YANG Baiyin - Chinese Leadership and Management

Chinese Leadership
and Management
Bai
Yin Yang
Baiyin YANG, Ph.D.

School of Economics and Management
© Baiyin Yang All rights reserved 杨百寅版权所有
Presenter: Baiyin Yang

 Baiyin Yang, professor and Chair of Department of Leadership and
Organization Management, School of Economics and Management, Ph.D.
from the University of Georgia
 Taught at Auburn University, University of Idaho, University of Minnesota.
 Awards:
 Distinguished Young Scholars, NSFC
 Outstanding Scholar, AHRD
 Cheung Kong Scholar Professorship (Ministry of Ed)
 Services
 Editor, Human Resource Development Quarterly (HRDQ)
 Editorial Board Member, AEQ, HRDI © Baiyin Yang All rights reserved 杨百寅版权所有
© Baiyin YANG, Tsinghua University 1

Outline
1. China’s Social Contexts of Business
2. China’s Cultural Contexts of Business
3. Managerial Philosophies and Practices
4. Human Resource Practices in China
5. An Emerging Model of Chinese
Management and Leadership
6. Case Study
It was the best of times, it was the worst of times, it was the
age of wisdom, it was the age of foolishness, it was the
epoch of belief, it was the epoch of incredulity, it was the
season of Light, it was the season of Darkness, it was the
spring of hope, it was the winter of despair, we had
everything before us, we had nothing before us, we were all
going direct to heaven, we were all going direct the other
way - in short, the period was so far like the present period,
that some of its noisiest authorities insisted on its being
received, for good or for evil, in the superlative degree of
comparison only.
Charles Dickens, A Tale of Two Cities
English novelist (1812 - 1870)

A Framework of Cross-Cultural Study
Social Factors Cultural Factors
Historical Context & Policy Value System
Technology & Economy Belief System
Social Structure Social Norms
Organization & Management

Managerial Philosophy
reinforce reinforce
Human Resource Practices
Leadership Styles
Organizational Behaviors
Chinese Civilizations 1
 China has one of the world's oldest civilizations and has the
oldest continuous civilization. It has archaeological
evidence dating back over 5,000 years.
 China was one of the largest and most advanced
civilizations for most of the last two millennia; until the
1850s when it missed the industrial revolution.
 Subsequently, imperialism, wars and civil wars damaged
the country and its economy for most of the twentieth
century.
 In the late 1970s, changes to economic policy transformed
the country and made it one of the major powers once
again. © Baiyin Yang All rights reserved 杨百寅版权所有

Chinese Civilizations 2
 China is viewed as the source of many major inventions. It
has also one of the world's oldest written language systems.
 Historically, China's cultural sphere has extended across
East Asia as a whole, with Chinese religion, customs, and
writing systems being adopted to varying degrees by
neighbors such as Japan, Korea and Vietnam.
 The first evidence of human presence in the region was
found at the Zhoukoudian cave and is one of the first
known specimens of Homo erectus, now commonly known
as the Peking Man, estimated to have lived from 300,000
to 780,000 years ago.
Extracts from the World Bank - 1

 Since initiating market reforms in 1978, China
has shifted from a centrally planned to a market
based economy and experienced rapid economic
and social development.
 GDP growth averaging about 10 percent a year
has lifted more than 500 million people out of
poverty.
 All Millennium Development Goals have been
reached or are within reach.

 China became the world’s second largest
economy in 2010; increasingly, it is playing an
important and influential role in the global
economy.
 The discussion now tends to focus on how
China can avoid “the middle-income trap,” as
experience shows that transitioning from
middle-income to high-income status can be
more difficult than moving up from low to
middle income. © Baiyin Yang All rights reserved 杨百寅版权所有

 In 2013, China’s gross national income per
capita of $6,807 ranked 84th in the world; and
about 128 million people still live below the
national poverty line of RMB 2,300 per year
(about $1.8 a day).
 With the second largest number of poor in the
world after India, poverty reduction remains a
fundamental challenge.

How Does China Look Like?
 Chinese authorities started encouraging foreign
investments since 1979.
 WTO (Nov 10, 2001) opens up a multitude of
opportunities.
 Other major events include:
 Olympic 2008 (budget of US$34b)
 Expo 2010 (1
st developing nation to win bid in 150
years)
 2014 APEC Conference in Beijing
How Does China Look Like?

