Philippa Kaur

THE RECENT history of foreign business in India is littered with failures. Even as the country has tried to lure global businesses keen to diversify into a fast-growing emerging market and, amid rising geopolitical tensions, away from China, many multinational companies are throwing in the towel. Notable departures over the past couple of years include Abu Dhabi Commercial Bank; Ford, an American carmaker; Holcim, a Swiss cement giant; and Metro, a German retailer. Disney is negotiating the sale of all or part of its streaming business. On November 24th Berkshire Hathaway, a $780bn American investment Goliath, offloaded its 2.5% stake in Paytm, an Indian payments processor.These are only the latest companies to call it quits. Inbound foreign direct investment has been flat since 2018. Although nearly 11,000 foreign firms entered India between 2014 and 2021, a government report found that 2,783 had left or closed in that period—a dispiritingly high number for a supposedly fast-charging economy.Some were probably put off by practical challenges, such as clogged roads, unbreathable air and patchy telecoms networks. Some no doubt balked at the legal obstacles to hiring workers, buying land or paying the right taxes. Some may simply have felt unwelcome; local bureaucrats and business leaders often see foreigners as a direct threat to domestic interests. Crucially, many fared less well than home-grown rivals. According to BCG, a consultancy, their gross operating margins average 12%, against 15% for Indian firms. When confronted by India’s reality, as opposed to its potential, plenty of excited foreign chief executives quickly find themselves “disabused”, sighs a consulting boss.Plenty, but not all. Dove soap, Knorr stock cubes and other consumer staples made by Hindustan Unilever, the Indian arm of a British giant, can be bought in 9m shops across the country. India’s top car-seller is Maruti Suzuki, a joint venture with a Japanese firm, followed by Hyundai of South Korea. Honda of Japan may soon dethrone Hero, an Indian rival, as the bigger maker of two-wheelers. Indians snap up Samsung phones and use WhatsApp, part of Meta’s social-media empire, to talk private and, increasingly, commercial business. They make half of all their digital payments via PhonePe, which is owned by Walmart, an American retailer.Far from quitting, some foreign companies are doubling down on their Indian bets. Which businesses persevere—and why—helps understand what it takes to succeed in India as a foreign enterprise.One group of corporate outsiders that can thrive in India are those whose business is aligned with the priorities of the Indian state, such as boosting export-oriented manufacturing. Apple has become the poster child of this approach, by moving some iPhone-making to contract manufacturers setting up shop in India. Vestas of Denmark and Senvion of Germany are producing wind turbines for sale abroad. Tesla is reportedly negotiating lower import tariffs on its electric cars in exchange for setting up an electric-car factory.An indirect way to shore up India’s economic ambitions is to help build the roads, ports and other infrastructure needed to get products from the factories to faraway markets. An investment manager at a big financial firm lists the Indian subsidiaries of engineering companies as good wagers on Indian growth. Over the past ten years ABB’s Indian affiliate has generated annual total stockmarket returns of 21%, two and a half times those of its Swedish-Swiss parent. America’s Honeywell averaged 11% globally but 28% for its Indian arm.Another successful group are foreigners who make an effort to indigenise their Indian business. Some team up with well-connected locals. Google and Meta have invested billions of dollars in partnerships with Reliance Industries, India’s biggest conglomerate, whose Jio telecoms unit brought mobile internet to 440m Indians. In August BlackRock, the world’s biggest asset manager, returned to India in a joint venture with Reliance. Its earlier foray involving a smaller partner was discontinued in 2018. If this time works out, BlackRock will have succeeded where those trying to go it alone, such as Fidelity, had failed. SAIC Motor, a Chinese car firm, is reportedly looking to sell a large stake in MG Auto, a local subsidiary facing a pernickety tax exam, to JSW, India’s steel champion.Outsiders have other ways to make their business more Indian. Rather than run its Indian bank from its home in Singapore, DBS set up a local affiliate complete with an Indian board accountable to Indian regulators. Walmart strengthened its Indian presence by acquiring a controlling stake in Flipkart, a local e-commerce platform, in 2018. In July the American retailer increased its interest by buying the stakes held by two American tech-investment firms, Tiger Global and Accel.image: The EconomistOne last important group is staying put—firms that are already big in India. Often, says the India head of a sovereign wealth fund, they flourish not by creating new markets but by replacing informal provision of existing goods and services. Many, similarly to ABB and Honeywell, earn better returns from their Indian subsidiaries, notes Nikhil Ojha of Bain (see chart). Some, like Hindustan Unilever or Maruti Suzuki, have been in the country for decades. Many Indians would consider them homegrown.Some are not so well liked, at least at first. Since it entered India ten years ago, Amazon has faced