in the winter. So if you build a bridge which cannot be built on the bay inlet by the way, because ships have to come through. So the bridge had to be built further into the bay, making it a very long sea bay bridge. And in fact, if this bridge would be built, it would become the longest bay bridge in the world upon its completion. And so in the northern city with all of these winter hazards, ice, snow, wind, the bridge will not be able to be used like for months in the year. And there will be a lot of safety hazard and maintenance and the construction cost will be really high. Now on the opposite, if you build a tunnel under the sea, the tunnel could be short, it could be built at the bay inlet and it is not influenced by the weather at all. So all of the engineers say we should build a tunnel, not a bay, not a bridge. But the mayor insisted on a bridge because he wanted something visible. He actually said that in interviews later. These interviews were taken by Communist Party of China and say, see, he's not really thinking about public benefits. The mayor wanted something visible to showcase his competence in urban planning. So he said I must have this bridge even though it will cost more and use less. But eventually he did worry about the bridge might not be used or there will be safety hazards. So he decided we're going to also have the tunnel. So the city actually had both the bridge and the tunnel duplicate infrastructure projects. And then no company really wanted to take up the bridge because that's absolutely going to be a loss making bridge. So eventually this mayor was also used a local state owned enterprise, the Qingdao Highway Group to build this bridge. And to this day the company is still losing money over this bridge. So this is a story that tells us politicization happens both in politicizing infrastructure. Infrastructure not really selected based on what is the best for public and for government budget, but it's based on how it benefits a government official. And it also tells us how a government official politicizes companies to basically force them into projects. That does not make economic sense. So politicization, this will be one example of what I'm talking about in the book.
- [04:38]
A
So the bridge was going to be. It wasn't just a matter of the city using tax money to pay for the bridge. The bridge was being set up as something that's supposed to be profitable for the construction company as an ongoing business where they could charge tolls on it.
- [04:53]
B
That's right, the government official. And this is very common when they build this kind of projects which are called visibility projects. They try not to use government budget because these are very costly projects. This bridge was in tens of billions of yuan in its cost, and officials want to claim credit, but they don't want to be blamed for wasteful spending. And this is why companies are solicited. They say, well, government shouldn't pay for it, but let's have companies pay for it. So that's exactly, that's the crux of it.
- [05:21]
A
So the company is going to pay for it. So it's nothing coming out of the government tax budget. But the problem is then. But you're saying it wasn't profitable. So did the company, you think the company knew going in that it was not going to be profitable? And if so, then why would they go and do that?
- [05:39]
B
Sometimes most of the time, they're not sure whether the project itself will be profitable. But sometimes the companies will be hoping for other reciprocal deals from the government. So for example, in Chung, this will be another example. Government official told a company that build me the largest shopping center in the world, right? The company knew they were not going to make money out of this largest shopping center, but the government official promised them land deals on the side and said, okay, we know you're going to lose money on this shopping center, but you're going to get cheap land somewhere else for your real estate business. In that case, the businessman still took a risk to believe that the government official will reciprocate. And in this case, his gamble actually was successful. So they're hoping for side deals by contributing to this kind of wasteful visibility projects.
- [06:28]
A
Okay, so, yeah, so it's sort of an ongoing relationship thing. It's not that each individual contract or deal makes sense, but the idea is, well, yeah, help me out with this thing, which is a bad business investment, or at least in expectation, like probably not going to work out as well as it should. You wouldn't do it on your own, but if you do it, then I'll give you other things that are going to generate profits that are going to sort of offset that, any losses that you'd make.
- [06:51]
B
And sometimes companies made a wrong gamble, sometimes they would invest, and there will be no profit, no payback coming out of it. And this is why we start to see sometimes companies just exit after, you know, contributing to this kind of projects.
- [07:04]
A
So they're hoping to get, to get some, some payback from the government, but they don't actually follow through. So, so why, why don't, why doesn't the government follow through? Why do they make promises, you know, maybe they're implicit. So obviously they're not contractually binding. But like, why would they make promises that they don't intelligently follow through on with these firms?
- [07:23]
B
Sometimes it's because they didn't need to. So for example, we know that in China, the posting, the tenure length for city level leaders are actually pretty short. So my data shows that for a mayor it's about 3.3 years and for party secretary it's also around the same time. So sometimes these officials simply got reposted and then they owe some local entrepreneurs something, but they no longer needed to pay back, and it probably couldn't either. And then other times that the officials just, you know, they see this kind of political services provided by companies as a regulation. They ask all the companies in the sector or in a locality to provide the services they simply couldn't afford to pay back to every single company. So they used their power, which is pretty, you know, the limit is really small. They use their political power to coerce companies into providing services.
- [08:15]
A
And so you mentioned these are visibility projects. Why don't you tell us more about like what is, why does the mayor of a city want to build a bridge that'll be useless several months out of the year instead of a tunnel that'd be much more practical and lower cost?
