by Junheng Li
What they do not see is the lagging “software” beneath the surface. China scores very low when it comes to the rule of law, accountability, governance, and most importantly the quality of its citizenry. China’s educational system has failed to produce either an honorable or an innovative society.
Investing in a business is ultimately about investing in the people who run it. I often say to investors that a business is first and foremost about its managers. The integrity and quality of management should be an investor’s top concern, above all other factors including the business model, market opportunities, and competitive landscape. If the manager is a crook or has a defective character, none of the other factors will make the target a good investment.
China has succeeded based on a single economic mode, that of mass production of low-value manufacturing products. But the country’s changing demographics make this system increasingly unsustainable, as China’s aging population and rising wage costs eat away at the abundant supply of cheap labor. To continue growing, the country needs to transition to a more value-added, service-oriented economic model. In order to do so, however, China needs stronger institutions and more dynamic and innovative workers.
China’s ultracompetitive education system, which prioritizes propaganda and memorization above critical thinking, is ill suited to meeting that demand. The country needs to undergo major institutional changes—some of which will compromise the state’s tight control over its citizens—to produce a labor force compatible with the advancement of the economy.
The process of upgrading China’s software, or its human capital, must start with the educational system. In the years since I left China, the overall structure and content of a Chinese education has remained basically the same, despite the dramatic changes in Chinese business and society.
Instead of encouraging independent thinking, education is first and foremost a device for drilling party ideology into impressionable minds. The stories told in Chinese textbooks exemplify and glorify the party—how it takes care of its people, the way a parent does for a child, and how society should therefore be appreciative and obedient, ready to put self-interest aside when the party asks.
One story that recently went viral on Chinese social media—a hypothetical comparison of how Cinderella would be taught in China and in the West—demonstrates the rigid and painful way literature is taught in Chinese schools. In the Western school, students would be encouraged to speak their minds after reading the story. Some of the kids would remark that Cinderella’s stepmom was horrible, while some would say the lesson was that a girl should dress up so that she can catch the attention of a prince. Others would notice that at the end of the story everything, from the mice to the pumpkins to the rags, turned back to its original form, except for the glass slippers—a potential error on the author’s part. Then they might put on a play based on the story. The kids would come away from the lesson with the impression that learning is fun.
In comparison, the teachers in Chinese schools would divide the story into a few major parts, boiling down the events of each into a thesis that students could memorize for a test. One thesis would be that capitalistic society is superficial and divided by class—after all, Cinderella had to exchange her maid’s rags for a ball gown in order to receive love. If the students were to question this conclusion, the teacher would tell them not to worry because other answers wouldn’t show up on the test. The students would all soon be so bored, they would fall asleep in the middle of the lesson.
Teaching ideology in itself is not a problem, but dictating which idea is right or wrong is a problem. Every school in the world teaches some sort of ideology. American schools normally prioritize freedom of choice and individualism, for example. They encourage students to dare to be different, to think outside the box, to take risks, and to lead. The products of those ideologies include some of the world’s greatest innovators, such as Bill Gates, Mark Zuckerberg, and Steve Jobs.
My sister Jasmine has a toddler, Audrey, about whose education she is already agonizing. Living in the modern, international city of Shanghai, she sees that more skills are needed in life than just rote memorization and militaristic discipline. She is concerned that Chinese schools will all but extinguish Audrey’s sense of creativity and passion and has begun thinking about enrolling her in an international school.
To assist my sister with her decision, I called up a close friend who is a senior executive in China’s private education industry to get her opinion. A mother of two teenagers, she cited the government’s conformist ideology as a major factor influencing her choice to switch her children out of the local public schools to privately run international schools featuring a liberal arts curriculum—an increasingly desirable option for Chinese parents who have the required foreign passport and can afford the tuition, which can range in the tens of thousands of U.S. dollars.
“The government worries that if we don’t build a universal Communist ideology, their control over citizens will be significantly weakened,” she told me. “So Chinese textbooks are designed to indoctrinate students to serve the party—not for our children’s edification. That’s my main problem with the Chinese system.”
The government, represented by the Ministry of Education, still holds onto Marxist and Maoist teachings because it is afraid to part with the bygone era—parting with it would mean reform, and the party inherently fears reform. The party also wants to ensure that certain lessons regarding loyalty to it are continually enforced, especially among liberal, imaginative college kids, such as those who led the Tiananmen protests.
The members of the younger generation are bored of these tedious lessons, but they do not complain. Since their educations have been dictated to them from an early age, few feel they can protest; nor do they know how to protest. They come away from these lessons believing that the purpose of education is to pass tests, no more, no less. Education is a series of hoops to jump through, not a process of self-improvement or self-discovery.
