Odd Arne Westad on how China First Joined the Global Capitalist Economy

Direct lending has been one of the most dynamic areas of the private alternative space these last few years, having grown massively as a source of capital for both corporate borrowers, but also financial sponsors that have kept going from strength to strength, and have needed that private capital to foster the growth that they've been experiencing. For leading alternative investing insights, listen to Speaking of Alternatives from PJM.

The forces shaping markets and the economy are often hiding behind a blur of numbers. So that's why we created The Big Take from Bloomberg Podcasts to give you the context you need to make sense of it all. Every day, in just 15 minutes, we dive into one global business story that matters. You'll hear from Bloomberg journalists like Matt Levine. A lot of this meme stock stuff is, I think, embarrassing to the SEC. Follow The Big Take podcast on the iHeartRadio app, Apple Podcasts, or wherever you listen.

Bloomberg Audio Studios.

Tracy, now that I'm like a middle-aged old man, I've been getting really into reading history lately. Is it Roman history? No, no, it's actually worse than Roman history. I've been reading a lot of 20th century history. And the problem, well, one problem, there's a bit of a diversion, but one problem with reading 20th century history

is that I'm eventually going to have to get around to really learning what World War II is all about. And then I'm going to be a 50 year old man. You have to fulfill your destiny. I know. So I'm going to be a 50 year old man in a few years reading World War II books and watching World War II documentaries. So yes, I've been reading a lot of 20th century history lately.

You know how you know that you are really old. It's when you start reading 20th century history books and realize that you were like there and sort of participating in that time period. Well, it's so funny that you mentioned this because this is increasingly dawning on me when I read history. And again, slight side track, but I've mentioned before a couple of times, I lived in Malaysia for a year in 1989 and 1990.

And I discovered in reading history recently that I don't know if they call it the Malaysian Civil War, but the ultimate peace agreement between the Malaysian government and the Communist Party of Malaysia was signed in 1989 that ended that conflict. And so I was there. I had no idea.

but reading. Great school Joe was living through history. I was and it sort of reminds. I think this is an important thing that I've realized reading more history is that the modern world as we know it is so young. It's basically like the length of a person's life. Depending on where you want to start it. Like we're just getting started here.

So the history we're going to be talking about specifically is China. And I was thinking about this because the first time I went to China was in 1994. And it was completely different to how it is now. Like there were still rickshaws on the street. Friendship stores existed. Friendship stores still existed in the early 2000s when I was there. And I don't know, do you know what a friendship store is?

I can guess. So it's like where foreigners were basically allowed to go and like purchase specific goods. They had a lot of like tourist hat and stuff like that. But if you went to a friendship store in Beijing in the early 2000s, it was basically like going to the East block. It was like a full employment program where you would find a salesperson on the floor and you would say, I want this item and then they would give you a little like

token or receipt, and then you would take that to the cashier and pay, and then someone else would bring the item to you. That was in the 2000s, and now when I think about Beijing, it has changed completely. Stuff that used to be one story, neighborhoods full of bars, like Stanley Turn, is now luxury shopping centers.

Totally. So this is the other thing too, which is that, you know, we talk a lot about China right now for obvious reasons, but I kind of feel that, like, if we're going to talk about today, there probably is some justification for, like, how we got here. And I have to admit, you know, my understanding is really very rudimentary and limited. Like, in my mind, it's basically, like, Mao died. Deng Xiaoping liberalized the economy. That was the economy plugged into global capitalism. Maybe it's sunflower seeds happen.

Yeah, and then they allowed a business and then they entered the WTO in here. And I would say I know basically four facts about the history of China and those, you know, 1978 WTO now. So maybe that's just three. And so I actually think it's important to sort of deepen our understanding of how we got to the China that we are so deeply connected to today.

I am in favor of you using the podcast as an excuse to read a bunch of history books. It's great. It's otherwise manifest your middle age self. That's fine. We should do it. Well, it's better because if I have to read books, that means I'm not just scrolling Twitter all the time. So I have to prepare for episodes anyway.

We're going to be speaking with one of the co authors of the new book came out in October, the great transformation. China's road from revolution to reform. And I would say it complexifies a bit the very rudimentary story of the last, I don't know, 40 plus years of China. It's more than just three specific dates.