China Superimposed on the U.S.
GDP (PPP), US $ trillion

30000
25000
20000
15000
10000
5000
China Germany India Japan USA
Source: http://www.economywatch.com/ updated 17th March 2015

GDP Share of World Total (PPP)
25
20
15
10
China Germany India Japan USA
Source: http://www.economywatch.com/ updated 17th March 2015
Top 10 Wealthiest
(Citigroup Estimates ,US$)
Rank Country 2030 Country 2040
1 Singapore 155,232 Singapore 214,757
2 Norway 143,511 Norway 202,492
3 Switzerland 120,664 Switzerland 173,423
4 Canada 110,918 Canada 166,403
5 Australia 100,995 Sweden 145,793
6 Sweden 99,764 South Korea 145,321
7 United States 95,686 Australia 144,941
8 Netherlands 95,233 Netherlands 137,728
9 South Korea 88,959 United States 135,144
10 Hong Kong 86,967 United Kingdom 130,062

Long-Term GDP Estimates
(PricewaterhouseCoopers, January 2013, US$ billions)
N° Country 2030 Country 2050

1 China 24,356 China 48,477
2 United States 23,376 United States 37,998
3 India 7,918 India 26,895
4 Japan 6,817 Brazil 8,950
5 Brazil 4,883 Japan 8,065
6 Germany 4,374 Russia 7,115
7 Russia 4,024 Mexico 6,706
8 France 3,805 Indonesia 5,947
9 United Kingdom 3,614 Germany 5,822
10 Mexico 2,830 France 5,714
Comparing Chinese Provinces with Countries

Comparing China’s Economy with USA & EU

Industrial Structure: A+M  M+S
Sectors 1980 2000 2012

Agriculture 30% 14.8% 10.1%
Manufacturing 49% 45.9% 45.3%
Service 21% 39.3% 44.6%
Society: Rural & Closed  Urban & Open

 Rural Urban
 Urban population 1982=20.6%  2014=54.8%
 International Linkage
 Economy: Self-reliant  major world trading partners
 FDI = $127 billion > (USA: $86 billion)
 International trade
 As % of GDP: 1978=10%  2005 =62%
 Share in global exports: 1978<1%  2010=9.5%,
replacing Germany as the biggest exporter

 Overseas travel:
 1998=8.43million  2010=56 million


Governance structure: Personal charisma and
authority  Rule of law and broad participation
 Village election and township election

experiments;
 Administrative and legal systems reforms;
 Broader public participation in the policy
process (e.g. public hearing);
 The growth of non-governmental sector;
 Anti-corruption campaigns;
 ……
An Iceberg Model of Culture

- Behaviors, Beliefs and Values
On the Tip
（Behaviors） Behaviors
Under the Water Beliefs

（Ideology）
Values

Comparison of Three Cultures
Three Competing Forces

(Cultures or Ideologies) in China
Confucianism Socialism
Managerial
Philosophy and
Practice in the
P. R. China
Capitalism

Why Three Forces (Cultures) ?
Confucianism – Chinese tradition
Socialism – exploratory practice
Capitalism – global influences

What Is Culture?
 Culture is a complex system of values, beliefs and social
norms shared by a group of individuals
 A value system is a set of explicit or implicit conceptions of
the desirable or preferable ends shared by a group of
people.
 A belief system consists of explicit conceptions that have
been viewed as true representation of reality.
 Social norms are habits, conventions or behavior of
individuals or groups implicitly existing in their daily lives.