- [08:32]
B
Visibility projects is such a common distortion in Chinese economy and in Chinese urban planning. And I realized the source of these kind of projects is because the ambitious officials, not everybody's ambitious, but if you are ambitious in China, these officials feel highly uncertain about how they will get noticed by the party state, how they could get promoted on the paper. Actually, it seems like the Chinese Communist Party, the ccp, has come up with this great system. They measure people by their loyalty to the party state, which is subjective. And then they also evaluate people by this very comprehensive quantitative evaluation system called cultural evaluation system, which they evaluate officials by. Have you reached a certain GDP growth level? Have you reached, you know, lower your unemployment rate? Quantitative. It seems like the CCP has something scientific going. But in reality, both of these systems, the subjective evaluation of loyalty and the objective evaluation of competence, are difficult to grasp for an average Chinese government official. On the hand, on the side of loyalty, what is loyalty? How do we evaluate that? It basically comes down to if your boss in the party state likes you or not. Do they think that you are doing a good job? Are you listening to them? So it's very difficult to know how to make your boss like you. And then on the other hand, in terms of evaluating competence with this quantitative system. We now have a large literature showing that this system is constantly gamed, data could be manipulated and that it is really not the final say in who gets promoted. So any ambitious government official in this kind of top down authoritarian system, they just don't know how they could get noticed and get promoted. So they decided we're going beyond the formal system. We're going to invent something that is visible but also safe and that will showcase both of our loyalty to the party state and our competence in managing the economy and the society. And this is the origin of visibility projects. It really comes from a sense of insecurity and not sure how to get promoted in this system.
- [10:38]
A
So does it. So you said it shows their competence, I guess in a certain sense. I mean, you know, does it really show competence if you, I mean, you said, you mentioned like with the bridge, that the mayor or party secretary, whoever arranged it, was criticized for this later because it was kind of a bad idea and a waste of funds, even if they weren't public funds. So, you know, does it. But. So presumably he, he made a mistake. But you. But for this system to work, it sounds like in general it's a good idea strategically to do some kind of big showy project, make the most gigantic mall in the, in the province or, or in the world or something like that, or make the longest bridge. And that, that is viewed as demonstrating an ability to achieve. But what ability is it really capturing? Why does the party value that kind of thing?
- [11:29]
B
This comes from the information asymmetry on the party state side. The party state. The boss in Beijing also knows that quantitative evaluation for competence could be gamed. So they look for things that's verifiable. They have to see that these local officials are making effort on the ground. They have to be able to verify the efforts. And something that is visible is the most verifiable. So this is why they want to do something visible. But why the bigger the better is because everybody is working on building something visible. So to only be visible does not mean you are better than other local government officials. You are not necessarily superior to them. So why would the party stay promote you? Your visible project has to be bigger than the one that your neighbor is building. So in this Qingdao case, for example, it became by the time the longest bay bridge in the world, right? Guess who's the second longest bay bridge? It was a bridge built in Hangzhou by a different local government official out of the same rationale. So for the Qingdao mayor, he like, well, we have to build, you know, half a kilometer, literally half a kilometer longer than Hangzhou Bridge. Now, we are the most competent urban planner in the country. So that's a competition built into the system. That's why a lot of things in China are the largest, the tallest. Right. The most visible. There's that political logic to it.
- [12:45]
A
Reminds me a little bit about American college admissions process too. That sort of. There's relatively objective criteria, probably more objective, because actually like a local government in any country only has a certain amount of control over the actual gdp because a lot of things go into GDP and there's only so much you can do. But then the, yeah, then, you know, the analog analogy would be like grades, which now there's increasing concern can be gained and you know, test scores or whatever. And so then, yeah, people are trying to create, create their own NGO or you know, start a startup or something that they can put on their college application because they feel like they have to have some bigger, better thing to show off.
- [13:25]
B
Exactly. Yeah. I actually use that same analogy in the book as well. It is exactly that way.
- [13:31]
A
Yes. Sorry, I missed that part. I'm stealing your analogies. But yes, definitely, I'm going through it with one of my kids right now. So I definitely see this kind of process. Okay, so you mentioned the visibility projects. And so you also distinguish the visibility projects from some of the other kind of economic development projects that have kind of a similar flavor, like white elephant projects that are also done to be showy, to kind of indicate GDP development, but aren't really effective. So could you talk about the distinction you're making there?