To be fair, the Chinese system does have some merits. For example, Chinese schools excel in knowledge-based teaching. My friend was quick to point out that she did not idealize the American system, which lags behind the systems of East Asian countries in imparting some basic skills. “For some subjects like math and grammar, this is very important, especially during a child’s early years of schooling,” she said. “However, when it comes to teaching how to learn, not just what to learn, Chinese schools just cannot match the liberal arts approach of most private schools.”
Her words resonated with me, as I have experienced both worlds firsthand. My father and my Chinese education gave me discipline and perseverance, but Middlebury taught me integrity and curiosity. I don’t know what I would be without either experience. But I do know the combination of the two gave me the strength, audacity, and intelligence to compete on Wall Street and advance my career as a leader, not just a follower.
As I’ve faced down my fair share of challenges in life, I have always reminded myself of that steamy summer in Shanghai when I biked an hour and half every day to get to my TOEFL class and spent the evenings memorizing the entire dictionary to pass a test in a foreign language I did not really speak. “Where there’s a will, there’s a way,” my father drilled into me. His teachings were the source of my courage to achieve the seemingly impossible: to break into both the white-male-dominated world of Wall Street and the Chinese-male-dominated sphere of corporate China. But it was my American education that gave me the courage and skill set to question and dare to be different, to embrace new ideas, and to take risks to turn those ideas into a business practice.
Another strong point of American education is its emphasis on collaboration, whether group work in the classroom, or teamwork on the sports field. A friend who is a partner in the Shanghai office of an American private equity firm conducted an experiment with two groups of MBA interns. He gave the same project to a team from the Wharton School of the University of Pennsylvania and
to a team from a leading business school in China. One group of students gave a well-balanced and coherent presentation. The members of the other team took turns upstaging one another for personal glory and ended up with contradictory conclusions.
Most Americans would predict that the Chinese group would give the organized report, while the Americans would be out for themselves. After all, books like Amy Chua’s Battle Hymn of the Tiger Mother have emphasized the high caliber of performance given by many second-generation Chinese students. But no one should be surprised that it was actually the reverse. Chinese students—from China, that is—have been taught only how to work for their own good, not how to cooperate to ensure the group’s success.
Sports provide another example. China is rightly proud of having won 51 gold medals at the 2008 Beijing Olympic Games, the most of any country. However, its only teams to win gold were in gymnastics and fencing, both intensely solo sports. American expat friends who play pickup basketball and ultimate Frisbee in China have told me that they have trouble with the go-for-glory playing habits of Chinese teammates. As one American friend explained to me, “In a moment of pressure, they go for the big shots, never for the smart side pass. They rarely nail that shot.” I cannot help but think that even the sports culture reflects deeper flaws in China’s education system—that students are raised to be so competitive that even a basketball game cannot be shared equally with friends.
The gaokao system—the countrywide college entrance exam that is almost the sole factor determining where a student goes to college—has contributed to a cutthroat competitive learning environment. For years leading up the gaokao, students are frequently tested and ranked on a narrow set of subjects, leading to incessant backstabbing and bitter competition. This engenders a society bent on self-promotion, lacking almost entirely in any community values beyond the immediate family. This legacy persists into adult life as well: a suspicious, zero-sum ethos pervades most Chinese work environments, limiting collaboration.
The costs to the Chinese economy are considerable. The wealthy spend millions of U.S. dollars overseas for private, international-style education. The long-term consequences of this trend are frightening. Graduates from international schools and universities often choose to remain abroad after graduation, unable to stomach returning to China once they step outside the country’s constrained political and social system. At home, meanwhile, the children who rise through Chinese schools to the top universities in China—an achievement that paves the way to the top jobs—are likely to be the yes-men with uncannily good memories and little mental flexibility. Instead of pumping money into sky-high tuition fees and passport-earning overseas investments, the Chinese should be investing in their own education system.
Rigid, lackluster schools are also the origin of China’s longstanding culture of cheating and corner cutting. In a 2008 survey of 900 college students by China Youth Study, 83 percent of students admitted to cheating on their exams. Whether the figure is accurate or not, the practice of copying from each other’s papers, sneaking information into tests on their calculators, or plagiarizing essays from the Internet is undoubtedly prevalent.
And as more Chinese students study abroad, these practices expand beyond Chinese shores. The number of Chinese undergraduates in the United States climbed to 57,000 by 2012, up from only 10,000 five years before. A significant number of these students use forged transcripts or ghostwritten essays to beat out competitors and win coveted positions at American colleges.
The Chinese Internet abounds with consultancies that promise to “guide” the student through their college applications for a hefty fee. These consultancies often hire foreign expats to write the entrance essays (about $45 an essay, a significant amount in China), and they use special relationships with admissions counselors to guarantee students’ admittance. In 2010, Zinch China, an education consulting company, interviewed 250 Beijing high school students headed for American colleges. The survey found that 90 percent of Chinese applicants had submitted falsified recommendation letters, 70 percent had others write their college application essays, and half had forged high school transcripts.