It complexifies that story. It sort of fleshes it out in a big way. The co-authors are Odd, Earn, West Dad, and Chen John. The first time on Odd Lots, that we'll have a guest with the name Odd. Truly the perfect guest. So it's truly the perfect guest. So we're speaking with Professor of History at Yale, Odd, Earn, West Dad. Professor West Dad, thank you so much for coming on the podcast.

Thank you for having me on. You almost had to, right? We had to. It's truly. It's really a shame that you haven't had me on before. I mean, you should have been the first guest. We had to wait for Joe to enter his history phase. That's right. But you should have been the first guest.

So why this book? Because I imagine if I go on Amazon, there are probably hundreds of books that are some version of how China reformed, how China went from being this backwards economy to a dynamic capitalist economy. I know it's been written about in various forms numerous, numerous times. Why did you and your co-author still feel at this point that this was an important story or collection of stories to tell?

I think there are two reasons. The first one is quite personal, in a way. I mean, it almost goes back to what you were talking about a minute ago. So I thought came to China as an exchange student back in the late 1970s. And Chenzhen, of course, might call out and live there during that period. So this is in a way so personal for us as well. We live through parts of the one period that we are talking about in this book. And there is no better incentive as you just touched upon.

to go back to look at history again than trying to understand the period that you lived through. So that's the first reason. And the second reason is, of course, that we think we do it better than anyone else. And we think we do it better than anyone else because we have more access to sources and more access to information about what actually happened during that time period. So as you read the book, you can see how, at least when we do this as well as we can, we are able to get on the inside

of many of the things that took place during that time period, and show the complexities. I mean, show how complex that period of very early Chinese reform and opening was, and in many ways, how contingent the process was, and how surprising it is in more than one sentence that to be ended up where we are today.

So speaking of access, you mentioned this, I think in the very beginning of the book, but you started researching this in 2010, and you said that the research process and the access you had kind of changed over the next, I guess, 13 or 14 years or so. Give us a little bit more detail, like as a researcher of Chinese history, how have things actually evolved for you?

That's right, we started thinking about this and started researching it in the early 20s. And of course, back then we had much better access to sources, much better access to archives to talk to people to travel around the country, to have informal discussions with people who would be in the middle.

than what is the case today. So, China has really since 2016-17, they're about closed down in terms of access to historical sources of all kinds. So, we were lucky. We started this process quite early on and had some good years in which we actually could collect material. Then we did something really silly. We put it aside for other projects, hoping that we would get even better access in a few years that happens sometimes, that you make the wrong call on these kinds of things. And instead, of course, it got much worse.

So what we had to do was to go back to some of the material that we had gathered in that early time period before we switched to other projects that we then completed before we returned to this book, and then try to fill that in as we could with other materials we could get now. But the level of access, the level of information is very different today from what you could get hold of back then. So I want to get into some of the content of the book, obviously. And like I said in the intro, I have this very

cartoonish vision of history in my head where Mao dies, Deng Xiaoping becomes the new leader of the country after a little bit of tension and turmoil, and then China liberalizes. So one of the sort of eye-opening or sort of mind-expanding moments in the book, you talk about the culture revolution and how even there, you know, we think of that as going, I guess, from 1966 to sometime in the 1970s, you argue that a

The real intensity of it was two years where the sort of the youth of China rose up against the old coders within the Communist Party. But even in that time, amid some of this incredible turmoil that the Communist Party was going through under Mao, some of the seeds of, I guess, capitalism were actually planted in that turmoil.

Yeah, that's right. I mean, that I think is one of the contributions of this book. I mean, your summarized history of what happened is not wrong. It's just that it was really difficult. And as I said, very contingent in terms of the various things that were happening to get from one to the next of those stages.

And one of the things that we do show in the book is how the Cultural Revolution, which was undertaken, of course, in order to solidify Mao Zedong's leadership and attack the old leaders in the Communist Party who he regarded as being too backward to take China into his new Communist paradise. This Cultural Revolution had effects that were in no way fussy.

