How China's Leaders Think: the Inside Story of China's Past, Current

China’s development, at least in part, is driven by patriotism and pride. . .The Chinese people have made great contributions to world civilization. . . Our commitment and determination is rooted in our historic and national pride. . . It’s fair to say that we have achieved some successes, [nevertheless] we should have a cautious appraisal of our accomplishments.We should never overestimate our accomplishments or indulge ourselves in our achievements. . .We need to assess ourselves objectively. . . [and aspire to] our next higher goal. . . [which is] a persistent and unremitting process.

Xi Jinping

Politburo Standing Committee member

In the face of complex and ever-changing international and domestic environments, the Chinese Government promptly and decisively adjusted our macroeconomic policies and launched a comprehensive stimulus package to ensure stable and rapid economic growth. We increased government spending and public investments and implemented structural tax reductions. Balancing short-term and longterm strategic perspectives, we are promoting industrial restructuring and technological innovation, and using principles of reform to solve problems of development.

Li Keqiang

Politburo Standing Committee member

I am now serving my second term in the Politburo. . . President Hu Jintao’s character is modest and low profile. . . we all have the highest respect and admiration for him—for his leadership, perspicacity and moral convictions. . . Under his leadership, complex problems can all get resolved. . . It takes vision to avoid major conflicts in society. Income disparities, unemployment, bureaucracy and corruption could cause instability. . .This is the Party’s most severe test. In seven years under President Hu, the CPC has successfully maintained stability while pushing forward with reform and opening-up.

Liu Yunshan

Politburo member; Head, CPC Publicity Department

China’s democratic development should cater to its own conditions. . . the American political system should not be used to judge the Chinese political system. . . We have our own models and goals for political reform. . . We will do what is in the best interests of our people—which surely includes the development of democracy and the rule of law. . . China’s political and legal system is certainly not perfect, and we are certainly not satisfied. This is why President Hu stresses advancing intra-Party democracy and democracy of society. . . Reformers must take risks. . .The people must decide.

Li Yuanchao

Politburo member; Head, CPC Organization Department

Our growth model of 30 years, which enriched us rapidly, has come to the end of its cycle. . . . During the economic downturn, we’ve reached consensus on the need to transform our developmental model. . . We are determined to develop Guangdong’s capability for independent innovation. . . .We’re not interested in ‘facelifts’.

Wang Yang

Politburo member; Party Secretary, Guangdong Province

How China should develop is a hard issue. China has achieved great economic success, but with many severe problems arising as a result— such as widening income gaps and increasingly strained human relationships. So, regarding urban development, the issues awaiting solution are how to produce a harmonious environment between human beings and nature, and among human beings themselves.

Yu Zhengsheng

Politburo member; Party Secretary, Shanghai Municipality

We must have passion for our work, enthusiasm for our career, and care for our people. . .We stress dedicated work, honest performance, innovation, and unity among our officials. We will go nowhere if we ignore reality or fear innovation. . . I’m not interested in ‘reports’, only results.

Zhang Gaoli

Politburo member; Party Secretary,Tianjin Municipality

How China’s Leaders Think

The Inside Story of
China’s Past, Current and
Future Leaders

Revised Edition

Robert Lawrence Kuhn

John Wiley & Sons (Asia) Pte Ltd

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Contents

About the Author

vii

ix

Acknowledgments

Overview: How China’s Leaders Think

xiii

PART I GUIDING PRINCIPLES

1

1. Pride

3

14 19 27
2. Stability 3. Responsibility 4. Vision

PART II THINKING REFORM

35

5. Subjugation, Humiliation, Oppression 6. Reform’s Epic Struggle
37 51

7. Tiananmen and Thereafter

66

8. What’s a “Socialist Market Economy?” 9. How Communism Adopted Capital and Ownership
10. The Hidden Power of Jiang Zemin’s “Three Represents”
73 93
105
11. The Driving Relevance of Hu Jintao’s “Scientific Perspective

on Development”

120

131 143 152 161 172 180 187
12. Snapshots of Economic Reform 13. The Countryside is Core 14. Rebalancing Imbalances 15. How Reform Permeates All Society 16. Here Come the Lawyers 17. Facing Up to Corruption 18. Values and the New Social Contract

CONTENTS

vi

PART III DOING REFORM

201

19. Provincial Pictures of Reform

203

20. Regional Dragonheads: Pudong (Shanghai) and

Binhai (Tianjin)

