Richard McGregor: China’s Secretive Ruling Chinese Communist Party (#3)

Welcome to the Three Takeaways podcast, which features short, memorable conversations with the world's best thinkers, business leaders, writers, politicians, scientists, and other newsmakers. Each episode ends with the three key takeaways that person has learned over their lives and their careers.
And now your host and board member of schools at Harvard, Princeton, and Columbia, Lynn Toman. Hi, everybody.
It's Lynn Toman. Welcome to another episode.
Today, I'm here with Richard McGregor. So Richard McGregor is an expert on the Chinese political system.
His book, The Party on the Inner Workings of the Chinese Communist Party, has been called a masterpiece. He's the former bureau chief of the Financial Times in Beijing and Washington, and he has been stationed throughout Asia in Beijing, Shanghai, Hong Kong, and Tokyo.
He is one of the only people who truly understands China's leader and the inner workings of the Chinese government. Welcome, Richard, and thank you for joining this conversation today.
Thanks for having me, Lin. You might have been a little bit too flattering there.
I'm sure there are many people who understand the inner workings of the Chinese system, or at least up to a point. Not like you do.
You have a wonderful quote in your book. It is, the party is like God.
He is everywhere. You just can't see him, unquote.
So how powerful is the party? Well, let me give you some context for that. When I wrote the over a year in 2008 and 2009.
Now, at that time, that was, of course, a great moment in history for China, the Beijing Olympics and the like, you know, China looked like it was opening up. But anybody who wanted to who came to China at that time wouldn't really hear much about the Communist Party.
You know, if you went to America, people would be talking about the Democrats and Republicans, but people don't talk to outsiders too much or didn't at that time about the party. It was all about the system, you know, the government and the like, and certainly the operations of the party are very secretive.
That's a feature, not a bug, of the Chinese system, as it has been for Leninist systems since the early 20th century. And so you don't really see the Communist Party in operation, and that's by design.
I wonder, though, if I was trying to write a similar book these days, whether somebody would say the same thing to me, because Xi Jinping has been much more explicit about the role of the Communist Party, what it does, where it positions itself, its centrality in everything about how China is run and governed. In fact, he's sort of, you know, brung it above the surface, if you like.
So increasingly, you can see the party. And I think increasingly, outsiders are waking up to the fact that the

Communist Party is not like some sort of fusty old rosary club and old fashioned sort of irrelevance

to the governance of China, but absolutely central to it. So I think these days, in China,

you can see God a little bit more than you used to be able to when I wrote that book.

And that's very deliberate. So where is the party? How does the party control everything? Yeah, I think the secret to China's success, and I do think China has been successful in the past 30, 40 years, is that the party got a tighter grip on everything related to political power or societal power, but opened up the economy and people's private lives.
Now, that's changing as well, but I'll come back to that. So what does the party control? They have a personnel department, which controls every important position in the country, you know, the heads of universities, the heads of big state-owned companies, the heads of major newspapers, you know, every mayor, every provincial leader,

et cetera, et cetera. These are all chosen through a party personnel organization, judges and the

like, lawyers. It's all controlled by the party.
It's what, when we grew up, we used to hear about