And part of them was, in many ways, the destruction of old China. I mean, they got rid of many of the traditional ways of thinking and loyalties and what should the patriarchal approaches within families. All of this, because of these political campaigns that they undertook, directed it almost against any kind of authority, except most of those.

all authority. And in a strange kind of way when you get into the 1970s, Mao is still alive, still ruling from Beijing, things start to change in some places from the ground up. So this is turning to markets almost as a kind of revolutionary act out of desperation because people along the coast, in the south,

in areas that have some experience with capitalism and with markets. They are worried that when this campaign ends, things have got to get even worse. And some of these people had been starving back during the Great Leap forward in the late 50s and early 60s. So they start building up the opportunities that they can take for themselves in a little way. I mean, this is not a predominant fact in China in the early 1970s.

But it didn't seem something that is incredibly important for the future, and then comes into full flow after the party takes a step back, after the mall died, and opens up for these kinds of reforms happening on a country-wide scale.

I apologize in advance for asking a hypothetical, but do you think the economic liberalization of the late 1970s, early 1980s would have been able to happen or would have happened in some form if China hadn't experienced the cultural revolution and all the, I guess, emotional trauma and political chaos that came with it?

It wouldn't have happened when it happened. That's for sure. That's not even a hypothetical. I mean, I think if China had continued, basically, along the Soviet model of development, which is what it took up after the People's Republic was put in place in the late 1940s, Soviet-style average, right, banning centralization, the whole law. I don't think the kind of reform that we saw in the late 70s and early 90s would have happened, because there wouldn't have been any fundamental reason to undertake it.

I mean, China would probably have chucked along in the same kind of way as the Soviet Union did until some point when that model started breaking down. Now, I'm not saying that the Cultural Revolution was a necessary condition for these changes in take place, but the period of Cultural Revolution activism

did in many ways prepare the ground for the timing of this and when it was to happen. Also because, you know, China at the end of the contribution was a disadvantage. You know, when I first arrived there in 1979, this was a dirt poor and terrorized country. You know, a poorer in terms of income per capita than most African countries.

And things were getting worse, not better. So that kind of desperation at all levels of Chinese society fitted into these changes. Something had to be done. And going back to the Soviet model of development that had existed early on when you get into the 1980s does not seem as a viable composition.

Direct lending has been one of the most dynamic areas of the private alternative space these last few years, having grown massively as a source of capital for both corporate borrowers, but also financial sponsors that have kept going from strength to strength and have needed that private capital to foster the growth that they've been experiencing.

The forces shaping markets and the economy are often hiding behind a blur of numbers. So that's why we created The Big Take from Bloomberg Podcasts, to give you the context you need to make sense of it all. Every day, in just 15 minutes, we dive into one global business story that matters. You'll hear from Bloomberg journalists like Matt Levine. A lot of this meme stock stuff is, I think, embarrassing to the SEC. Follow The Big Take Podcast on the iHeartRadio app, Apple Podcasts, or wherever you listen.

What does it mean when you talk about history being contingent? You use that word a couple of times and I actually don't know if I fully understand what that means, but when you're telling these stories or this story and you're keeping in mind the contingency in history, can you talk a little bit more about this idea? So you'll assume from the book that we go in and out from the micro to the macro level of telling history.

And if you look at the night when the coup against the radicals and so full gang of form within the party took place, which we described in some detail, what happens from hour to hour. Right. This was the moment in which the left faction after Mao dies was arrested and allowed for a sort of more moderate path to emerge. That's right.

And it would in effect the military coup. It was undertaken by the military and the security forces against the people who Mao himself had put in charge of the party, including his widower, was most prominent of all, Jiang Ching. Now, that night, in the following few days, things could have ended up very differently.

when Shanghai, the biggest city in China, by far, was still under control of the radicals. There were military units that supported the radical approach to politics. This could have ended up very differently from what they did. And as we described in the book, some of the plotters, some of the coup makers themselves in those days that

who loved the coup itself, were completely surprised by how little resistance there had been from the left and how little chaos there had been on the streets. So that's what I mean with it being contingent. I mean, this is something that obviously connects to the larger picture that we see today going back to use sort of three level version of what happened, right, in China. But it didn't seem that obvious at the time. And it could have gone in very different directions from what we are seeing today.

How important was the fraying of the relationship between China and the Soviet Union in the sort of 1960s, early 1970s to spurring or catalyzing that opening up? Because it does feel like the sudden emergence of the Soviet Union as an external enemy, it feels like that led China in some respects to open up to the US and some other countries.