- [14:12]
B
Yeah, absolutely. So visibility projects show up in democracies too. And we have some recent scholarship that's really good about visibility projects in for example, Brazil electoral process. Right. And the difference here is in the democracy, when officials want to be seen, they need to be seen by the voters. So they are building things that the voters like local park, you know, public housing. And because they're attracting local voters, they don't need to build the largest public housing project in the country because voters elsewhere don't care. So they simply build visible projects in authoritarian state. The difference is who is the audience of these visibility projects? It's the upper level officials. They don't even live in the locality, they are in Beijing or they're in a provincial capital city. They don't care what the practicality of these projects are. So in authoritarian states, visibility projects could actually come at odds with local developmental needs. Right. You only have limited resources. So resources will go to things that's only going to showcase a scale and a size, but it doesn't necessarily benefit the locals. So this is I think is one of the key difference between visibility projects in autocracy and in democratic contexts.
- [15:23]
C
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- [15:51]
A
Experian that makes sense. Yeah, definitely. It's a completely different audience that you're trying to impress and who you're trying to compete with. It's more it's within this kind of hierarchical system as opposed to winning winning votes. How about comparing to other hierarchical systems? I don't think you went into this a lot in their book, so I don't know if your experience here was super relevant. But in managing consulting there's a similar thing. How does an organization run? And there's a similar kind of issue with some parts of a business. There's a profit and loss center and so you can say this person made this many sales or this unit is making profits. So that's pretty objective. There's still subjective elements I think that come into it sometimes as to who gets promoted or who other people like and want to move into other leadership positions. But then others are more subjective. I'm curious just if you've observed any of that or if you've seen any links within that literature of doing the similar kind of showcase things to please higher ups.
- [16:55]
B
Right. There's definitely something in common between this kind of top down hierarchical political system to a company or to a military. So for example Holmes Room in the 1970s seminal work on in company what is measurable is what people is going to invest in. So exactly as you mentioned, sales data, et cetera. Or in the American education system, teaching to the test. If you evaluate your teachers based on only students test scores, then the teacher's going to focus on test and you forget about the other parts of education which is not measurable. So there is something consistent here between the Chinese political system and all of these other organizations. The difference I guess is that in a company, for example, to fix sales data or many of this like key data, you know, to data key to business development, you can easily game them as in a political system where Beijing really doesn't know, right. What is the waste treatment quality on the ground? These are not easily measurable data in the political system. So visibility projects has its place because you are building on information asymmetry that the party state doesn't really know what's going on on the ground. In a company, I think that's much harder to hide even in the short term or the midterm. So gaming in a company setting, when money is involved, it's a little bit more difficult to do visibility projects, but.
- [18:19]
A
It'S just kind of much more objective, commonly agreed upon criteria of what is achievement.
- [18:25]
B
Right, right. What about.
- [18:28]
A
So then the other. So this was the one aspect of politicization. The other you mentioned was the role in societal control. So why don't you tell us more about that?
- [18:40]
B
Right. So in China, what I discovered is when the government wants to push for controversial projects. So we're talking about nuclear plants, you know, PX chemical plants, paper manufacturing, waste incineration, all of these controversial projects that could cause nimby, not in my backyard, public protest against them. In China, the government likes to work with companies to build controversial projects. And the reason that they want to use companies for these, well, in many contexts, right, companies are going to build these projects. But in China, the companies in controversial projects actually carry direct societal control function. So by direct societal control function, I mean the company is either going to put money to solve the protest problem or the company is going to put manpower onto the streets to suppress protest for the government. So the companies actually carry two functions here. In any sector that is subject to NIMBY protest, companies could be scapegoat for the state. So the project goes on, people are unhappy about it, they go on the street and the company is a scapegoat. And these are usually private companies will come out and say, we're going to pay the protesters. Now the payment sometimes is direct payment, like hush money to protesters. Sometimes it's indirect payment, which will be a heavy fine from the government. The government will tell the protesters that, look, you're unhappy about this project and it's all an evil company's fault. So we're going to put the company on a platter, we're going to find them, we're going to tell them to, you know, shape up their operation, we're going to order them to upgrade their facilities. To make them cleaner and less environmentally damaging. We're going to do all of these things to the company and the company will take all of these punishments from the state and say, we're going to pay up, we're going to do whatever the government wants us to do. Please stop the protesters. So this is scapegoat. Now behind the scapegoat function, a lot of the times the state and the company will be making a deal. And the deal is the government will say on the surface, we're going to punish you, we're going to force you to upgrade your facility. As long as you tell the protester that's what you're doing and pay up money, we're going to let you go. We're going to turn a blind eye to your cost saving measures. So this is the scapegoat function. The other way the company could help the state in pushing forward controversial projects is by playing the state's allies. And this role is usually played by state owned enterprises in China. This is when the government knows there's no way you can pay to, you know, to make the protests go away. People simply will not take money. They really want a nuclear plant to be moved. They really don't want a PX chemical plant buy their home. So what do you do now? The government will have to use violence and suppression. They will have to mobilize security, you know, the paramilitary force in China. And in this kind of case they need to justify suppression because the party state is very sensitive to use of violence. The less you use violence, the better for the party says legitimacy. So in this kind of scenario, the government will say, all right, here's a controversial project. We know we have to use violence. We would prefer to ally with a large state owned enterprise. Why? Because the large state owned enterprise could bring their parent company in Beijing to directly support the local government's decision of using violence. And because this is for a project run by state owned enterprise, the project is justifiable because state owned enterprise, quote, unquote, is always trying to benefit the public. So using violence for the public benefit will be acceptable by Beijing. So in this kind of sectors you will see state owned enterprise and private companies both come in play different kind of roles. And depending on what the government needs, they will choose one type of company to work with in pushing forward controversial projects. So this is more of an indirect societal control role. This is less observable than say Internet companies helping the Chinese state to monitor and surveil citizens. This is kind of hidden in the.