the nomenclatura in the Soviet Union, the list of important names. Well, China has that, and the Communist Party in China runs that.
There is only one political party in China that matters. Sometimes when you go to China, you might be a little bit confused because they'll talk about the seven democratic parties.
There is these small parties which are allowed to exist, but they all are controlled by the Communist Party. So it's a single-party state.
So they control every arm of government. They control every important institution in the country.
And another important point as well is you don't really have NGOs in China, non-government organisation. China has what you call not NGOs, but gongos, government operated non-government organisations.
So really the party covers everything in China. Xi Jinping said it himself, if people, you know, you just have to listen to what the Chinese say.
He said, I think it was at the last party congress in 2017, he said, east, south, north, west, all points of the compass are controlled by the party. So just take Xi at his word, it's everything.
So how does the party control businesses? Well, let's divide it into two categories, First of all, state businesses and privately owned businesses. State businesses, it's the, they have the right to hire and fire.
In other words, the CEO, the deputy CEO, and about three levels down in the big, we're talking about the big state companies here, appointed by the party. And so they can appoint you, they can sack you.
That's how they control them. Now, I might say it's a patronage system, it's a political machine and the like, but on top of that, and this I think is where China has done quite well, there's an expectation that you will perform, that you will do your job, you will make a profit, et cetera, et cetera.
But if you're not doing well, if you've been caught up in a corruption scandal, or if you're on the wrong side of whoever's in power at the time, they can fire you. And we've seen a lot of that.
So that's the public sector. The private sector is a bit more difficult.
Now, the great success of China in recent years has been the success of the private economy, highly entrepreneurial, and, in fact, the Communist Party's legitimacy in some respects depends on the performance of the private economy. I would say about 70% of new jobs created in China, maybe even a little bit more in terms of output, come from the private sector.
And until about 20 years ago, the party and the private sector still had quite an antagonistic or mutually suspicious relationship. Two things happened.
First of all, under Jiang Zemin, who was the leader of China from 1989 until about 2002, in about 2001, 2000, he said entrepreneurs can join the Communist Party. So in other words, it was kind of like get with the strength.
The party was able to offer entrepreneurs sort of connections, you know, access to bank loans, political protection and the like. And of course, for the private sector, they got greater legal standing, if you were, or political standing for their businesses.
And they felt more protected and part of the system. So it really worked, you know, the party joined forces with the private sector.
That was the first thing. The second thing, I think, under Xi Jinping, who had been worried about how loose China had become under his predecessors, he wanted to make sure the party had a presence inside private companies.
Now, that had already been happening under his predecessors, but he really pushed it much, much harder to give the party a greater role in private companies. Every private company now will have a party committee inside it.
And in many cases, the party committee has become a shadow to the board. So that's, if you look at it a step back, you know, it's big state-owned enterprises.
They're owned by the government. The party controls their shareholding.
They can hire and fire their top executives. When you come to the private sector, the control is much more subtle.
The party has an insurance policy by having its eyes and ears inside every large company. And when push comes to shove on political issues, they can activate that.
So all of the big Chinese companies that are listed on stock exchanges in New York, London, and around the world, the party is not mentioned in any of their prospectuses. Does the party play a role in those big Chinese companies with international shareholders? Oh, absolutely.
This is one of the fun things I remember when I was researching my book. I just, you know, once you have time to actually look at things, you know, most journalists, most people are time poor.
I simply read all the prospectuses and looked for any mentions of the party. And there were virtually none.
They mentioned, some of them mentioned, you know, we're talking about global Fortune 100 companies, PetroChina, Sinopec, those sorts of companies. And within China, you know, behind the veil, these companies, the executives are hired and fired by the party.
When they went to the global market, this was left out of the prospectus. And I would go to the lawyers and I'd say, why didn't you put this in? And they said, well, you know, they don't really want us to put it in.
And of course, since, you know, the party is operating outside the law, there's no law you could point to, which would tell you explicitly what the party's power was. But of course, they do control the companies one way or another.
But once again, my book, as I said, is written about a decade ago. If you fast forward about 10 years now, under the direction set by Xi Jinping, increasingly, the role of the party is coming out

from the underground, if you like. And if you look at some of the articles of association of

these companies filed in Hong Kong with the local regulatory authorities, you can see now that the

role of the party is actually being written into those articles of association. In fact,

Thank you. Hong Kong with the local regulatory authorities, you can see now that the role of the party is actually being written into those articles of association.
In fact, the role of the party is becoming much more explicit. I don't know whether we've seen that in the US, but certainly it's come out across the border from China itself into Hong Kong.
So the party used to be comprised of workers and peasants. Who are the members now? Yeah, I've got a great PowerPoint presentation on this.
And, you know, it was a workers and peasants party, traditional communist party, you might think. In China's case, much more rurally based initially, as was the country, Chinese country itself.
China's only in recent times become, you know, the majority of population is classified as urban. But in any case, if you go back even to 1980, 1990 and the like, even beyond 1990, most of the members are classified as workers, as peasants or cadres, in other words, officials.
You fast forward to today and it's very different and that's the result of what we discussed earlier when Jiang Zemin in about 2000, 2001 allowed entrepreneurs, private business people to join the party. So since then the composition of the membership of the party has changed.
It's about one third now, professionals and business people, and trending further in that direction. The number of sort of share of worker peasants has fallen quite dramatically.
You know, the party has made a really concerted effort to get the elite to join up as they grow up. So if you go to one of the prestigious Chinese universities, you know, the equivalent of Yale or Harvard or something like that, the top two, three people in each class will be invited to join the Communist Party.
I mean, the Communist Party has a membership of about 90 million people, which makes it a kind of mass organisation, but it's really an elite style as a mass organisation, because some people join sort of ex officio, you know, if they're a head of a factory or in a company in a certain position, but the people the party really wants to make sure they have inside are the, you know, smart young people coming up through the ranks who are going to add most to China over their lifetime. So yes, the party has changed since 2000, less traditional, more focused on what the Chinese call society's productive forces.
And what are the benefits to people for joining the party? Well, I guess within China itself, it's access to the only important political network in the country. That's the first thing.
For some people, it would be prestige. For some people, it's a step into the bureaucracy.
You know, you'll hear a lot of debate these days about whether young people want to join the bureaucracy in China, but traditionally that's been a very prestigious profession in some respects because of opportunities of corruption, but also in some respects because of the power, respect and job stability you get from it. But in other words, you don't get to rise through the bureaucracy unless you're a party