limits on local acquisitions, restrictions on selling own-label products, rules on inventory size and accusations that it threatened millions of kirana corner shops. Rather than give in, the e-emporium has stood firm. In June its boss, Andy Jassy, said it would invest an extra $6.5bn in India by 2030, bringing its total spending in the country to $26bn. It is expanding its e-commerce distribution network and building cloud-computing data centres. In November it launched FanCode, a channel on its Prime Video streaming service dedicated to sports including cricket, the national pastime.This resolute approach appears to be paying off. Resistance to Amazon’s Indian growth seems to be easing among government officials, who may have concluded that its logistical expertise is what India needs to connect its factories to the world. Billions of dollars in promised investments can’t have hurt, either. ■Stay on top of our India coverage by signing up to Essential India, our free weekly newsletter.To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

Every May tens of thousands of the faithful flock to Omaha, Nebraska, hometown of Berkshire Hathaway, to bask in the presence of the investment firm’s two leaders: Warren Buffett, known for his folksy genius, and Charlie Munger, for his killer zingers. But for the truly hard core, for many years a more cloistered gathering took place near Schumpeter’s current abode in Pasadena, a lush city on the edge of Los Angeles. At the Pasadena Convention Centre, Mr Munger alone would hold forth, his dry wit in full flow. Recording devices were not allowed, but notetakers scribbled furiously as they tried to keep up.The last one took place in 2011, when Mr Munger, who died in an LA hospital on November 28th aged 99, was a sprightly 87-year-old. It was his last shareholder meeting as head of Wesco, a financial conglomerate about to be wholly swallowed up by Berkshire, and hence the end of his one-man show. He spoke for three hours. As usual, he poked gentle fun at the audience, telling them, “You folks need to find a new cult hero.” Yet he clearly enjoyed delivering what one scribe called his sermon from the “Church of Rationality”. He beamed when they gave him a standing ovation.Looking back through notes of that meeting, the themes he dwelt on seem random. He discussed what he felt was his inadequate legacy, though he took pride in attributes such as basic morality, self-discipline and objectivity. He advised rich parents how to look after their children (don’t try to motivate them with artificial hardships, he said, because they will inevitably hate you for it). He discussed the importance of being rational amid mistaken biases (which he called the “Lollapalooza effect”). He even put in a good word for The Economist, describing it, according to one notetaker, as his favourite “adult magazine”.And yet those were not scattershot thoughts. They echoed a carefully thought out worldview on life, investment and business culture that he expounded on extensively in writings and speaking engagements whenever he was not in the spotlight as the Sage of Omaha’s curmudgeonly sidekick. As Mr Buffett put it, Mr Munger influenced Berkshire’s entire investment philosophy by introducing the wisdom that it is “better to buy a good business at a fair price than a fair business at a good price”. In other words, he deserves a big share of the credit for turning the financial conglomerate into the $785bn powerhouse that it has become.Though the two men bore an uncanny physical resemblance (Munger, at least later in life, was more portly), intellectually they had different strengths. Mr Buffett is a master of the plain and simple; Mr Munger was a complex thinker (“Charlie does the talking, I just move my lips,” Mr Buffett once quipped). Like the best duos—think Bill Gates and Paul Allen at Microsoft, Mickey Mantle and Roger Maris at the New York Yankees, and John Lennon and Paul McCartney in The Beatles—their strengths complemented each other, producing something almost magical. In the case of Messrs Buffett and Munger the magic lasted for 60 years. During that time they famously never had a row.As with many successful partnerships, they shared common roots. Like Mr Buffett, Mr Munger grew up in Omaha. As teenagers both worked in the Buffett family store at different times. They met in Omaha in 1959, not long after Mr Buffett, then owner of a fledgling investment firm, had been told by a potential client that he resembled the erudite Mr Munger, who was six years his senior. Mr Munger came to replace Benjamin Graham, a legendary “value“ investor, as Mr Buffett’s sounding board, with four qualities that Janet Lowe, his biographer, said resembled Graham’s. He was honest, realistic, profoundly curious and unfettered by conventional thinking. Those are as good traits as any to summarise his approach to business.In terms of honesty, he put the trustworthiness of business leaders, and the soundness of their accounts, above all else. He hated gimmickry (the accounting term EBITDA, he said, should be substituted with “bullshit earnings”). He was openly scornful of the “megalomania” of some investment bankers, whom he blamed for the financial crisis of 2007-09. In a deft parody penned in 2011 he described the perpetrators as Wantmore, Tweakmore, Totalscum and Countwrong. America was Boneheadia.As for realism, he was no softy when it came to business. He believed in “moats” that safeguarded firms’ brand value, pricing