216

225 244 253 266 276 281 290 308 320 331 344 361 379 391
21. What to Do with State-Owned Enterprises? 22. The Private Business Revolution 23. Banking Reform:The Largest Assets and Greatest Risks 24. Reforming Science & Technology with Sparks & Torches 25. Education:When Reform and Tradition Clash 26. Healthcare and Medical Reform: One Doctor’s Story 27. Media and Publishing Reform: Hidden in Plain Sight 28. How Telecommunications and the Internet Changed China 29. Diversity of Culture; Question of Censorship 30. How China’s Leaders Love Film 31. Why Religion Became Important 32. Foreign Policy Breaks Free 33. What does Military Reform Mean? 34. Telling China’s Story to the World

PART IV REFORM’S FUTURE

405

35. China’s Future Senior Leaders 36. China’s New Kind of Leaders 37. China’s Economic Future: How Far Can It Go? 38. Guangdong Visions
407 426 447 459 473 491 507
39. China’s Political Future: Is Reform Real? 40. China Threat or China Model? 41. China Reflections and Visions

Index

521

About the Author

Dr.Robert Lawrence Kuhn is an international investment banker,corporate strategist, China expert, and public intellectual. Since 1989¹, he has worked with China’s leaders and advised the Chinese government (economic policy, industrial policy, mergers and acquisitions, science and technology, media and culture, Sino-U.S. relations, international affairs, and international communications). He has visited more than 50 cities in over 20 provinces and regions in China, working with leaders in government and business.
Dr. Kuhn advises leading multinational companies, CEOs and C-Suite executives, on formulating and implementing China strategies (sectors include financial services, technology, energy/resources, industrial, media and entertainment, and consulting), and he works with major Chinese companies on structuring their capital markets financings and M&A activities. Specializing in M&A for over 30 years, Dr. Kuhn was president and co-owner of the largest M&A firm in the U.S. representing middle-market companies (which he sold to Citigroup in 2000).
Dr. Kuhn advises and works with China senior leaders on special projects.

He is recognized as the author of The ManWho Changed China:The Life and

Legacy of Jiang Zemin, a precedent-setting biography—the first of a living Chinese leader published in China—which was China’s best-selling book of

2005. He is the author of two event-marking books: China 30 Y e ars : A G reat T r ansformation Of Society (2008, in Chinese), which commemorates China’s

30th anniversary of reform and opening up and emphasizes President Hu Jintao’s political philosophy and policies; and How China’s Leaders Think (this book, first published in October 2009), which commemorates China’s 60th anniversary and focuses on China’s new (“Fifth”) generation of leaders (conversations with ~100 leaders), including Vice President Xi Jinping. Dr. Kuhn advised then Zhejiang Party Secretary (nowVice President) Xi Jinping on his U.S. visit (2006); he wrote exclusive articles with Politburo Member Li Yuanchao on China’s political reform (Business W e ek, 2008) and the Party’s commitment to learning (Forbes, 2010), and with Politburo Member WangYang on transforming Guangdong Province (Business W e ek, 2009).
Dr. Kuhn is the author or editor of 25 books on business strategy, finance and investment banking, including Dow-Jones Irwin’s seven-volume

ABOUT THE AUTHOR

viii

(5,500-page) Library of Investment Banking and China’s Banking and Financial Markets: The Internal Research Report of the Chinese Government.

Five of his books have been published in China, including the first on investment banking (Mainland China).
Dr. Kuhn is often in the international and Chinese media. He appears on
CNBC, BBC, Euronews, Bloomberg and China CentralTelevision (CCTV);

he writes for Bloomberg Business W e ek, Forbes , P eople’s Daily and Xinhua News Agency; and he is quoted in numerous publications, including The W a ll Street Journal, The Ne w Y o rk Times, USA T o day, and The Los Angeles Times. He is

featured essayist in Chief Executive magazine and senior international advisor

of Global People magazine (published by People’s Daily).

Dr. Kuhn appears regularly as the senior China commentator on
Euronews, the largest television and new media news network in Europe (also prominent in Russia, Africa and the Middle East), and as the senior international commentator on CCTV News, which is broadcast internationally in over 100 countries as well as throughout China. Dr. Kuhn created, co-produced, wrote and presented CCTV News’ official six-part television series on Expo 2010 Shanghai and the future of Shanghai (“Expo’s Meaning,

Shanghai’s Mission”).

Dr. Kuhn was profiled in Barron’s (2010) and on CCTV Channel 1’s
“Focus Talk” (2009), and he is one of the “China Visionaries” in the tenepisode television series produced by Shanghai Media Group (Dr. Henry Kissinger and Dr. Kuhn are the only Americans). Dr. Kuhn is senior advisor to CCTV and Xinhua News Agency.
Dr. Kuhn is chairman ofThe Kuhn Foundation, which produces Close r T o
T r uth, the PBS / public television series (which Dr. Kuhn hosts) on the meaning of state-of-the-art science and the relationship between science and philosophy/theology (www.closertotruth.com). The Kuhn Foundation also sponsors projects facilitating communications between China and the world.
Dr. Kuhn has a B.A. (Phi Beta Kappa) in Human Biology from Johns
Hopkins University; a Ph.D. in Anatomy and Brain Research from the University of California at LosAngeles (UCLA),and an S.M.in Management (Sloan Fellow) from the Massachusetts Institute of Technology (MIT).