member. So it's important in that respect.
In terms of being an entrepreneur, as we mentioned earlier, it's a form of political insurance or political protection. Within China itself, it's really hard to think of any downsides at all.
So what is the foundation then of the Communist Party's power? It's not democratically elected.

Ed? You know, I think that people in the West underestimate the legitimacy the Communist Party has inside China. And that's a performance legitimacy, if you like.
You know, since 1979,

1980, the economy has done very well. Most people, even today, now, you know, COVID-19

is a bit of an exception, but we'll see what happens next year. Most people's lives are getting better, and unlike in many democratic countries, you do the old survey, do you see your children having a better life than you? Then most people, I think, would say yes.
Now, it's difficult from, you know, a social science perspective to do the sort of polling you would have in the US and the like to judge this, but the sort of work that has been done on it, you know, Pew Research and that sort of thing, and work done by some academics in the US, Bruce Dixon, George Washington University, for example,

and others would suggest that the party has a lot of legitimacy

for two legs.

The economy and living standards have overall,

not everybody, got better, even if you look at the rich-poor gap,

firstly.

Secondly, the party has been extremely good at weaving

that narrative into the sort of nationalistic, patriotic narrative about China returning to its proper place at the top of the world or amongst great powers. And it's all true.
You know, they can see it. So I think that's where the, you know, I think many people, you know, I don't underestimate the political repression in China, but you're not going to understand China or the position of the Communist Party unless you also recognise how far China has become.

It's a separate question as to whether they can keep it up.

It's a separate question as to whether, you know, how the West should respond to China and the like.

But China of itself, since 1979, has done very well and far better than most developing countries. So the Communist Party you describe is very powerful.
But how communist is it? Well, it's communist in this respect, it's structurally communist or Leninist. First of all, if you look at the structure that Lenin set up to govern the Soviet Union, it was Lenin's great innovation to have a single party which covered the landscape, covered personnel, covered propaganda.
It controlled the army. The People's Liberation Army is the Communist Party's army.
It's not the country's army. So China copied that.
China refined it. China made it better and stronger.
So it's communist in that respect. Ideology is a more difficult question that I ponder a lot, and I don't think I've come to a very great answer.
In some respect, it's, you know, what is communism, Marxist-Leninism? You know, Marx wrote in the mid-19th century, is that really applicable? You know, China still talks about itself as a Marxist-Leninist state. It's certainly Leninist.
I don't know what is Marxist about it, particularly because it's gone through a period of such a robber baron capitalism. So in many respects, it's the ideology of power.
I guess it's a statist ideology, which would be left-wing, not necessarily communist. I think it's more in the structure of the party and that sort of arrogance of Leninism, which is the ruling party is the vanguard, the leading force in all forms of society, has the right to dictate how that country is governed.
Or as the Chinese say, it's the verdict of history. We won and we're going to run the place.
I think the figures of, you know, the sort of pantheon of past ideological communist leaders.