This is a sort of trajectory that I think is really important to get right because what now when his group of leaders did in the late 1960s was to turn to the United States as an ally of pseudo-ally, security ally.

against the Soviet Union because they were so deadly afraid that there would be a war with the Soviets. A war that China certainly would have lost, given the state that the Chinese Communists themselves had put China into during the Cultural Revolution. So what Mao did was to turn to the enemy far away, the United States, to help back in against an enemy much closer to home, the Soviet Union, which they had this falling out with mainly for ideological reasons.

From Mao's perspective, this was always intended to be a strictly security-oriented judo alliance. It was directed against the Soviet Union. Mao, to the end of his days, was puzzled that United States would support the real Communists, meaning him, against the same Communists, meaning the Soviet Union.

But as long as they were willing to do that, he was certainly willing to reap benefits. But he never intended that this would have any effect in terms of the increasingly radical communist direction that he was taking for China internally, domestically.

So that's when what happens in statistics of the most death becomes so significant, because the people who then took over, they told, aha, we have this relationship between the United States. They are supporting us for their own reasons in the Cold War against the Soviet Union. We can now also make use of this.

to suit the charge Chinese reform. If it hadn't been for that, strict security oriented that already existed between China and the United States, I doubt that that would be possible. So it's very important for the longer term US-China relationships to think about that origin and how this actually got started. Very different from the way most people think about it.

where the security element and the reform element are sort of conflated into one. It's also just hard in 2024 to imagine that various communist states would not be natural allies. And of course, after the Vietnam War, China also went to war against Vietnam, the fact that they're so concerned about the Soviet invasion. It's just sort of this fascinating dimension that I don't think fits neatly into our heads. You know,

I also read your co-authors book. He recently wrote a great biography of Joe and lie. And it occurs to me like reading that book and the new book. Obviously, I think Mao associated ideologically with the left faction and the CCP and the gang of four, et cetera. But he always seemed to keep a couple of, I don't know if the word is liberals, but to some extent liberals around. So Joe, he never got purged, even though it didn't seem like Mao particularly liked him for much of his life. Token liberals.

and token liberals and a Deng Xiaoping got purged multiple times but never lost his membership of the Communist Party and always seemed to find his way back even during the Mao era. Why was it that despite his ideological predilections towards the left that in these important roles he couldn't bring himself to purge some of these perhaps more reformist-minded characters?

because he needed to have things done. I mean, Mao wasn't just an ideologist, which was the most important aspect of him, I think, when you look at his historical world. He was also the leader of a country. And he needed to get certain things to work within the country or within the public. And for that,

having seen time and again that his ideological allies were not particularly good at this, they were good at reciting Marx and Lenin, but they were not particularly good at running things. He needed people like Joe and I, he needed people like Deng Xiaoping to get things done. But as Chenzhen's great Joe and live biography shows very clearly, there were limits to how far he would go in working with people like Joe, all done. He was willing to work with them as long as they served his purposes.

And if there was any sense that they actually tried to have a direct political influence above what were different from his, they would get into trouble. So I'm not sure if Tolkien liberals here is the right term. I mean, liberals in terms of their thinking of politics, these people served, as long as he was alive, served as German, and they served him at his leisure. So if he got a suspicion with them, as with so many other people, that they were not serving his radical interests, he would act against them.

You mentioned earlier that your book brings together the macro and the micro. And in terms of the micro, it reminded me a lot of secondhand time, which is an oral history of the end of the Soviet Union. And there are lots of stories in there about individual experiences and entrepreneurs who suddenly are starting their businesses in the post-communist period and things like that. I've been trying to get Joe to read this book for a long time.

It's amazing, but can you talk to us a little bit more about the individual stories that you heard from this particular period in Chinese history?

So there are many stories and both Chenjian and I are the kind of historians who are storytellers. We like to tell these stories. We like to focus on individuals and their experiences. And that's of course what sets this period apart. It's such an incredibly dramatic era. I mean, first the cultural revolution and its demise. And then this period of almost unbelievable change.

which I remember very well myself. I mean, from one day to the next, things that have been seen as being true forever, but no longer true, right? And things changed so very quickly. And entrepreneurs who had a few weeks earlier had been put in prison for their activities, but suddenly held up as heroes of economic development, right? That was China during this time period. And it's wonderfully fertile ground for historians who like to tell stories.