power and scale. Take Wrigley’s Chewing Gum versus a cheaper competitor, for instance. “Am I going to take something I don’t know and put it in my mouth—which is a pretty personal place, after all—for a lousy dime?” Handle new technologies with care, he preached. Know your “circle of competence”. Don’t rush into new ventures you don’t understand.For him, curiosity was a lifelong project, and he believed that business people should constantly refresh their knowledge, challenging their assumptions and learning from mistakes more than successes. As he said on the first page of “Poor Charlie’s Almanack”, a compilation of his writings and speeches: “Acquire worldly wisdom and adjust your behaviour accordingly. If your new behaviour gives you a little temporary unpopularity with your peer group…then to hell with them.”Invert, always invertFinally, think unconventionally. Don’t follow the herd. He loved Confucius and boldly encouraged America to “get along with China” despite the current tensions. Apple, he said, was an example of how engaging with China was both good for business and good for China. Everything that worked in the opposite direction, he said earlier this year, was “stupid, stupid, stupid”. Even by Mr Munger’s standards, that was blunt; he normally expressed himself with humour, not exasperation. But it summed up what was probably his greatest contribution to business thinking. He was a paragon of that old-style virtue—common sense. ■Read more from Schumpeter, our columnist on global business:The many contradictions of Sam Altman (Nov 22nd)How to think about the Google anti-monopoly trial (Nov 15th)The Bob Iger v Nelson Peltz rematch (Nov 9th)Also: If you want to write directly to Schumpeter, email him at [email protected]. And here is an explanation of how the Schumpeter column got its name. More

The remarkable capabilities of generative artificial intelligence (AI) are clear the moment you try it. But remarkableness is also a problem for managers. Working out what to do with a new technology is harder when it can affect so many activities; when its adoption depends not just on the abilities of machines but also on pesky humans; and when it has some surprising flaws.Study after study rams home the potential of large language models (LLMs), which power AIs like ChatGPT, to improve all manner of things. LLMs can save time, by generating meeting summaries, analysing data or drafting press releases. They can sharpen up customer service. They cannot put up IKEA bookshelves—but nor can humans.AI can even boost innovation. Karan Girotra of Cornell University and his co-authors compared the idea-generating abilities of the latest version of ChatGPT with those of students at elite American universities. A lone human can come up with about five ideas in 15 minutes; arm the human with GPt-4 and the number goes up to 200. Crucially, the quality of these ideas is better, at least judged by purchase-intent surveys for new product ideas. Such possibilities can paralyse bosses; when you can do everything, it’s easy to do nothing.LLMs’ ease of use also has pluses and minuses. On the plus side, more applications for generative AI can be found if more people are trying it. Familiarity with LLMs will make people better at using them. Reid Hoffman, a serial AI investor (and a guest on this week’s final episode of “Boss Class”, our management podcast), has a simple bit of advice: start playing with it. If you asked ChatGPT to write a haiku a year ago and have not touched it since, you have more to do.Familiarity may also counter the human instinct to be wary of automation. A paper by Siliang Tong of Nanyang Technological University and his co-authors that was published in 2021, before generative AI was all the rage, captured this suspicion neatly. It showed that AI-generated feedback improved employee performance more than feedback from human managers. However, disclosing that the feedback came from a machine had the opposite effect: it undermined trust, stoked fears of job insecurity and hurt performance. Exposure to LLMs could soothe concerns.Or not. Complicating things are flaws in the technology. The Cambridge Dictionary has named “hallucinate” as its word of the year, in tribute to the tendency of LLMs to spew out false information. The models are evolving rapidly and ought to get better on this score, at least. But some problems are baked in, according to a new paper by R. Thomas McCoy and his co-authors at Princeton University.Because off-the-shelf models are trained on internet data to predict the next word in an answer on a probabilistic basis, they can be tripped up by surprising things. Get GPT-4, the LLM behind ChatGPT, to multiply a number by 9/5 and add 32, and it does well; ask it to multiply the same number by 7/5 and add 31, and it does considerably less well. The difference is explained by the fact that the first calculation is how you convert Celsius to Fahrenheit, and therefore common on the internet; the second is rare and so does not feature much in the training data. Such pitfalls will exist in proprietary models, too.On top of all this is a practical problem: it is hard for firms to keep track of employees’ use of AI. Confidential data might be uploaded and potentially leak out in a subsequent conversation. Earlier this year Samsung, an electronics giant, clamped down on usage of ChatGPT by employees after engineers reportedly shared source code with the chatbot.This combination of superpowers, simplicity and stumbles is a messy one for bosses to navigate. But it points to a few rules of thumb. Be targeted. Some consultants like to talk about the “lighthouse approach”—picking a contained project that has signalling value to the rest of the organisation. Rather than banning the use of LLMs, have guidelines on what information can be put into them. Be on top of how the tech works: this is not like driving a car and not caring what is under the hood. Above all, use it yourself. Generative AI may feel magical. But it is hard work to get right.■Read more from Bartleby, our columnist on management and work:How not to motivate your employees (Nov 20th)The curse of the badly run meeting (Nov 13th)How to manage teams in a world designed for individuals (Nov 6th)Also: How the Bartleby column got its name More