I can remember the first time that I went to China in 1987, that was around the time of National Day. And at that time in National Day in China, there used to be, every year they would put up four pictures in Tiananmen Square, They big towering posters, photos or art drawings of Marx, Engels, Lenin and Stalin.
Now, it was really striking for me. I remember that.
The Chinese used to joke these four pictures together. If you can picture those four men in your mind, they used to call it the history of shaving because they all had a lot of facial hair one way or another.
But, you know, it's more the totemic sort of collection of totemic figures and history as much as pure ideology, because a lot of the ideology has obviously gone out the window with the private sector. What role does nationalism play? Well, I think it's, you know, it's essential.
As the economy slows, it might become, have a much greater role. The Communist Party is very clever.
They sort of have managed to collapse the categories between China and the Communist Party itself. You know, I'm critical of the Communist Party.
That doesn't make me anti-China. But of course, that's how they see it.
And that's how they present it, by collapsing those categories. And so in other words, if you are going to love the motherland, you're also meant to love the Communist Party as well.
And we may laugh at such rhetoric. But if you grow up in China, with all the sort of rituals of patriotism and the like, you know, flag raising at school, if you grow up in China and you'll read on a constant historical diet about China being humiliated by the West Western countries and Japan are now pridefully bouncing back, if you grow up in China and you see, you know, all these stories about the West trying to keep China down, even though China is becoming more powerful, then naturally you probably are going to be more and more nationalistic and patriotic.
I mean, people in most countries are prone to nationalism and patriotism, but in China, I think it's a much, it's a very, very powerful sentiment and it's not something you'd want to underestimate, however it's been constructed. Okay.
Let's talk a little bit about Xi Jinping and his interests. You talked about the Soviet Union, but one of the most formative events you've written in his life was the fall of the Soviet Union.
What impact did that have on Xi Jinping? Yes, well, it was the most formative event, both for Xi Jinping and also, as we have often read, for Vladimir Putin as well. And I think they had similar responses.
Famously, Putin, for example, I think was a KGB officer in Dresden in East Germany. When the Berlin Wall started to come down, he tried to get in touch with Moscow.
And he was told, as the legend has it, Moscow is silent. In other words, Moscow had nothing to say.
Nobody in the Soviet Union was standing up against the collapse of the Soviet Empire. And that explains a lot about Putin today.
Xi Jinping has had a lot of, I would say, the same reaction. I think he said, you know, when the Soviet Union was collapsing, nobody was man enough to do anything about it.
That sounds like a very Putin-esque type comment. The concern about the collapse of the Soviet Union in China predates Xi, to be fair.

In the 90s, there was a cottage industry of studies, scholarly works, even films made about the collapse of the Soviet Union, why that had happened and the dangers that entailed for China. And all officials had to read those books and discuss the issue and watch the films and the like.
What's really remarkable, I thought, was that this collapse of the Soviet Union

in 1991. had to read those books and discuss the issue and watch the films and the like.
What's really remarkable, I thought, was that this collapse of the Soviet Union, 91, 92, whatever date you want to put on it, 20, 30 years or 25 years later, more than 20 years later, when Xi Jinping comes to power 2012, 2013, he does it all again. He reinstitutes a whole raft of studies and what the Chinese call study sessions, in other words, officials taking official time off work to discuss these issues, books, movies, they all had to watch, once again, warning about the sort of the dangers of the collapse of the Soviet Union.
What happened? The party got weak. Ideology got weak.
People were allowed to go off and do their own thing. Corruption set in and the like.
You know, most of the focus has not been so much on what we think distinguishes China from the Soviet Union. In other words, China managed their economy better.
They're focused on the lack of ideology, And Xi has really drummed that in, in his eight years in power. And, you know, from his perspective, it's probably working, you know, the China is, the Communist Party is stronger than ever.
And in fact, I think now that the Communist Party has almost outlasted the Soviet Union as a governing entity, both over 70 years, a year or two ago. They're constantly worried it won't last and that's why they're constantly vigilant against it.
I might say this is a, you know, a defining feature of China. You know, I think it was Andy Grove from Intel who said only the paranoid survive.
That's very much their view as well.

They're constantly on the edge of their seats, warning about threats to their power.

And I think it's probably served them well because, you know, many people have predicted

the collapse of the Chinese Communist Party rule, but it hasn't happened at all.