So we tell some of these, maybe some of the most fascinating ones that we claim a prose, are the ones of these early entrepreneurs. I mean, people who get started even before the political changes in Beijing have taken place. Very often, coming out of collective enterprises of some sort, people's communes or whatever you have,

and finding that they were pretty good at doing what they were set to do. We have one example in there which is one little tractor repair shop that turned out to be incredibly good at repairing tractors in Guangdong Province in the South of China and then started gradually

to get payment in kind, called a bartering system, their services against a little bit of steel or a little bit of machinery or some silk and what that, right? Which they could then trade, or for a while they could actually smuggle it into Hong Kong and trade it there by the mid-1970s. These folks have a Hong Kong bank account, right? Well before anything has happened in Beijing in terms of reform. So if these guys had been caught, they would probably have been shot, right, for smuggling and currency.

when the reform really gets started in 1978, they have a leg up, right? And they can do things that no one else can do. And now they're heroes. So this is the origins of one of the biggest companies in China today. So these are the kinds of stories that we like to tell. I mean, at the political level as well, I mean, one of the most fascinating people

that we came across is who I go from, the guy who became somewhat unwillingly most hand-picked successor, and who was actually quite a decent leader in many ways, not very imaginative, not of the kind of dynamism that Deng had, but still probably someone who was a necessary figure, you know, in order to facilitate that transition. Yeah. That happened in the late 90s.

Yeah, I get the impression to reading about him that obviously he was in a difficult position having to uphold Mao's legacy, who's pushed aside eventually more or less by Deng Xiaoping, but also sort of went gradually and didn't put up a huge fight that probably saved a lot of turmoil. Speaking of some of these early companies,

I hadn't realized that the China's number one electrical appliance manufacturer, I don't know if I'm pronouncing it right, but my idea, it looks like, that was actually founded in 1968 as you point out in the book. So really, I mean, here's this gigantic publicly traded company and it was founded right in the heart of the culture revolution.

Yeah, those were perhaps those are some of the most surprising examples of I've found. I mean, they're not many of them. I mean, we should be careful with not exaggerate. Okay. This is not an attempt at rehabilitating the cultural revolution, but it was possible on their extraordinary circumstances and by extraordinary people.

to do things that probably early on could not be done. I mean, they didn't do it because the Communist Party wanted them to do it. They did it because the Communist Party lost control and couldn't go on with the kind of centralized planning that they had done before, not everywhere and at all times anyway.

So media is a good example of that, and I'm sure there were hundreds, if not thousands of these startups, cultural revolution era startups that didn't succeed for these people were caught in a bit of a prison camp, so whatever. So we shouldn't overstate the country-wide importance of these attempts at entrepreneurship.

Many of them ended up not going anywhere. But there was this opportunity among those that survived to have that fundamental advantage over others when then-countrywide national reform came about in the late 1970s. And that actually connects to your point about World War II because at that point, normally in Chinese politics, someone who fell from grace the way World War II did would have met with quite a terrible fate.

who allowed himself to be replaced at the top, because he simply thought it was better for China that it went in the direction that it did peacefully, and then spent the rest of his life cultivating grapes in his residence in Beijing. He became one of China's foremost experts of native grape varieties, a subject of which he published at least two articles, of course, under a cinnamon.

So, you know, this kind of thing, earlier on in China, would have been unthinkable, given the cut from aspects of Chinese politics.

Bonds are back. And so is all the credit. PGIM fixed income monthly podcast series. From the latest trends to long-term perspectives, you'll get timely fixed income insights from leading economists, research analysts, and investment professionals. Whether you're new to bonds or a seasoned investor, tune in to all the credit wherever you get your podcasts. This podcast is intended solely for professional investor use. Past performance is not a guarantee of future results.

Are you looking for a new podcast about stuff related to money? Well, today's your lucky day. I'm Matt Levine. And I'm Katie Grifield. And we are the hosts of Money Stuff, the podcast. Every Friday, we dive into the top stories about Wall Street, finance, and other stuff. We have fun, we get weird, and we want you to join us. You can listen to Money Stuff, the podcast on Apple Podcasts, Spotify, or wherever you get your podcasts.