Cultural Dimensions
- Belief System
 Nature of Human Beings
 Motivation of Human Beings
 Religious Faith
 Nature of Knowledge
 Nature of Change
Cultural Dimensions
- Value System
 Relation to Natural World
 Relation Among People
 Priority of Activities
 Basis of Moral Standard
 Priority Along Time
 Ideal & Destination - Vision

Comparison of Belief Systems (1)
Nature of Human Beings
Naturally Good Class-Bond Naturally Evil
Human Motivation
Spirit Spirit & Material Material
Comparison of Belief System (2)

Religious Faith
No Single No Religious Faith Single External
Superpower Superpower - God
Nature of Knowledge
Situational Truth Positional Truth Absolute Truth
Subjective Subjective Objective
Nature of Change
Cyclical Change Linear & Cyclical Linear Change

Western View of Change
Desired
Current Future
State Intervention(s)
State
A B
Unfreeze Movement Refreeze
Yin-Yang Cyclical Change

YIN YANG
 Dark Side of Mountain  Light Side of Mountain
 Earth  Heaven
 Moon  Sun
 Water  Fire
 Cold  Hot
 Wet  Dry

Five Agents Cyclical Change
Earth
Fire Metal
Wood Water
Comparison of Change/
Managerial Philosophy
Cyclical Linear
 Processional  Progressive
 Journey Oriented  Destination Oriented
 Based on Restoring/  Based on Creating
Maintaining Equilibrium Disequilibrium
 Observed and Followed  Planned and Managed
by People Who are One by People Who Exist
With Everything and Must Separate From and Act
Act Correctly to Maintain on Things to Achieve
Harmony Their Goals

Comparison of Value Systems (1)
Relation to Natural World
Harmony Mastery Mastery
Relation Among People

Hierarchical Collectivism Individualism
Priority of Activities
Being and Doing Doing and Being Thinking & Doing
Comparison of Value Systems (2)

Basis of Moral Standard
Feeling Common Good Reasoning
Priority Along Time
Past Future Present
Ideal & Destination (Vision)
Harmonized Communism Developed
Society Individuals

Comparison of Managerial Practices
Planning
Intuition Top Down Empirical
Organizing
Bureaucratic Class Individual
Leading
Paternalistic Collective Entrepreneur
Controlling
Peer Pressure Idiosyncratic and Performance against
& Group Norms Political Standards
Chinese HR Principles
Competence/
Merit
xiao-ren sheng-ren
【mean person or villain】【wise person】
Morality
Virtue
yu-ren Jun-zhi
【mediocre person】【person with virtue】

Western HR Principles
Competence/
Merit
Owl Fox
Contribution
Sheep Cow
Comparison of HR Practices (1)

Employment Nature
Family or Kin Iron Rice Bowl Contract Based on Will
Selection
Nepotism Social Class/Connection Ability/Competence
Compensation
Seniority Egalitarianism Performance
Promotion
Personal Loyalty/ Political Loyalty/ Contribution &
Social Acceptance Connection Potential Growth

Performance Evaluation
Qualitative Method Qualitative Method Quantitative Method
Succession
Family/Seniority Moral/Political Purity Competency
Union Role
No Role Consultation Negotiation
Human Resource Development

Management and Development of Morality Training and
Utilization and Loyalty Development

Human Resource Function
Social Outcomes Political Outcomes Economic Outcomes
Human Resource Goal

Social harmony Communism Developed Individuals
Main Characteristic
Rule by Morality Rule by Politics Rule by Law

Implications
- Chinese and Western Cultures
Human Nature: Goodness Evil
Culture: Collectivism Individualism
Knowledge: Subjective Objective
Religion: Atheism Theism
Action: Reactive Proactive
Means: Synthesis Analysis
Vision: Harmonized Society Developed Person
Differences Among Human Beings

Social Consequences
- Equalitarianism vs. Social Darwinism
How Chinese Management

Theory and Practice Will Evolve?
Capitalism Socialism
-Rationality -Spirit
Efficiency
Harmony Progress
Confucianism
-Benevolence

An Evolving Hybrid Model
(Emerging and Future Chinese Firms)
Confucianism Socialism Capitalism
Mostly in the Mainly in the Reflected in
area of human aspect of strong market-orientation,
relations and state, with profit seeking,
preserving the emphasizing on and rational and
values of social common wealth analytic
justice and and social managerial
harmony responsibilities approaches
Huawei Technologies:
Case Study One
 Type: Employee-owned corporation
 Industry: Telecommunications
 Founded 1988
 Founder and CEO: Mr. Ren Zhengfei
 Socialism: applying Communist-style indoctrination
methods to business-Self-criticism and quality.
 Capitalism: learning from west in areas of technology,
process, organizational structure and efficiency.
 Confucianism: considering China's actual conditions, and
used a strategy of “rural surround city.”