So as you look at China today, what do you see as China's strengths and its weaknesses? Well, China's strength is its economy. I still think it has, you know, some way to grow.
They've dragged themselves up the sort of global, you know, tech chain in a way that many people did not foresee. That's very powerful.
That's a strength. I think China's government is very good at managing its own economy.
There's a lot of debate about this, but certainly China, with a closed capital account, in other words, their currency doesn't float. It's not a global currency.
They're very skillful at pulling levers to do this and that and to get out of this hole and that one so I think that's a strength you know their bureaucracy I think is pretty formidable and I think the unity nationalistic unity I think don't know what's going to happen there is pretty formidable as well as China looks outward to all its myriad of territorial entanglements and confrontation with the US and the like. Being able to sort of snap your fingers in China and order the populace or order various institutions to do things, I think is pretty powerful.
You know, the sort of party mechanisms are pretty powerful in China as well. And weaknesses, including the one-child policy, what do you see as China's major weaknesses? Undoubtedly, the demographic train wreck is a big weakness.
It's one reason why China is rushing so hard now because they worry that they haven't got much time before that descends on them. I might say that, you know, we're just at the start, in theory, of the Asian century, but every major Asian country, Japan, South Korea, Taiwan and China, all are demographic disasters in that respect.
So demography is a problem. I think the pollution, water, pollution, water, harder to measure, the environment generally, that's looms as a big problem, particularly water.
I think also, you know, the rest of the world is kind of finally woken up to China a bit. You know, in Australia, we've had a lot of problems in our bilateral relations with China.
But I just try to remind people here, because we're rather distant and parochial country, you know, we kind of think it's all about us. It's not really all about us.
You look at the US, most importantly of all. You look at Canada, caught up in the Huawei issue, things are changing there.
You look at the UK, they're rapidly revising their relations with China. You look at Japan, things were getting better with Japan, but now that's gone off the boil again, particularly because of COVID-19 and Hong Kong.
You look at the way Europe is reassessing its relations with China. You know, so I think, you know, I think there's starting, you know, Trump, of course, detests alliances, thinks they're a drain on America, so therefore doesn't value them, doesn't use them.
If Mr. Biden wins, presuming that's what happens, then, you know, the ability to construct a much more concerted global sort of pushback against China, in other words, stop playing their games, that could be a bit of a weakness as well.
Xi Jinping, and certainly a lot of people in China think this,

it's kind of overreached, you know. I mean, India is another one I've forgotten.
That was the other one I was trying to think of. I've just had a small border war with India.
Far from calming things down, you know, the Chinese official media and propaganda outlets keep reminding India, behave, don't you dare do that again. Not in your interest to do this, that or the other.
Well, kind of people are getting sick of this in many, many countries. It's hard for China to recalibrate because Xi Jinping is setting the direction of the top unless he changes, nothing changes, which is not, by the way, a very optimistic prognosis for the Asia Pacific or the Indo-Pacific.
But I think that could turn out to be a bit of a weakness as well. Having said the economy is a strength,

there's a lot of debate about this. It's hard to be definitive about the future of the Chinese economy.
It has great strengths, but there's also weaknesses. The debt bomb, we don't really, you know there's many hidden secrets layman brothers type secret

you economy. It has great strengths, but there's also weaknesses.
The debt bomb, you know, we don't really, you know, there's many hidden secrets, Lehman Brothers type secrets hidden, I think, buried in different sort of corporates in China. Sooner or later, a lot of that's going to come to the surface.
They're pretty good at managing that stuff. But, you know, their economic model has to change.
I think they're aware of that, but that could be a weakness

if that doesn't change as well.

Yes.

Looking ahead, what do you think China will look like

in 10 or 20 years?

Well, it's such a hard question, that,

and I feel you can almost make up any answer

and find an argument for it.

But it's going to be older.

I hope it's not older and angrier.

The trouble with China is the more successful it is, the more vengeful it seems. And I would like China to be successful and happy, not successful and angry.
And I think that's the key issue is whether they bask in their success or whether they take it out on other people. But the one certainty, as we mentioned earlier, is it would be a lot older and they'll have a lot more strain on their natural resources.
Can I ask you, what are three key takeaways from our conversation today? Well, I think the beginning of wisdom with China is just to recognize how different their system of government is. That's important.
How protective the CCP is of their system of government. So in that respect, rivalry with the US is not just about trade, geopolitics, military and tech.
It's a contest of political systems. I think that's very important.
I think it's important and the US will make up its own decisions about what it wants to do with its own sort of global footprint and national resources. But, you know, most countries in Asia can't take China on their own, even Japan.
And I think without the US, the world is going to look very different. And if really the US leaves Asia, then the US leaves the world, because you won't have credibility anywhere.
I think that's the other important takeaway. Does the US believe in alliances or not? And if it doesn't, as Mr.
Trump tells us, then I think it's really a Chinese world. Thank you very much, Richard, for a very far-ranging and fascinating discussion.
This was terrific. Thank you very much, Len.
And I very much appreciate you having me on. If you enjoyed today's episode, you can listen or subscribe for free on Apple podcasts or wherever you listen.
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