- [22:41]
A
Background but not too hidden because you did mention, I mean, these are street protests that they're dealing with. And so you're saying if they expect kind of smaller protests or not too much protests, then they'll probably go with a private firm. So then they can make the private firm pay off the protesters one way or another. But then also you're saying not really actually, like if it's an environmental issue, they won't really actually enforce the environmental laws. They'll just make them make a show of compliance, but not do anything too costly, but spend some money on the protesters. Whereas then if they're expecting a bigger uproar, then either because of, I guess the topic of the nature of the project or maybe because of an area that's had more discontent in the past has that kind of a record, then, then they'll have a state owned enterprise come in because they know they might need to bust some heads. But if, if the mayor's, if the mayor, in alliance with a state owned enterprise that politically is kind of at the same level as him is, if they're busting heads together, then Beijing won't blame them because it's not just one person getting out of hand. It's kind of, they're, you know, multiple subordinates. Agreed. This is what needs to be done. Am I getting that right?
- [23:56]
B
That's exactly right. That's exactly right. Yeah. And this is a kind of political service that's frankly more welcomed by company because it comes down to individual companies and they're, you know, basically shielding the state from blame from the public. That's a big credit claiming opportunity. So in this kind of sectors you will see statements, relations to be friendlier, to be more reciprocal compared to say using companies for visibility projects. Right.
- [24:21]
A
Because then in that case, I guess so the visibility projects, the firm feels like the state owes them, but it's not so much of a clear common knowledge, I guess.
- [24:33]
B
Right. Or the state and the business doesn't have a quote, unquote, common enemy, which will be the public. Right. In the societal control function, they share a common enemy, so to speak.
- [24:45]
A
Well, tell me more about your fieldwork process. So you went, you spent a lot of time talking to a lot of people like, why don't you go through like how that worked out and yeah, more of that process.
- [24:57]
B
Sure, sure. My field work spanned from 2015 to 2019 and then 2015, 2016. I spent an entire 18 months in the field. And what I did was the first few months were difficult. I was basically trying to find interlocutors to introduce me to business people, local government officials, and took about three months and then doors started to open and eventually it was a very successful fieldwork. I interviewed over 200 people and with a lot of them it was multiple interviews. In some cases, I shadowed government officials, you know, for days. So it was a really fantastic fieldwork. And eventually I realized that, you know, in the first meeting, usually people are very official, very formal, they don't tell you much, but once you meet them for enough times and you follow them for long enough period of time, they do start to speak. So the fieldwork was very, very interesting. And yeah, and I wonder, like, if I could again do that kind of fieldwork today in China. I'm really not very confident about that anymore, but back then I managed to do that.
- [26:00]
A
And you're just for people who are listening and aren't sure. But you grew up in China.
- [26:04]
B
That's right, that's right.
- [26:05]
A
Yeah. And so you have that level of commonality and trust. It's not like some random foreign person winding around. But you're saying even now, as you know, a native Chinese speaker from China, you think going and spending that time with business people and officials might not be feasible.
- [26:22]
B
Yeah, I would say so. And I think now my concern is whatever your topic is, sometimes the topic might not even be sensitive or whatever findings you're getting at, those don't matter anymore. It's just the entire country is. Particularly with all of this new national security law coming out, people are really concerned about talking to anyone about anything. So fieldwork at this point is more difficult.
- [26:47]
A
Yeah, yeah, certainly like 10, 20 or 30 years ago, you know, starting in the 90s, it seems like field work are more possible. As long as, you know, as long as you could at least say something about how, you know, you were thinking about a problem that China was facing and maybe helping China understand its own problems. And also, or maybe, you know, ideally, this is certainly an angle I know people would take is, you know, we're going to highlight your successes in economic development or in, you know, environmental work or something like that, that could be a, you know, with that, with that general framing, it could work out okay. But you're saying now even if you come in with a completely positive thing, just the very fact that you're a social scientist coming to study China means you're viewed with hostility.
- [27:33]
B
Yeah. And it's unfortunate because fieldwork is the most useful way to understand incentives, understand how institutions shape individual decisions. Like one really gotta talk to people to understand that Part. So hopefully, you know, this will be just a pause rather than a complete stop.