Huawei’s Global Presence
Huawei Technologies
(Headquarters)
Sweden
UK Russia
Netherlands
Poland
France Germany Ukraine Canada
Romania Kazakhstan
Portugal Bulgaria Kyrgyzstan
Spain Italy Turkey USA
Greece Uzbekistan
Tunisia Turkmenistan South Korea
Morocco
Algeria Bangladesh
Egypt Pakistan Shenzhen Mexico
UAE Nepal Vietnam
Saudi India Thailand Philippines
Nigeria Arabia Cambodia
Malaysia Venezuela
Sri Lanka Colombia
Kenya Singapore
Ecuador
Indonesia
Peru
Brazil
Zimbabwe
Australia
South Africa
Chile
Argentina
 22 regional headquarters, 100+ branch offices outside China

 3-level customer service system (HQ, regional, local)
 17 Research Centers in China, India, USA, Russian, Sweden.
Self-Criticism Under Chairman Mao

‘Little Red Book’, chap.27-
 “Conscientious practice
of self-criticism”
 “Our faces will get dirty if
they are not washed

regularly”
 “Our comrades' minds
and our Party's work may

also collect dust, and
need sweeping and
washing” © Baiyin Yang All rights reserved 杨百寅版权所有

Transformation of Employees
Attitudes: Self-Criticism
Under CEO Ren Zhengfei
 ‘gentle’: soft pillow
 ‘Democratic meetings’
Managers and self-criticism

 ‘Losing face’
 All lose face together
Management Transformation:
“Cut Own Feet to Fit Foreign Shoes”
Huawei works with top management consultancies to bring world-class expertise
to the company, provides customer end-to-end delivery with high quality
Integrated Product Development and

consulting Integrated Supply Chain
Human Resources & ESOP
Financial Management
consulting
Quality Control
Organization Transformation

Huawei University
 Sayings of Confucius
 The Frontiers of Management (Drucker)
 Europe and the Modern Age (video)
 The Art of War (Sun Tzu)
 The Bible (selections)
 Zen: The Chinese Transformation of
Buddhism
Zhenhua Heavy Industry Co Ltd (ZPMC)

Case Study Two
 Type: State-owned enterprise (SOE)
 Industry: Crane manufacturing
 Founded: 1992
 Director: Mr. Guan Tongxian
 Parent: China Communications Construction
 Achievement: for 78 percent of the global port
equipment production market.

Case Study Questions
 What are the key factors contributing to the miracle that
ZPMC has created under the leadership of Guan Tongxian?
Consider bother internal and external factors.
 What kind of leadership has Guan Tongxian demonstrated to
his subordinates? What are the effects of this type of
leadership?
 How has the personal experience of Guan Tongxian
influenced the formation of his leadership style?
 What are the implications of Guan Tongxian’s story for
Chinese entrepreneurs? © Baiyin Yang All rights reserved 杨百寅版权所有