I didn't realize that China had native grape varieties, so that's interesting. Okay, but just on this point, what was the downside for individuals in accepting market liberalization? Because nowadays we talk a lot about the social compact in China, the idea that, okay, maybe people don't have as many democratic rights as in other parts of the world, but the promise from the CCP is that we're all gonna get rich.

And it feels like in the 1970s, 1980s, there was some loss of a social safety net that came about as a result of the promise that like, okay, you're not gonna get as much welfare, social welfare, but you're going to get a chance to become really, really wealthy. And that was of course part of this great transformation that we are talking about is what happened when much of that social welfare net disappeared.

It was a very brutal process. I mean, we have a tendency, I think, in this country and elsewhere to think about Chinese reform as the good reform in terms of results, and Russian reform as the bad reform, right? I mean, where things went wrong after the collapse of the Soviet Union.

But these two are in many ways much more similar, we discovered, than what they generally have been taken to be. The desperation that you find among a lot of Chinese when these social welfare systems went away, mainly in the late 80s and 90s, in the early 2000s,

was very profound. It was a market revolution, but there's all market revolutions. It has its winners and its losers. And what was remarkable about the transformation in China was that when one went through that first period of relative hardship, then of course, the general economy started to pick up, giving more people a chance to enter into the middle class.

But these two time periods are not the same. There was a period of real hardship to begin with. And then quite a bit later, this opportunity for many people, still not everyone, still there are about 400 to 500 million poor people in China.

a lot of people. But for many, to take that step into limited trust. And that's in a way the story of Charles Reformed, that they were able to make that jump while in Russia, most of the efforts that's setting up, and more of the economy that's actually worked domestically failed.

So one thing that people say a lot is that the Chinese Communist Party for a long time up until the day is obsessed with the fall of the Soviet Union and figuring out how to avoid a similar collapse at some point. And part of me wonders like the two countries seem so different and the circumstances seem so different that it's like hard for me to like say like, oh, if you do this, then you do get that outcome.

who knows but there is some school of thought that part of the problem with the Soviet reform starting under Gorbachev was the sort of political liberalization that maybe economic liberalization is okay markets but you still need that strong central party

and that maybe Gorbachev's mistake was doing both at once or maybe doing the political liberalization at all, etc. You talk also in your conclusion about some of the missed opportunities of more political liberalization along with the market liberalization that China has seen over the last several decades.

When you think about the fall of the Soviet Union and what contributed to that collapse, how much of it is it the market reforms versus the structure of the Soviet Union versus the political liberalization? And is there an argument to be made that the reason that the CCP and the country is as stable as it is today is because they didn't also pursue the political liberalization?

No, not really. I don't think that is the key reason. I think the key reason why the CCP succeeded was more that they were willing to experiment. I mean, under a situation of political dictatorship, as you pointed out.

they were willing to experiment in ways that the Soviet leadership never was. And maybe, I mean, and this is pure speculation, but maybe that goes back to what we talked about earlier on, that the Soviet Union kept chugging along, you know, with some growth, a very, very long time. There wasn't that kind of desperation that you found in China, or after everything that the Communist Party had failed. So these people were really running out of time, brought to transform China, but also to protect the dictatorship, right?

they had to do something and then they introduced gradual reform and who that gradual economic reform without ever thinking that they would give up political control. So this is one of the things that we show in the book and I think this is the reason why the Chinese Communist Party today is so obsessed with learning the negative lessons from the Soviet Union is that much of this was of course not just about creating a China that was rich and strong

it was being able to recreate the Communist Party that was in control of Muslims. So that story of how the dictatorship was reinforced at the back of reform already in the mid-1980s is a very central part of our book. We do see a period of openness from the late 70s to the mid-1980s when there would have been a really possibility that China would have moved in a more

democratic, but more pluralistic, more open direction than what happened, what happened later on. But by 1984, that period is ended.

Deng is laying down the law saying the direction that China will go in is one of increased deepening market reform and communist party control. There will be no pluralism of any sort. There will be no freedom of speech. All of that is. And this is, of course, very important in terms of understanding China today. I mean, this is what created the kind of situation that we see now. Even down now, of course, though I was in China in the spring,

and one of my businessman friends was joking that maybe reform and opening should be seen as a gigantic yet, you know, let him's new economic policy back in the 1920s, where people were allowed to generate wealth for a while just for the party to come back in and confiscate everything. So don't say that I'm sharing that view, but given what he and King has been up to recently, you can sort of understand it.