- [27:49]
A
Yeah, I think both from the perspective of, you know, advancing social science, you know, in terms of, you know, there's a lot you could do, obviously with, you know, quantitative data that you gather in various forms, you know, remotely or not, and, you know, other kinds of work and archival work and stuff, if you can get access to that. But yeah, actually talking to people and hearing how they think about things, especially as you said in your cases where you can really take those months so you can develop relationships where it's not just interviewing them once, but where they kind of get a little bit more comfortable with you and a little bit more relaxed and can talk to you about how they really perceive their situation is really crucial and crucial for social science and also crucial for, I think, better understanding between us and China or China and the world in general.
- [28:37]
B
That's right. That's right. Absolutely.
- [28:39]
A
Well, so in your field work, you had two kind of big categories of case studies. Why don't you talk about those? So you had urban buses and municipal wastewater. I don't know, when you were graduating from college and you thought, I'm a political scientist, did you think that I'm going to look at buses and. Sorry, not wastewater, or was it.
- [28:57]
B
No, yeah, incineration. I did look at wastewater too. Yeah. I didn't get into the waste treatment.
- [29:02]
A
Sorry, I missed. I wrote that down wrong. Yeah. So. So why did you. Why did you pick those things and what did you learn specifically from those contexts?
- [29:10]
B
I know these are such like, mundane foot soldiers of urban life. And I really stumbled onto the first sector buses when I. It was back in 2013 when I was doing pre dissertation fieldwork and trying to understand as many sectors as possible. And then I just realized that weirdly, you know, all of these city governments are nationalizing the bus sector. And most of this nationalization process took on coercion. Private bus companies didn't want to leave. So I started to try to understand, why did you want to do this? And more interestingly, these cities were not coordinated with each other. One city, like in province A, would not know that their neighboring city is doing the same thing. So it shows that there's something bottom up fundamental in the system that is causing all the city governments to nationalize. A little mundane foot soldier that has been doing very well to this point. So that's how I stumbled upon the bus sector. I was fascinated by this sector. It might be, you know, people don't think about buses. But once you start to understand the system. It's a very complicated urban planning project. It's fascinating. So I decided to find another public service sector that I could compare to the bus sector. In these sectors, companies should have similar level of relationship with the government. And in these sectors, there should be enough private companies and steel enterprises for me to compare these two types of ownership. So that's how I eventually went to study wastewater and solid waste incineration. And eventually the solid waste incineration was the sector that made it into the book. But you are right, I definitely did a lot of interviews in the wastewater sector as well.
- [30:40]
A
So what did you, what did you find out? What happened with the buses?
- [30:43]
B
That's right. So the buses became interestingly and unexpectedly a very hot sector for visibility projects. And this is all because Beijing, starting from early 2000, said we need clean air. Air pollution was, you know, out of control. So part of the solution to clean air is ask Chinese to drive less private vehicles, use public transportation. This is how bus so far not at all paid attention to by local officials suddenly became a hot sector. They're like, this is great. We're going to show Beijing we're focusing on this sector. What can we do? We're going to have visibility projects. So there are many system wide large projects emerge in this sector. And because their visibility, the primary purpose is visibility, a lot of these projects don't make much sense. So for example, when China started to push for clean fuel LNG in public transportation, they did not actually, the buses did not have matching engines. The cities did not have enough supply or charging station for lng. Nothing was ready to. But the local governments across the country would say, but we want LNG now because we want clean air. And bus companies is like, this makes no sense. And so they resisted. And then the second wave. So this was the first wave of resistance, like almost nationwide from bus companies. And then the city government says, okay, clean fuel, clean buses is not even enough. We want to do more, more visible, larger projects in the country. And this is the introduction of brt, the bus transit rapid transit system into China. So these are enclosed bus links in the city. These links are only reserved for buses for efficiency and speed. The issue is brt, a concept originated from Latin America, right? In Latin American countries, on average, the cities would take three years to build a BRT system. Guess what that number is in China? On average, cities that launch BRT systems spend only eight months. Now this is a highly complicated system. You have to disrupt the current streets, rebuild them. You rebuild the Roundabouts, everything, intersections, traffic lights. Eight months usually is not enough to make the BRT system work. And so bus companies resisted again. Like, this system makes no sense. This is too rushed.
- [32:56]
A
So they were setting a deadline of like this has to get done within eight months.