CASE: 3-810-321
A Late Bloomer: ZPMC CEO Guan Tongxian
Introduction
On December 8, 2009, Shanghai Zhenhua Heavy Industries Co., Ltd. (600320.SH, “ZPMC”) issued a press
release that 76-year-old President Mr. Guan Tongxian had decided to resign due to his age, and his resignation had
been accepted by the XPMC Board of Directors. A special shareholders’ meeting was convened on Christmas Day
and agreed to recruit a new president. “Age might not be the main reason of his resignation. He’s had his mind set
for some time,” said an investment company manager familiar with ZPMC. Mr. Guan told his employees that he
wanted no media interviews so his departure would be low profile.1 However, his experiences and achievements in
the past decade were flashing through his mind as he left ZPMC, the world’s largest manufacturer of port
machinery and large steel structures. As the eldest CEO of a state-owned listed company, he had created a miracle
over the past several years.
“Any important port in the world that has container handling operations should have container machinery made
in China.” In February 1992, with this dream, 59-year-old Guan Tongxian came to Shanghai, bringing thirteen
people from the product design, quality control, production and marketing departments of the Shanghai Port
Machinery Company to start a new venture with one million US dollars. Today, ZPMC has assets of over 7 billion
US dollars. World Cargo News statistics show that products of ZPMC have had the largest global market share
since 1998, and the company has had strong financial results (See Table 1). In gantry crane shipments for example,
ZPMC attained nearly 76% international market share in 2009, beating all other tough competitors, such as
Mitsubishi, Mitsui, Hyundai, Samsung, Krupp. Despite the company’s grand success, the ZPMC’s annual reports
noted, Guan made only 50,000 US dollars a year and held no equity and kept such a low public profile.
Suffering Many Mishaps and Swallowing an Misapprehension
Guan’s early years were tough. Two years after he graduated from Beijing Engineering College (Now Beijing
Institute of Technology) and was serving as a technician at the Bureau of Water Transport under the Ministry of
Transport at the age of 24, he was wrongly classified as a rightist in 1957. He was criticized by name in the
People’s Daily ( the most authoritative newspaper in China) and transferred to a farm in the Great Northern
Wilderness, a remote place in Heilongjiang province for labor reform. During these years, he developed strong
self-discipline battling the harsh life on the wild land. He recalls, “I lived like grass, humble, yet sturdy.”2 When
his case was redressed and his innocence was established in the late 1970s, he returned to Beijing.
After the Cultural Revolution, Guan was proven innocent. He returned to the Ministry of Transport and served
successively as deputy division chief in the Bureau of Water Transport of the Ministry of Transport and as chief for

1
Source: First Financial Daily, December 9, 2009
2
Source: China Entrepreneur, September 28, 2009, “Guan Tongxian: A Passionate Old Man who Starts his Own Business at 59”, He
Yifan
——————————————————————————————————————————————————————
This case was prepared by YANG Baiyin and GAO Ang, both of Tsinghua University, and CHEN Lu, University of Electronic
Science and Technology under the supervision of Professor F. Warren McFarlan of Harvard Business School, as the basis for class
discussion rather than to illustrate either an effective or ineffective administrative situation.
Copyright @ Tsinghua University School of Economics and Management. To order copies or request permission for class use,
call +86 10 62789786, or visit China Business Case Center website http://www.ecase.edu.cn. No part of this publication may be
duplicated, transmitted or used in any form or by any means without the permission of Tsinghua University School of Economics and
Management.
(Note: This project was supported by the National Science Foundation of China (NSFC Projects 70725005 and 71172009).

the marine engineering division of China Harbour Engineering Co., Ltd. until 1992. He recalled, “Since there was
no regulation on retirement, I asked the company to send me to Shanghai.” Familiar with port machinery, Guan had
always wondered why China had to import port cranes from other countries rather making its own.
In 1992, Guan Tongxian decided to plunge into this business when he felt frustrated for his official career. With
the approval of his leader in the Ministry of Transport, he established a Sino-foreign joint venture with registered
capital of one million US dollars, half million USD invested by a subsidiary of China Harbour Engineering
Company in Hong Kong and the other half invested by Shanghai Port Machinery Company who gave it land use
rights as its investment share. Guan started Zhenhua Port Machinery with the 13 people from the Shanghai Port
Machinery Company, and a simple rented office on Pudong South Road next to the Shanghai Port Machinery
Company. Although Zhenhua could take advantage of the supportive government policy for foreign venture
because of the HK investment, there was no plant, elite, sufficient funds or leading technology, only ambition. Due
to his lost time during the Cultural Revolution, Guan deeply valued the opportunity. He said, “The useful time in
one’s life is quite short, we should settle down to our work and be focused as otherwise time will slip away very
fast.”3 “By picking the name of ‘Zhenhua,’ we signaled that we wanted to rejuvenate China’s economy. I still
remember going abroad and trying to find goods ‘made in China’ in large stores. We couldn’t. The tour guide
instead led us to the flea market. He told us things ‘made in China’ are sold there, cheap and low quality. It was at
that moment that I became determined to make our own container cranes that one day would make the whole world
proud.”4
Grasping the Right Opportunities