Since we're up firmly in the 1980s now, talk to us about Coca-Cola and its presence in the Chinese market, because I kind of think this is like a nice little microcosm of the changes that happened to the Chinese economy around that time.

So the Coca-Cola example is really interesting because it's a typical example in a way of how it was possible for a multinational company to come into China to start working in China because of the attractiveness, the symbolism of the product that it delivered, but also was able to work with local people and local businesses within China. And what's also fascinating here is the connection

between Coca-Cola and its political significance in terms of the Sonow American relationship. Right, because Coke was like a symbol of American capitalism, right? Yes, and the Chinese leadership wanted to embrace that symbolism without necessarily having to embrace the full package. So they were trying to figure out how they could work with this particular American company, and indeed other American companies as well.

in order to be seen as helping bring Coca-Cola to China, but on conditions that would be acceptable to them. And this is the story that is repeated over and over again in China, when it comes to foreign companies, the connections to local partners, how the government oversees this in sort of political terms, but also how it can turn out to be immensely commercially successful under those circumstances.

You joked about your businessman friend in China saying maybe that whole reform period was like Lenin's net period, and you had the dominance of the party, and then wealth was created, and then now the party re-emerges in strength and seizes control of that wealth, so to speak. I'm curious your take here in 2024.

Do you find that to have been an inevitable arc? I mean, it probably doesn't sound like you believe much as inevitable, given your focus on contingencies of history. But was this something that, like, due to the specific leaders who emerged in China, most prominently Xi Jinping, but also, to some extent, with the more nationalist edge of Hu Jintao? Like, was this something that is, like, is the result of these specific individuals that has bent the curve of history, so to speak?

Or do you think there was sort of like structural forces in play that brought back the sort of like very high level of state control? I think it was both. I mean, in the Xi and Ping case, I think

He was picked by the party as the, what did Chinese would call the call leader back in the early 20s in response to what was seen as a bunch of real problems from a Chinese Communist Party perspective. Over liberalization, decentralization, corruption,

strength of private companies that burned in a lot of things that the communists didn't want them to meddle in, they wanted to get a strong leader in who could deal with those issues in a way that his predecessors, Youngsemen Hujintao, had not been able to do it right. So they wanted a strong leader. It's just that

who met, I think, even for many communist leaders of that generation, they got more than they bargained for. So that's where the personality aspect comes in. They got a leader who really wanted to return at least on some issues. 2D Maoist or even the sort of pre-Mao period in terms of the CCP's history and emphasizes the port disposition

over what even many party leaders back 10, 15 years ago, called would be good for China. And it's a classic example of responding to real world problems, not unknown in this country. By going very far in one direction, hoping that that would resolve the problem that is there, and then getting stuck in a way with the kind of leader that you have, in this case, in TMP. So I think that's the story, the way we can tell it now,

I hope at some point to be able to tell that story based on archives and primary documents as an historian. We can't do that yet. But I think at some point we will be able to do that and then it will be fascinating to test that hypothesis about how this happened. So just on the revolution from below point

One of the things that you emphasize in the book is a lot of the stuff that happens in this time period is a result of people feeling that they are heading somewhere, that there's like a grander Chinese vision that can be achieved. And so that motivates people to actually do something. I'm curious just going up to the present day.

Do you get a sense that people feel that, that there's a direction that China is heading in, that it's clear to people what they are trying to do? At a moment, absolutely not. I think it's very, very clear that a lot of people in China do not understand where the country is heading and what the reasons are. You don't spend much time in Beijing before you realize that these days.

I think it was very different in the time period that we are talking about, which was generally a time or uplift, at least in economic and social terms. And it's right to say, I mean, as many historians have said, that there was an element of a bargain, that at least for some Chinese, not everyone, but for some Chinese, maybe particularly in business, that one accepted a dictatorship for what it was.

and then went on getting rich and establishing some of these great or middling fortunes that you find so many of in China today. And that is good. I mean, that was positive. It was much, much better than the dark past that we described at the beginning of the book. It was just that China wasn't able to take what in our view is a necessary step to improve

its political system, its overall attempt at trying to become a more open, more pluralistic country. In the period when the going was good, when there was a general sense that China was making advances domestically and internationally.