- [32:59]
B
That's right. And the deadline usually corresponds to the local officials promotion clock. They had less than three years on the post. They gotta get this done so that they can claim credit rather than having their successor claim credit. Gotta be done quickly. And so companies resisted again. So over the years, like so many cities, start to launch dissimilar visibility projects, bus companies resist. And private bus companies are the ones that resist the hardest because they can't invest in loss incurring projects without limit. They have a hard budget constraint. Right. State owned enterprises eventually get bailed out. So even though state owned enterprises don't like these visibility projects, they're going to go along. Private companies would not. So you will see private bus companies bring local governments to court. You know, they are going to have strikes, they have all of these passive, you know, resistance to the government. Eventually across the country, local government officials without coordination, without guidance reached a similar conclusion. The conclusion is private companies are in the way for us to do all of these projects in the bus sector. So eventually they decided we're going to deprivatize the sector, we're going to kick the private companies out so the state owned enterprise can do our projects fast enough. So this was the story of the bus sector and then the waste sector has a different story. So this is a sector that is controversial. Many NIMBY protests. And so the government in this sector actually learned about, you know, the benefits and you know, pros and cons of working with private companies and stale enterprises. And they decided that private companies is the best to be a scapegoat, as we mentioned. And SOEs, State Owned Enterprise will be the best as allies. So in that sector you start to see state business occlusion as these protests emerge. And then you start to see companies of different ownership start to have a very well defined role in what they should do for the government and with the government when protests emerge. So to this day you will see in the incineration sector, private companies are still there. So this is a very different outcome from the bus sector. And the difference really comes from the different nature of political services that companies are providing to the government.
- [35:08]
A
So why was there such a drive for incineration facilities? What was happening before that? Was it landfills or like what was the enthusiasm?
- [35:16]
B
Yeah, landfills recycling. And honestly, in my observation, with some exception, on the east coast of China, where population density is really high, so incineration is indeed practical. It's needed for these cities to deal with their increasing garbage problem. But deep into, say, West China, right? Middle central China, sometimes incineration itself is a visibility project, quickest dumb project to show Beijing that, look, we are dealing with another environmental issue, which is as the country gets richer, there's more garbage. Here's incineration plan for you. It shows that we are making efforts. So incineration suddenly became favored over landfills, which are just holes in the ground. They're really not that attractive. Or they're favored over recycling and sorting. So recycling and sorting part of the issue is that it is invisible, right? You can have a recycling system in the city, nobody could see them. This is really under, you know, under the ground kind of work. And the other issue is recycling and sorting requires public cooperation, which takes a long, long time. It's so long, involves public education that no government official has the patience to do it. They are on their job for three years. Why would they bother? So incineration became the most efficient, the fastest way to deal with the garbage issue in China.
- [36:35]
A
And so it was viewed as sort of environmentally friendly relative to the alternatives because of the difficulties of implementing recycling and was favored by the upper levels of government. And also it's highly visible. So it's easy to show that you built a new incineration plant. But also then you're saying highly visible to look to whoever lives nearby. And so there's pollution from the burning plastics and whatever that they would complain about. And that would tend to cause protests.
- [37:05]
B
That's right. Incineration would not be necessarily the most environmental friendly method to deal with garbage. Recycling and sorting would be recycle first and then use landfill, sanitary landfill or incineration. But incineration is the fastest way to make garbage go away. And it doesn't take up land. In some cities in China, the not taking up land is valuable. Right? Use it for real asset development. So there are many reasons for incineration, but I think it comes down to it's the quickest method to deal with an issue.
- [37:34]
A
Why don't we take a minute now, why don't you say more about. This is an area of interest of mine, like protests in China and how the governments view them. I think people. Well, as we record this, there's massive protests in Iran which are being met with violence. So that's one way that I think that's the more typical way that Americans think about protests in authoritarian countries. So tell us about the protests in China relating to things like incineration plans.
- [38:03]
B
Absolutely. Protests in China happen so much as you are so familiar with this topic, happens so much that my interview shows that local government officials take as a given. They are not really afraid of protest bursting out in their jurisdiction. They are not worried. I remember one of the interviewee was telling me that protests happen all the time. Right. It is not a problem. See protest from the government officials perspective see as an opportunity. It is an opportunity for government officials to show to Beijing how capable you are in controlling the public. And then this official went on to say, look at all of the top leaders in Beijing, right? Everybody had a brilliant record of suppressing protests and control the public. This is a necessity in promotion in China. So when they view protests for the government officials opportunity now risky opportunity. Even though regular, you know, low level protests are tolerated by Beijing, there are red lines. So the government officials aware of that they cannot pass. For example, if you have, you know, fatality due to suppressing a protest, that is a no, no. Beijing would say you failed. You should be able to control the public without killing people.
- [39:13]
A
Right.
- [39:13]
B
If the protest or the control of the protest, whatever way the government use suddenly became a news headline, beyond the city became a national news headline, even international. Totally. No, no. Then you failed. You are basically exposing that there's so much societal problem in China. So government officials really care about maintaining protests to a certain level, to a certain degree and not let them escalate to what I call high profile protest which involves all of these red line. So that is the issue from the government's perspective.