In the early 1990s, most of the world’s port machinery was made by large enterprises in Japan, the Republic of
Korea, the United States and European countries. There were many huge companies such as Mitsubishi Heavy
Industries, Mitsu, Ishikawajima-Harima, Krupp, Nore, Samsung, Hyundai, etc, which together held 95% of the
world market. The port machinery used in China was mainly imported. The technical level of domestic port
machine enterprises was far behind international counterparts. As a startup company, it was extremely difficult for
ZPMC. “Our bids were always rejected. We made five bids in Singapore, all failed. As port machinery is a durable
industrial product, users consider the brand to be the number one priority versus price. (In this industry), brand
represents your quality and technology,”5 Guan recalled. Finally, we got our chance.
At the end of 1991, the port of Vancouver needed a container crane. Companies from Yugoslavia and Argentina
bid on this deal besides ZPMC. The Yugoslav products had better quality. But the coming civil war made the
Canadian port worry about the potential risks. On behalf of Shanghai Port Machinery Company, ZPMC finally got
this order at the price of 5.46 million US dollars lower than the competing price of 7.5 million dollars. To ensure
the quality on this first order, ZPMC not only learned from the Shanghai Port Machinery Company, but also
organized a team to visit other ports and understand their key product features. Following international standards,
ZPMC strictly controlled its manufacturing process to ensure quality. Any key components that could not be at
produced at acceptable quality locally were purchased from well-known global suppliers. ZPMC tried to create a
high-performance piece of technical art, rather than a heavy machine. Although their first order was not profitable,
its high quality helped establish ZPMC’s reputation in the industry which introducing ZPMC to the global market.
In 1993, the port of Vancouver bought another device from ZPMC. During the early days, ZPMC operated on

3
Source: 21st Century Economic Report, September 26, 2009, “A Cool 76-year-old President of a Central Enterprise: Guan Tongxian”,
Wang Jie
4
Source: Wen Wei Po, December 15, 2008, “Guan Tongxian: Make the Whole World Sit up and Take Notice at ‘Made in China’”,
Zheng Wei
5
Source: First Financial Daily, April 30, 2008, “ZPMC Port Machine: Made in China, Lead the World”, Xiao Yao
2 / 17

borrowed money. With support of some Shanghai official committees, in 1993 ZPMC got bank loans for its
infrastructure construction guaranteed by China Harbour Engineering Company.
Immediately after the initial success, another major challenge emerged--port machinery transportation. As
marine transportation of large machinery was a virtual monopoly, the service provider demanded exorbitant prices
and assumed no risk for delay. ZPMC began to build its own fleet but failed to raise money at the beginning.
Coincidently, Canada Habor Agency happened to hold a reception in Shanghai in 1993. ZPMC seized this
opportunity and reported this problem to government officers. Finally ZPMC got the mayor’s support and
successfully obtained an overseas loan from a state bank to buy a used ship at a price of 4 million dollars. By that
time, ZPMC had being capable to ship products to its overseas clients.
In 1994, the port of Miami placed a one-time order of four sets of customized products allowing ZPMC to
enter the US market. By studying the technology of competing products, adding innovations and using its very
cost-efficient labor, ZPMC improved and began to surpass its competitors.
From 1995 on, ZPMC’s annual output value grew by 30% per year. In 1997, the company was listed in the B
share stock market, raising 41.1350 million US dollars6. In 1998, it took the lead in the container machinery
manufacturing industry gaining 25% market share in the international market, initially, establishing itself as an
industry giant. In 2000, ZPMC was listed in the A share stock market and raised 101.4528 million US dollars for
further development (1 US dollar = 8.26 RMB at that time). In 2001, ZPMC made a successful foray into Europe
(with total sales value of 200 million US dollars) as its independently developed product – “double trolley container
gantry crane” was launched in Germany, the “land of crane.” In the same year, ZPMC won the largest order of the
century in the United States – 20 superpost-Panamax cranes for the Port of Long Beach (total value of about 140
million US dollars). On May 2, 2002 during President Hu Jintao’s visit to the United States, Hu’s party was about
to cross San Francisco’s Golden Gate bridge when they were informed the road would be closed for passing of a
ZPMC ship. On board were four 80-meter-high gantry cranes, which passed under the bridge with only 30
centimeters to spare. People flocked to see the enormous machines. President Hu assigned the diplomatic officer
Yang to sent a special congratulatory telegram to ZPMC to celebrate this. In 2004, ZPMC expanded into the port
bulk cargo loading/unloading market, and achieved success using its technologies and social networks gained in the
field of container machinery. Today, at bid invitation meetings of world-class ports, some competitors quit on
seeing a representative from ZPMC present.
As the port machinery market became saturated, Guan Tongxian started to look for new profit growth markets
at the very beginning of 21 century. He believed that Shanghai was the suitable place for ZPMC to enter the marine
engineering business with a focus on marine heavy machinery. “Shanghai can develop into a world marine
engineering center in the future. First, it has a good working environment which helps retain people; second, it has
a nice climate that gives three months or more outdoor operation time than Northeast and North China; third,
Shanghai has a long history in overseas trade and people here are familiar with the business rules. Besides that,
many ship inspection and certification organizations have offices or headquarters in Shanghai. This suggested that
specialized production plants (underwater robots and drilling equipment) could swarm into Shanghai in a few
years.”7 If “ZPMC could account for a market share of 5 billion US dollars in the field of marine heavy industry in
five to eight years, it would account for half of its sales.”
In 2008, the company changed its name from Zhenhua Port Machinery into Zhenhua Heavy Industries