AMERICANS LOVE their automobiles. So long, it seems, as they don’t run on batteries. According to a poll published in July by the Pew Research Centre, less than two-fifths of Americans would consider buying an electric vehicle (EV). Despite continually expanding charging networks and there being ever more EV models to choose from, that is a slightly lower share than the year before.Those words are backed up by relative inaction. In the third quarter of 2023 battery-powered vehicles made up 8% of all car sales. So far this year fewer than 1m EVs (not counting hybrids) were sold in America, a little more than half the number in less car-mad Europe (see chart). Chinese drivers bought almost four times as many. Between July and September General Motors (GM) shifted a piddling 20,000 in its home market, compared with more than 600,000 fossil-fuelled vehicles. Fully 92 days’ worth of EVs languish on dealership forecourts, compared with 54 days of gas-guzzler inventory. Outside California, Florida and Texas, which together account for over half of American EV registrations, electric cars mostly remain a curiosity.image: The EconomistDisappointing demand is now prompting American carmakers to reassess some of their ambitious electrification plans. In October Ford said it would delay $12bn of EV investments. The same month GM put off by a year a $4bn plan to convert an existing factory to one for electric pickups. The Detroit giant also ditched its EV-production targets, including the goal of churning out 100,000 EVs in the second half of this year, without setting new ones. Manufacturers of batteries that have teamed up with carmakers to build battery factories in America are turning cautious, too. In September SK Battery laid off more than 100 employees and reduced output at a plant in Georgia. In November LG Energy, a fellow South Korean firm, said it was laying off 170 workers at its factory in Michigan.All this presents bumps on the road to electrified motoring in America. The car industry’s ability to swerve around them will determine the fate of its energy transition. And, since passenger cars contribute a fifth of American total carbon emissions, it will have an effect on the country’s decarbonisation efforts, too.The biggest obstacle to higher EV enthusiasm in America is price. The average EV there sells for $52,000, reckons Cox Automotive, a consultancy. That is not a world away from the $48,000 that Americans typically pay for a petrol vehicle. But total costs of ownership, which combine the sales price of a vehicle and its running costs for five years, vary more widely. At $65,000, the typical EV is $9,000 more expensive to own than a petrol car (owing to factors like the need to install a pricey home charger, dearer insurance and, at least compared with Europe and China, inexpensive gasoline). On Ford’s latest earnings call executives grumbled that Americans were stubbornly “unwilling to pay premiums” for EVs.A new tax credit of up to $7,500 for EV purchases offsets some of this cost disadvantage. But this sweetener applies only to cars with batteries who components are manufactured or assembled in North America or that have a minimum content of critical minerals from countries with which America has a free-trade agreement. It is also fiddly; buyers need to file a form with their federal income-tax return.. Electric cars’ low adoption, relative novelty and fast-changing technology, meanwhile, make it hard for buyers to tell how fast they lose their worth, which may put some off the purchase.More of them may be discouraged by quality problems. Over the past few years some EVs have been recalled because of faulty battery packs. Seven of the ten car models that face the most basic problems, such as with door handles, are EVs, according to a quality survey by J.D. Power, a research firm.Cheap and cheerful EVs tend to offer better value for money. But in America it is hard to find a set of electric wheels for less than $30,000. American carmakers have followed Tesla, the EV pioneer, in focusing first on higher-margin premium models rather than EVs for the masses. GM and Honda, a Japanese giant, recently dropped their joint $5bn plan to build an affordable EV. Inexpensive and decent-quality Chinese EVs from companies such as BYD have turned China into the world’s biggest EV market and are now flooding Europe. They are, however, all but excluded from America by high tariffs and other barriers.All this leaves America’s car industry circling a roundabout. Consumers’ unwillingness to splurge on expensive EVs is forcing carmakers to offer steep discounts to shift inventory. Tesla has slashed its prices