Endnote

1

Personal Note: After theTiananmen crackdown on June 4, 1989, I determined not to return

to China. Over a year later, during the summer of 1990, I co-chaired a conference at UCLA on “Generating Creativity and Innovation in Large Bureaucracies” and invited Professor Kong Deyong of the State Science and Technology Commission, whom I had met in early 1989 on my first visit to China. It was Professor Kong, who later became Science and Technology Counselor at China’s Mission to United Nations, who convinced me to come back to China to support those, particularly in the science communities, who sought reform and opening-up. I returned in the fall of 1990.

Acknowledgments

When China celebrated the 30th anniversary of reform and opening-up in December 2008, I was about to celebrate the 20^thanniversary of my first coming to China in January 1989. The invitation had come from Dr. Song Jian, state councilor and chairman of the State Science and Technology Commission, who asked a small group of American investment bankers to advise Chinese research institutes in their first, fledgling efforts to adapt to the market economy. A scientist and a gentleman, as well as a senior leader, Dr. Song is an inspiration to all who know him and it is my honor to acknowledge him first.
I was hooked from the moment I arrived. The Chinese had a fresh, if naïve, enthusiasm; they were eager to learn, and ready to improve their civic and material lives. I knew then that China’s culture, history, politics and economics would soon come to matter a great deal to the world. What I didn’t know then was how much China would come to matter to me.
In recent years, especially since the financial crisis of 2008–2009, I have been commentating on China—appearing on CNBC, BBC, Bloomberg,

others; writing for Business W e ek , F orbes , C hief Executive , X inhua News Agency,

others. Beginning in 2010, I am appearing regularly on China Central Television (CCTV News), where I often explainWestern or American views, and on Euronews, where in the context of current or breaking news, I describe and analyze Chinese perspectives—often, extending the theme of this book, explaining “how China’s leaders think.” I am privileged to facilitate communications between China and the world.The need has never been greater.
There are many people to whom I give credit for this book, but one stands above all, my long-time friend and partner, Adam Zhu. I met Adam on my first trip to China when Adam was assigned by the State Science and Technology Commission to be my guide. It has been Adam’s vision, acumen, creativity, intensity, perseverance, commitment, dedication, and all manner of innovative ideas that has made my work in China and this book possible. His understanding, insight and special sensitivities are appreciated at the highest levels in China. His political knowledge and savvy instincts make

ACKNOWLEDGMENTS

x

things happen, even “impossible” things. If books like films, had “producers,” Adam Zhu would be credited as this book’s “producer.”
To describe all the challenges that Adam and I have faced since 1989, and all the adventures we’ve shared, would require another book.We are committed to China and its future—to help in our small way China’s historic reform and development; to tell the true story of China to the world.
I am appreciative of the advice and counsel of Minister LiuYunshan, head of the CPC Publicity Department, and Minister Li Yuanchao, head of the CPC Organization Department; and MinisterWang Chen, head of the State Council Information Office; Minister Leng Rong, head of the CPC Party Literature Research Center; Minister Cai Wu of the Ministry of Culture; Zhao Qizheng, chairman of the Foreign Affairs Committee, Chinese People’s Political Consultative Conference (and former minister of the State Council Information Office); and Yang Yang, head of the International Cooperation Bureau, Chinese Academy of Social Sciences. I appreciate the research of Yang Mingwei of the CPC Party Literature Research Center.
I am in debt to all those whom I interviewed for this book. I have learned a great deal from them and I have tried to represent their views faithfully and fully. I am honored to be in trust of their memories.
I appreciate the wise advice and insightful (and sometimes critical) suggestions of Shanghai-based writer Duncan Hewitt. I appreciate the steadfast, all-around help of David Cao, my assistant in Beijing, who somehow, singlehandedly at night, did most of the translations.
I thank the team at John Wiley & Sons, particularly C.J. Hwu, for their content commitment and publishing excellence.
Finally, the encouragement and love of my family—Dora, Aaron, Adam,
Daniella, and Mother Lee—mean a great deal.
Though I have received a good deal of advice, I take full responsibility for all ideas, opinions, errors and mistakes. The book is anchored by exclusive interviews and special (though limited) access in China, which I appreciate but for which I made no concessions. I received many suggestions—some helpful, some contradictory—but always with unambiguous agreement that all editorial decisions would be mine and mine alone.
I am proud to be considered an old friend (lao pengyou) of China, a high compliment indeed, achieved after these two decades of learning and living. I dedicate this book to those good people, particularly my friends and colleagues, whose commitment, foresight, persistence, and courage are helping to strengthen economic, social and political reform in China and to help China understand the world and the world understand China.
Those who have taught me to understand and appreciate China come from all walks of life. They include farmers, soldiers, policemen, drivers, waiters, janitors, students, graduate students, factory workers, office workers, migrant workers, retired workers, laid-off workers, children, teenagers and grandmothers, as well as leaders, ministers, officials, executives, managers, scientists, professors and scholars. I have had the privilege of visiting more