Chinese schools should do much more to crack down on these behaviors. I believe honesty should be the foremost value taught in schools, before comradeship, citizenship, and even compassion or love. Without the existence of an honest culture, all these other values are cheapened. Cheating should result in severe repercussions, including expulsion—such as at Middlebury, which successfully implemented an honor code and self-regulating system, not only for students but also for teachers and administrative staff who accepted bribes.
Teaching materials should also reflect these values, in China and the rest of the world. Chinese history textbooks are far from this ideal, portraying the country as either a victim or a hero in international affairs. The history books emphasize the wrongs committed by colonialists during China’s “Hundred Years of Humiliation” after the Opium Wars and by the Japanese during World War II. However, the Great Leap Forward—the period from 1958 to 1961, where 30 million people died of famine as Mao Zedong tried to transform China’s agrarian economy into an industrialized one—is remembered as the “Three Years of Natural Disasters,” with only nature to blame for millions of deaths. I didn’t learn the reality of the Great Leap Forward until I watched Zhang Yimou’s historical drama To Live at Middlebury College. Nor would I have been informed of the unspoken facts of the Tiananmen Square “episode”—modern China’s most significant event and best-kept secret—if I hadn’t left the country.
Granted, Americans also dress up their own history—for example, by including rosy portrayals of partnerships between Pilgrims and Native Americans in textbooks. But there is a difference, both in a matter of degree and in the consequences one faces for speaking the truth. Americans have gradually accepted and begun teaching the truth about how European colonizers destroyed native civilizations through warfare and disease. Even Plimouth Plantation—the living museum where the first meeting of the Pilgrims and Native Americans in Plymouth, Massachusetts, is reenacted—has changed its museum to reflect this reality.
China, however, shows no interest in changing the way its history is taught. The only way for Chinese citizens to learn the facts of their home country is to leave China and go somewhere with a free and unbiased media.
This culture of denial and dishonesty begins in Chinese schools, but it has infected almost all other aspects of society. If truth telling is not mandated in schools and espoused by the media, how can one expect honesty to be observed and honored in business dealings or even courts of law? Old habits die hard, especially those formed at an impressionable age.
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Investors outside China often fail to appreciate this dangerous imbalance between the country’s hardware and software. Many people living in China, from the top leadership in Beijing to corporate executives to average citizens, believe the country is nearing an inflection point that will force it to reflect and reform. The country’s singular focus on fast growth and the bottom line in the past ought to be shifted to the quality of economic growth, of the country’s citizenry, and of the society. But wresting control from vested interests and carrying out the dramatic reform to institutions necessary to make this shift will be very difficult.
For investors, this imbalance should send a clear message: buyer beware. Assuming that China’s past rate of growth will continue to be the norm will only invite costly mistakes. For Americans, the realization of this imbalance should also help alleviate the prevalent and unwarranted sense that America is in decline. With its principles, beliefs, and checks and balances, America is well equipped to continue to lead the world and thrive throughout the century, even with some structural problems it must address at home.
China today is essentially caught in a prison of its own success—the staggering and unprecedented achievement of lifting 500 million people out of poverty in a bit more than 30 years. Chinese people are energized a
nd anxious at the same time. Outsiders are awed, and they assume past glory is indicative of future achievement. But the country’s trajectory seems similar to that of an athlete on steroids. As with most athletes on steroids whose temporary outperformance is inevitably followed by a long period of underperformance, the truth will eventually find its way out.
China is a special case in the speed and magnitude of its emergence and its ability to sustain GDP growth of roughly 10 percent for so long. However, many transitional economies have gone through a period of brilliant growth—Japan in the 1960s and 1970s and Korea in the 1980s and early 1990s. The rich history of the developed world gives China an advantage: it can learn from other countries’ history and avoid some of their mistakes—should it choose to do so.
CHAPTER 16
From Shanghai to New York and Back Again
NOWADAYS, I TRAVEL REGULARLY BETWEEN NEW YORK AND Shanghai, cities I think of, respectively, as my residence by choice and my hometown by birth. I consider New York to be calm and orderly in comparison with the 24/7 action and frenetic pace of Shanghai. I enjoy watching people’s jaws drop when I tell them with a little exaggeration that compared with Shanghai, New York is rather sleepy.
My family’s life goes on with Shanghai’s transformation. Dad continues to work on various real estate projects, and one way I keep tabs on the state of the Shanghai property market is by noting how busy he is. He also keeps up with his violin practice and enjoys traveling whenever he has downtime. After touring around Europe last year, he decided that Switzerland is his favorite destination because of its peace and quiet. So we plan to meet up there this year. Since our last father-daughter vacation in Phuket, Thailand, I haven’t spent much one-on-one time with my father. I am very much looking forward to it.