several times in the past year. Carmakers are offering average discounts of almost 10% on their EVs, more than twice as generous as for petrol cars. But this is making it even harder for the companies to make money from battery power. Ford’s electric division is losing about $62,000 for every vehicle it sells, in contrast to a net profit of $2,500 apiece for the company’s petrol cars. Continued losses in turn may temper car firms’ appetite to invest in a broader electric offering that would appeal to buyers.American carmakers are still hoping they can escape this vicious circle. They are mostly postponing their American EV investments rather than pulling the plug on them. In the next year or two many companies are expected to unveil dedicated electrified “platforms”, as a car’s structural backbone is known, rather than lumping batteries unsatisfyingly onto existing petrol-driven skeletons. Some of the EVs’ quality problems are teething pains typical of all new models, be they electric or petrol-powered, which will be sorted out as production lines mature. And from January the EV tax credits will also be available at the point of sale, making it less burdensome for buyers to take advantage of them.All this could eventually improve quality, expand product ranges, push down costs and, with luck, generate profits for car firms. Eventually may just come a bit later than hoped. ■ More

AS THE HEAD office of Northern Heavy Industries (NHI) comes into view, so does a huge slogan fixed permanently to its roof in metre-high red Chinese characters, where you might usually see a company name. The 22-character mouthful reads: “Wave High the Great Banner of Xi Jinping Thought in the New Era of Socialism with Chinese Characteristics.” A billboard-sized image of Mr Xi, China’s leader, waves to visitors as they enter the lobby. In a nearby factory NHI’s tunnel-boring machines, used for digging metro lines, rise four storeys into the air. The company was founded by the state many decades ago. Today more than ever it embodies an archetypal image of a state-owned enterprise (SoE).Except that on paper NHI is private. A company called Fangda Group, which is listed in Shenzhen and fully privately owned, took a 47% stake in NHI in 2019, in a rare instance of a private company bailing out a state one. This made Fangda by far the largest single shareholder. The deal should have privatised NHI.But in China’s corporate sector nothing is so straightforward. Fangda is not the controlling shareholder. Executives say it does not have one. Some staff in its factories call it a state firm; some say it is private. When asked about Fangda’s involvement in NHI, a manager says the investment was a “policy decision”. An investment adviser says that, for reasons he cannot divulge, investors should approach Fangda itself as if it had the backing of the state—even though the state does not feature in its shareholder register. Fangda’s website is covered in Communist Party imagery such as sickles and hammers. It describes its corporate mission as “listening to the party and following the party”.Chinese business has become much more professional in the past three decades. Its stockmarket is one of the world’s largest and has been rapidly opening up to Western investors. In futuristic industries like electric vehicles and green energy Chinese firms lead the world. China’s digital economy has produced rare rivals to America’s internet giants. Many have global ambitions and are backed by some of the world’s savviest asset managers.Yet over the same period the lines between the state sector and private business have grown blurrier. Many global investors increasingly view China’s private sector as a captive of the Communist Party. So do Western politicians, who rail against companies such as Huawei and TikTok for their alleged links to the party (which the firms deny). A recent paper from the Centre for Strategic and International Studies, a think-tank in Washington, asks: “Can Chinese firms be truly private?” Monitoring state influence has thus become more important than ever. It has also become more difficult than at any time in the past.One factor that has complicated matters is the central government’s policy that explicitly seeks to blend state and private interests. Launched in 2013, “mixed-ownership reform”, as it is known, has encouraged private investments in some state firms and vice versa. The philosophy behind the policy was to introduce private capital into clunky state firms.Most of the investment since then, however, has flowed in the other direction. According to Fitch, a ratings agency, on average 50 state companies a year took the controlling rights of listed private business between 2019 and 2021, up from fewer than 20 in 2018. Privately owned firms’ share of market value among China’s 100 largest listed firms shrank from a peak of about 55% in mid-2021 to just 39% at the end of June this year, according to the Peterson Institute for International Economics (PIIE), another Washington think-tank. State companies may have spent around $390bn investing in private companies since 2018, according to data from Dealogic, a research firm.Mixed-ownership reform may have helped some SoEs perform better. Several academic studies found that it improves innovation and the return on assets. However, the reform has also created a vast grey sector that has characteristics of both state and private companies. The rise of government-backed funds armed with $1trn in capital has injected state funding into many private technology companies, including plenty of promising startups. State investors have also been taking “golden shares”, tiny stakes that grant outsized voting powers, in China’s internet giants. In October it was revealed that a government agency had taken a 1% stake in a subsidiary belonging to Tencent, China’s mightiest internet titan.With the exception of top executives and government officials no one really understands what golden shares do. Company spokespeople say they are harmless. Investors disagree. When earlier this year such an arrangement came to light at Tencent and Alibaba, another internet giant, their share prices sank. An investment manager in Hong Kong explains that the discount was the result of state links being associated with corporate and financial stability, not risky innovation and animal spirits. From the state’s perspective, he adds, rapid profit growth and high valuations could be perceived as dangerous if they take place in the wrong sectors.Distinguishing between state and private companies is becoming more difficult because state influence over companies is no longer just tied to ownership, says Margaret Pearson of the University of Maryland, College Park. In “The State and Capitalism in China”, published in May, Ms Pearson and her co-authors say that China is moving from state capitalism, where business is guided by national interests, to “party-state capitalism”, in which it is organised around the interests of the Communist Party.Until the late 2000s how the party exercised its power over corporate management was mainly evident in its appointments of SoE bosses. That has changed significantly since Mr Xi became party chief in 2012. A sweeping anti-corruption campaign, followed by a crackdown on tech companies, has helped deflate and reshape China’s digital economy. Outspoken tech entrepreneurs have vanished. A handful of tech founders and other business leaders have stepped down. Alibaba is splitting itself into several firms. Tencent has shed tens of billions of dollars in assets. New Oriental, China’s most promising private-education group before the state snuffed out its entire industry almost overnight, has become an online marketplace for agricultural and other products. Insiders argue about precisely how much direct influence the party had on such corporate decisions. Most agree that it is pleased with the outcome.State support, implicit or explicit, can help businesses aligned to Mr Xi’s vision. A lot of innovation in green energy, electric vehicles, robotics and digitisation is done by private firms but bankrolled by the state. Many entrepreneurs report that life is good in those areas. In sensitive domains like generative artificial intelligence (AI), new services are developed hand in hand with the state. Private companies working on AI frequently consult regulators, who provide guidance for what development is and is not permissible. Rather than regarding such consultations as an obstacle to innovation, Chinese AI firms often see it as a fast track to success.The party exercises control in subtler ways, too. One tool is its corporate “social credit” system. Launched not long after Mr Xi came to power, it rates companies based on factors including legal and debt-payment record. A recent review of all publicly available scores in Zhejiang, a wealthy coastal province, by Lauren Yu-Hsin Lin at the City University of Hong Kong and Curtis Milhaupt of Stanford Law School, found that companies with more political connections had higher scores. Other than a company’s size, the variable most closely associated with a high score is having directors or a chief executive who served in important government or party positions.Firms with high scores can be “red-listed”, or given preferential access to credit. Ending up on the system’s blacklist makes it exceedingly hard to get loans. This gives private firms a strong incentive to follow state policies even in the absence of direct state ownership.Another way for the party to control firms is through party committees, where employees who are party members meet to discuss ideology and its place in corporate life. These cells typically do not have formal administrative clout. But they channel information about the company or its industry to regulators. This information may in turn shape local regulations, notes a banker. As with golden shares, the clearest impact that party committees have had so far is to breed distrust among foreign investors, and between foreign firms’ local subsidiaries and their headquarters.Many of the changes in the private sector can be explained as an attempt on the part of entrepreneurs to balance commercial activity while also showing loyalty to the party and fulfilling political duties, says Huang Tianlei of PIIE. Showing loyalty does not necessarily make them less profit-seeking. They are simply trying to adapt to a political economy founded on the supremacy of the party.Yet the blurrier the line between the state and the private sector, the harder it becomes for entrepreneurs to strike a balance between party and profit. Ms Pearson and her co-authors find that private companies may not be “secure enough in their autonomy from the state to pursue their own interests with ease”. It is not just investors who find the system tiresomely muddled. The view from within is getting hazier, too. ■ More

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