- [39:47]
A
Okay. And just to clarify again, like for, for none of these protests are in a certain sense political. They're more like, you know, they're not saying get rid of the political leaders, definitely not saying anything about like changing how China works or the political system. They're just oriented towards, you know, we don't want this, you know, like a NIMBY protest.
- [40:06]
B
Right.
- [40:06]
A
We don't want this plant to be, you know, burning trash near our house, things like that.
- [40:12]
B
Yeah. These are issue oriented protests, right?
- [40:14]
A
Not political issue oriented. Yes. Right. And so but within that the idea that there it's, it's considered very commonplace that there'll be small issue oriented protests. That that is a form of leverage that citizens could try to use against the, the local states if they don't have any electoral channels to of influence.
- [40:34]
B
That's right. That's right. And my interviews show that the citizen is now, at this point, you know, 2015, 2019, we're quite disillusioned with all of the other official channels like Office of Letters and Visits. The common belief of people I interview is that they're never gonna work. In fact, if you dare to go to the Office of Letters and visits, your local government is gonna find out. Once they find out that you're trying to go through official channels, they're going to have revenge on you and your family. So sometimes protests became, you know, the only viable approach for citizens to express their, you know, disagreement with the government.
- [41:10]
A
So going through the letters in the business office, I think we'd probably. I guess that's the direct translation I've always thought about, like, in English, probably just calling it the complaints Office would be like, more direct. So there's a complaints office in every part of government, and you can go there and lodge a complaint against your mistreatment or the polluting plant or, you know, something like that. But you're saying that's kind of. It almost sounds like that. Then someone, right. You have to put your name on it so some local official who's benefiting from the misbehavior or pollution can get vengeance on you. So it's almost. And I guess it's more dangerous for them in a sense, compared to even a protest, more dangerous for the government or less attractive to the local government, because that's something that gets documented and then sent up to Beijing or sent up when their next promotion comes around. They'll say, how many complaints did you get at this complaints office? And if there's a lot of them, then that might be held against them. Whereas if there's. It sounds like you're saying if there's a few protests here and there, but they're managed well, that's almost viewed as, you know, not a bad sign. It actually shows us this person can get controversial projects done despite some opposition.
- [42:21]
B
Exactly. And that's how, like, the institutional setup in China creates all of these perverse incentives to local officials. That's exactly right. They would rather have small protests that is successfully suppressed than to have the citizens go through official channel. And that's why there's a large industry now hired by the local governments to basically hijack these people going to the complaint office to issue a case. Right. It's a huge business right now.
- [42:48]
A
So you mentioned this kind of decentralized system, decentralized system with hierarchical promotion and has worked. Seems to have worked fairly well for economic development. The areas that you've been looking at have been a mix of economic development but also a lot of more environmental and sustainability oriented changes. And it sounds like you're saying overall, would you say that it's been somewhat successful or a complete failure? How would you assess these sustainability efforts.
- [43:24]
B
That, that you've seen in terms of environmental sustainability?
- [43:28]
A
Environmental sustainability? Yeah.
- [43:29]
B
I think China's institution is not the best one to encourage sustainability. It does not encourage long term thinking. I know that there's a lot of, you know, statements, authoritarian states are long term thinking, you know, compared to democracies. But in reality, at least at the local level, I don't see that at all because of this reposting so that no local lords will form anywhere in China. Right. So they're also very short sighted. But sustainability requires long term thinking and environmental sustainability really demands Chinese government to come in and actively do things, regulation monitoring, you know, repairing the damaged environment. But the Chinese government actually, the lesson they've learned, let's say the success lesson to a certain degree in promoting economic growth is actually take a back seat. Economic growth in China, in my observation, is thanks to the government taking a backseat and allow economic actors to have autonomy. Again, environmental sustainability requires the government to do the opposite. And frankly the Chinese government has not shown us a lot of success in actively creating, let's just say redistribution, equality, all of these long term sustainability building. So I hold doubt about whether this institution could correctly incentivize local government officials to pursue environmental sustainability. That is one of the concluding thoughts I write in this book. And also I would just like to make this point that it happens to be the sectors I study. They are all grouped into this book because they were, you know, the national government wanted environment and both sectors are involved in environmental protection. But based on my interviews, like in many other sectors which I didn't include in the book, is that politicization of business actually could happen anywhere in China. Any sector. These could be large sectors, important sectors, you know, money making sectors, or the entire opposite profile. Politicizing business has been a built in feature in China's political economy. And which sector gets politicized really depends on what China needs at the time. So today when Beijing is saying that we want tech innovation, we want AI, we suddenly see the entire tech sector is now being considered for visibility projects. And visibility projects are emerging in this kind of sector. So I would just. This is why I become more sober about China's political economy model after I wrote this book. Unlike any sector could be called to provide Political services and forget about the actual sectoral development. So this is a concern of mine.