Now, I think even if people from within the Chinese Communist Party of the Xi Jinping would try to move in a direction of increased liberalisation, which I think they will have to do at some point, because people are just very unhappy with the condo system, that is there at the moment, it would be much more difficult.

Because the going is not that good, and it's probably never going to be that good again. It was a remarkable period of economic transformation, 10 per cent per year growth rates. It would have been possible to carry out necessary reform. But these people didn't want to do it because they had become so preoccupied with holding on to power themselves. And I think, historically, that that might turn out to be the biggest mistake that we shall discover is what we have made.

on armed west and thank you so much truly the perfect guest really appreciate you coming on nominated determinism truly had to come on this is it we talked about contingency this is not contingent this is right this is the one this is the one scientific fact of history that was inevitable regardless of you know it was great chatting with you yeah thank you so much congrats on the book and I'm encourage people to check it out and I appreciate it thank you

Tracy, I am totally down in my dotage to just turn this into a history podcast where we read books and then talk to historians. I feel like podcast becoming history podcast is also an inevitability. Well, you run out of things to talk about, so you gotta start mining the past. You know what? Actually, in all your recent reading, you might know the answer to this question, which I forgot to ask Arne about, but why was the Soviet Union and China in like the 1950s obsessed with steel production?

Do you know why I actually don't know the answer. My guess would be is just like the most sort of objective thing of what you need to modernize in 20th century economy. You need steel for probably literally everything that gets built. It would have been a good question. Another thing that I wish I had asked.

is how paranoid, how justified was, because you asked that great question about the importance of the tension between China and the Soviet Union in Mao's turning, at least to some extent, to the US, which then expanded greatly over the following decades.

But I never get the impression that there really was any actual prospect of war. There's one point in the book where the leaders all scrambled away from Beijing because they were fear of a nuclear attack from the Soviet Union. But it's not clear that there was anything happening. I guess hindsight is 20-20 when it comes to a lot of the stuff, including the Cold War is kind of similar, I guess. Nothing happened in the end in terms of a nuclear disaster. We came close with Cuba as my understanding. That is true.

it didn't happen. But one thing that I got from this book is, again, the importance of an external enemy when it comes to radical economic transformation. And I think we've seen so many examples of that throughout history at this point. So China,

China's market liberalization as a result of its fear of the Soviet Union is a great one. I guess the return of industrial policy in the US as a result of its fear of China's economic dominance is another one. Japan in the 1980s would be a good one too. It feels like in order for anything to get done at scale and in an efficient time period, you have to have some sort of threat that's hanging over you.

This is why we need the Paul Krugman, like we need to convince everyone that the threat is the alien. Yes, yes. And then you catalyze development without actually, and then there's no aliens in the end. But yeah, I know there was fascinating. I know it's such a cliché and I hate to admit it, but it does seem like understanding the modern world. You can learn something by reading the past. I resisted that reality for a long time in my life, and now I've succumbed. We have to know how we got here.

Okay, now that you've discovered history, shall we leave it there? Let's leave it there. This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. I'm Joe Wiesenthal. You can follow me at the stalwart. Follow our guest. Odd Arne Westad. He's O.A. Westad and definitely check out his new book, The Great Transformation.

Follow our producers, Carmen Rodriguez at Carmen Armin, Dashal Bennett at Dashbot and Kel Brooks at Kel Brooks. Thank you to our producer, Moses Andam. For more odd lots content, go to Bloomberg.com slash odd lots. We have transcripts, a blog and a newsletter, and you can chat about all of these topics 24-7 in our Discord. There's even a books channel, which is where I think I saw this book pop up first.

And if you enjoy Odd Lots, if you like it when Joe reads history books, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple podcasts and follow the instructions there. Thanks for listening.

What could you do if your data was working for you, and not against you? With Bloomberg delivering enterprise data directly to your systems, you get easy access to the details you want, optimized for higher-level analysis, and financial data experts committed to helping you maximize your every move. Our data is made for more, so you can show the world what you're made of. Visit Bloomberg.com slash Enterprise Data to learn more.