ACKNOWLEDGMENTS

xi

than 40 cities in China, from Guangzhou to Harbin, Shanghai to Lanzhou, Qingdao to Kunming,Tianjin to Chengdu. My activities in China have been an overwhelming life experience.
Some years ago, after finishing a late-night meeting in Beijing, I was asked when do I take vacations, since my Chinese friends knew that I had intense business and media lives in the U.S. “This is my vacation!” I said.
I wasn’t kidding.To me, working in China, is energizing and exhilarating, even when frustrating and challenging. There is an infectious enthusiasm among the Chinese that is refreshing. Some may call my zest naïve, but I am invigorated by the Chinese spirit. The fact that personal relationships, not just business competitiveness, still play a role in commerce I find satisfying—and I hope that these Chinese ways will not fall fast victim to the market economy. Perhaps those special “Chinese characteristics” can continue to embed respect for traditional values such as honoring old friends.
To conclude, I would like to express my appreciation to some of these who, over the years, have helped me to learn and love China and to understand the Chinese people.They are friends, colleagues, and associates; some I have interviewed formally, others informally. Others I have appreciated their insights, whether in person or in writing. Still others have facilitated and supported my work, which was not always simple or risk free. Although the list is long—and I fear I am forgetting some people—I am pleased to thank all who have assisted Adam and me, in our limited way, to communicate the real China to the world: Xi Jinping; Li Keqiang; LiuYunshan; LiYuanchao; Wang Yang, Yu Zhengsheng; Bo Xilai; Zhang Gaoli; Wang Huning; Meng Jianzhu; Zeng Peiyan; Sun Jiazheng; Sheng Huaren; Song Jian; Chen Jinhua; Yan Mingfu; Wang Chen; Leng Rong; Wang Guangya; Cai Wu; Liu Binjie; Zhao Qizheng; Cai Fuchao;Wang Zhongwei;TengWensheng; Zheng Bijian; Liu Mingkang; Li Zhaoxing; Quan Zhezhu; Zhou Qiang; Wu Jichuan; Tie Ning; Huang Jiefu; Li Bing; Lu Zhangong; Zhao Hongzhu;Yuan Chunqing; Lu Hao; Xu Guangchun; Han Zheng; Tu Guangshao; Ai Baojun; Hu Wei; Feng Guoqin; Li Hongzhong;Wu Xinxiong;WangYongsheng; Ma Xuming; Wang Weiguang; Li Yining; Wu Jinglian; Lu Baifu; Wang Huijiong; Gao Shangquan; Xing Bensi; ChenYuan; Sun Zhijun; Jiao Li;Wei Dichun; Zheng Hongfan;WangYibiao; Shi Rende; Zhao Xuewei;Ye Xiaowen; Cai Mingzhao; Lu Wei; Wu Jincai; Mi Ligong; Zhao Peng; Wang Guoqing; Qian Xiaoqian; Jiang Weiqiang; ZhangYanbin; Liu Zhengrong; Li Xiangping; XuYing; Wu Jianmin; Zhang Yesui; Zhou Wenzhong; Zhang Yan; Lan Lijun; Wang Baodong; Xiao Tian; Cai Zhenhua; Cong Jun; An Wenbin; Xu Lin; Zhang Jingan; Jin Xiaoming; Zhao Shaohua; Ding Wei; Dong Junxin; Jia Tingan; Liu Yongzhi; Xiong Guangkai; Li Zhen; Yang Guhua; Bao Guojun; Guo Zhigang; Bao Bing; Wen Bing; Wu Xiaoling; Zhao Shi; Zhang Haitao; Tian Jin; Zhang Pimin; Zhu Hong; Shao Ning; Ni Di; Du Daozheng; Zhao Huayong; Zhang Changming; Hu En; Li Xiaoming; Gao Feng; SunYusheng; LiTing; Li Jian; ZhuTong; Jiang Heping;WangWenbin; Guo Zhenxi; Zhang Haichao; Jiang Mianheng; Fang Xinghai; Wang Luolin; Yang Yang; Cheng