- [46:07]
A
Yeah, it does not sound like a very optimistic approach. Like I said, the first wave of development in China was more about. I mean, I think there's different views about that. I think you're saying you view it as more about getting out of the way. There's definitely other people who view the state as having played an important role in kind of guiding development in useful ways. And I think there's still people making that argument even as we talk about things like China's success in EVs or solar. Although I think my view is it's more actually a lot like what you're describing. Like maybe with some beneficial. Probably I'm not even sure it's beneficial for China, but beneficial for the world that they make now. EVs are super cheap and electronic vehicles and solar panels. I'm not sure it's the best. There's a lot of overcapacity which I'm not sure it's good resource allocation within China, but because there's positive externality for the rest of the world, maybe these kind of visibility, visibility projects. Starting my own electric vehicle plant even though there's already 20 is something a local official would be excited to do. But yeah, maybe not so clearly a good formula for China's long run development as we think about environmental issues which are more about even within classical economics. That's the kind of thing where there's externalities where you can't just leave it to the market. It's a question of how do you regulate it in the right way. Then it's easy to be heavy handed or do things that look good but aren't actually effective and much more challenging. And it sounds like your book highlights a lot of ways in which they're not doing a great job of that at this point. Maybe as a last thing, why don't you tell us just briefly about your current research. I know you've started on a new project looking in Latin America, so why don't you give us a quick sketch of what you're doing there and if you have some initial findings, what you've got.
- [47:59]
B
Absolutely. So I'm writing my second book about Chinese companies in Latin America. I follow Chinese companies and now you know, a lot of these companies are on exodus to look for new markets and new manufacturing bases and Latin America in my personal view is going to be the next big market for China beyond Southeast Asia. So I follow the companies there and this region is interesting in Several ways in that this will be, you know, in the developing world. This will be the first time that Chinese companies are going to operate and invest in the democratic setting, democracy plus developing country market. This really will be a first for Chinese companies. And I would like to know how Chinese companies navigate rule of law. How do they navigate a different political environment, which is democracy, different than many African countries or in Southeast Asia, how do you navigate that? What are they good at? What are they less good at? What is the difficulty? And once they are overseas. Right. Their advantage, traditional advantage of Chinese companies is price point. They're really efficient and they're willing to sell their products at a lower price. They win the bids with the lowest, you know, construction contract. Does that advantage, you know, help them go far in this kind of context? So this is what I'm trying to study. Their relationship with these host country governments when they go abroad. It has been very interesting. I've also been doing both fieldwork and quantitative data collection and I have been doing fieldwork there for a full eight months now. Spent the last two years going in and out of Latin America.
- [49:32]
A
Any specific countries or terms of your range?
- [49:35]
B
Yeah, so Colombia, Peru, Bolivia and Chile are my four big cases. I have Argentina because it's a federal country, but frankly, Argentina is where I spend less time in because of unique financial environment in that country. And these four countries differ, vary on some key dimensions. Their relationship with the United States, their degree and level of democracy and rule of law, and their relationship with China historically. And so these four countries is where I do my fieldwork so far. I would say it's very interesting. One thing I could share now, which I know for sure, is that Chinese companies, when they go into this kind of context, they do bring their domestic practice abroad. When they enter a new market, they assume this government would be the same as Chinese local government or sometimes governments in African countries that have similar political institution with China. They assume that. And so they will go into this country and they will sometimes do the right things in terms of improving state business relations. Other times they are awkward in how they deal with local governments. So it's a real learning process for all of the Chinese companies. And another finding I have is that private companies adapt much sooner than state owned enterprises. So this is, I guess, not a surprise, but I thought it was so obvious that I thought it was interesting.
- [51:02]
A
Yeah, I guess maybe, yeah. Not to get too far ahead of where you are in the research. Maybe the private companies have more, probably have more flexibility like a state enterprise. They have the Whole, you know, there's a, there's not just one boss back home, but there's probably, it's always a challenge for, you know, firms going international in general to like, explain to the boss back home how things work differently in this country. Like, you know, a long time ago when I was in, working in China for, you know, American firm, you know, that was always the complaint people would have, the person running the joint venture in China would say, I have to explain how different things are in China, how the things that the boss there says are obviously can't work here. And I imagine it goes, it goes both ways. But if you're a private firm, there's going to be at least some more flexibility, whereas if you're a state firm, it might be even harder.
- [51:49]
B
Yeah, that's absolutely right. Yeah.
- [51:52]
A
Okay, well, we're just about out of time, so thank you so much for taking this time and really excited to read this book. For those who are still listening, just a reminder that the title of the book is Politicizing Business How Firms Are Made to Serve the Party State in China. And it's available now at all your good bookstores and online places. So thank you so much, Ning.
- [52:18]
B
Thank you so much, Peter.
- [52:32]
D
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- [53:00]
A
Com.