The Verdict of History

It is the story of Sanlu and its chairwoman Tian Wenhua that helps encapsulate the essence and importance of today’s China. Richard McGregor, the author of “The Party: The Secret World of China’s Communist Rulers,” writes with astonishing detail and powerful insight about the company that began as a local dairy in Shijiazhuang and transformed into a milk-marketing giant – a company for The Party to be proud of. For fifteen years, Sanlu’s steady and entrepreneurial rise helped it become the top seller of baby formula in China. And as Sanlu grew in power, so did Ms. Tian: in 2005, she was named the ‘Most Respected Entrepreneur of the Chinese Dairy Industry’, a title that had as much to do with her powerful position in China’s communist party as it did with her position as chairwoman of Sanlu. You see, The Party began grooming Ms. Tian for a career in government as soon as her business acumen was evident.

So when stories began circulating in early 2007 that infants fed Sanlu’s formula were producing red urine and some were unable to produce any urine at all due to kidney failure, The Party knew it had a problem on its hands. In what McGregor describes as a ‘baleful coincidence’, the stories began circulating at the same time the propaganda department was tightening restrictions on reporters in a pre-Olympics crackdown. Therefore, rather than the scandal leaking out in the press and on television, the opposite became reality: breathless reporting about the high quality products being produced at Sanlu and the company’s impeccable service to the people of China since its founding. As the horror-stories continued to mount, however, some in the press attempted to report the truth only to be blocked by the local arm of the propaganda department. Sanlu’s board wanted to recall the tainted products; communist officials in Shijiazhaung overruled them. The problem was to be kept a secret. The Party could not suffer through controversy during the Olympic Games. But finally, on September 9, the New Zealand ambassador to Beijing alerted central government authorities to the undeniable truth and the propaganda arm of The Party went into full crisis communication mode.

Three individuals were swiftly executed for their role in distributing the tainted formula. The Mayor of Shijiazhaung was fired and the head of the food inspection service was forced to resign. For her role Ms. Tian earned a life sentence and victims were, essentially paid-off for their cooperation – their silence. As Mr. McGregor explained, “Other than passing references to Ms. Tian’s position as the party secretary, the Communist Party’s role was barely acknowledged at all.” In the end, a Party that helped build a company into a behemoth also helped destroy it – quickly and quietly.

Mr. McGregor, a reporter for the Financial Times, and the publication’s former China bureau chief, does a superb job of explaining the mind-numbingly complex intricacies of The Party machine and its role in the incredible economic explosion that has vaulted China into the world’s second-most powerful economy. If one looks at the Fortune 500 list today, many state enterprises in China hover near the top of the list when little more than a decade ago those same state companies didn’t even make the list.

The Party makes no apologies for its bold and borderline reckless forays into foreign markets, like its economic successes in Africa and its 2005 bid for Unocal, a company headquartered in California with assets in the United States and Asia. The Party’s success lies in its ability to insulate its state enterprises, shielding companies from foreign competitors while at the same time inviting the kind of foreign investment China shunned under the old Party of the 70s and early 80s. Additionally, The Party is embracing the entrepreneurial and innovative instincts of its people like never before. For instance, Nian Guangjiu, a man jailed on three separate occasions, the first time, in 1963, for operating a fruit stand in his own home, is now viewed as a hero and man to be respected for his entrepreneurial drive and incessant ingenuity. In 1984, Deng Xiaoping decided The Party must celebrate his salesmanship, so, by the time Mr. McGregor sat down to interview him in 2008, Mr. Nian “had morphed from subversive capitalist into a state-sponsored business celebrity” and an example of The Party’s willingness to relax controls on economic matters all while tightening them on political ones.

Perhaps there is no better example of China’s tight political controls than the Central Organization Department. Centrally located just west of Tiananmen Square, the Department is not unlike the human resource management arm of any organization, public or private – except that it’s reach is unending. Anything related to the hiring, firing, or transferring of people within The Party or any state run enterprise is the business of the Department. Mr. McGregor – in perhaps the most chilling section of his book – explains the Department’s responsibilities this way:

“The best way to get a sense of the dimensions of the department’s job is to conjure up an imaginary parallel body in Washington. A similar department in the US would oversee the appointment of the entire US cabinet, state governors and their deputies, the mayors of major cities, the heads of all federal regulatory agencies, the chief executives of GE, Exxon-Mobil, Wal-Mart and about fifty of the remaining largest US companies, the justices on the Supreme Court, the editors of the New York Times, the Wall Street Journal and the Washington Post, the bosses of the TV networks and cable stations, the presidents of Yale and Harvard and other big universities, and the heads of think-tanks like the Brookings Institution and the Heritage Foundation.”

Mr. McGregor is an Australian now living in London and one gets the sense that although he misses reporting in China, he is truly ambivalent about its future. He is brutally honest about the regressive and onerous controls in China, while staying away from too many democratic comparisons because, as he makes clear, The Party and the people of China are not interested in western democracy – the pride and spirit of China is distinctly Chinese. The Chinese people live in a country of rich history and incredible wealth that is forward-looking. Nothing will get in the way of China’s rise, and they’re proud of that. On NBC’s 30 Rock, Liz Lemon is slowing coming to grips with the idea that she will have to settle for a Brit she keeps bumping into on the streets of New York City. The Brit, an uptight and recently unemployed man, bemoans the Olympics coming to London because, as he explained it, “[W]e’re not prepared, Liz. Did you see the Beijing opening Ceremonies? We don’t have control over our people like that!” The Party doesn’t control the people of China. Rather, as Mr. McGregor puts it, The Party “harnesses and channels” the people.

In the coming decades, as China is forced to confront issues detrimental to its economic success – intellectual property rights and a level economic playing field being two – one must wonder whether the legitimacy the economy provides The Party is sustainable. As The Party and its people look outward and upward, will something be missed at home? And as the US continues moving forward despite an economic downturn that, mercilessly, seems to have no end, and looks toward – either longingly or loathsomely – a presidential election year, the rising dragon that is China must be handled with a deft touch.


[photo credit: flickr]