6
Source: “The Centrally Controlled Financial Management” in The Best Practice of ZPMC, 2011, China Machine Press.
7
Source: Shanghai Securities News, April 14, 2009, “World Port Machinery Giant Intends to Explore a New Market”, Zhu Guodong
and Yang Weizhong
3 / 17

proclaiming its new development. Although the gross output value of port machinery would not be reduced, the
development of marine equipment and large steel structure businesses meant the traditional port machinery
products would account for a smaller proportion in the total output value of the enterprise. The new name reflects
this change.
Pursuing the Development

The global market for container machinery is about 4 to 5 billion US dollars. ZPMC has more than 3/4 share of
this, so there is little room for growth. Guan wanted to leave 1/4 market share for competitors in order to keep the
company on edge through competition. Port machinery, the first product of the company, had brought many
benefits to ZPMC, but Guan believes that “those that are complacent over the mines they own are short-sighted.
ZPMC will never be content with to simply remain in the port machinery market.” As noted above, years earlier,
Guan turned his attention to maritime heavy industry, a market of nearly 100 billion US dollars. An investment in
large marine revolving floating cranes, entailed huge investment risk, but Guan stuck to his opinions and moved
into the marine heavy industry market while ignoring the opposite voices in the company. Finally ZPMC produced
a 4000 tons marine revolving floating crane which successfully helped salvage of “Nanhai No 1”, a famous ancient
ship sunk over 700 years.
Guan noted, “We wanted to explore new industry areas, and targeted the large steel bridge and marine heavy
industries. The latter became our main focus.”8 First, the marine industry market has a good prospect. The global
marine industry equipment market is huge and profitable. With increasing demands for petroleum resources and
maturing submarine oil exploration technology, there were growing demands for marine heavy industry equipment.
“Due to the high entry barriers of the industry, marine industry products have high gross margins,” noted Guan. In
fact, the margins of the marine heavy industry are 30-50% (much higher than that of port machinery). Second,
ZPMC had important assets for the task. Its company owned three manufacturing and assembly facilities adjacent
to water. Its base on Changxing Island, Shanghai had a 5-kilometer-long waterside operation ground, a
one-million-square-meter indoor workshop, heavy-duty floating cranes and a 3.7-kilometer-long heavy cargo wharf.
Guan believed that these production capacities were rare. Third, ZPMC’s technical R&D was strong. It had over
40,000 employees including 3,000 R&D personnel and 7,500 skilled welders. In addition, it had made a successful
launch in the marine heavy machinery industry by completing and delivering a 4,000-ton revolving floating crane
and a 7,500-ton revolving floating crane in 2006 and 2008 to Guangzhou Salvage Bureau and CNOOC
respectively.
An Entrepreneur with Chinese Complex
A Dauntless and Ambitious Novice

A few decades ago when Guan was deputy division chief in the Bureau of Water Transport in the Ministry of
Transport, Chinese enterprises lacked experience and technology. Their machines were worse than products from
foreign companies who lost bids. China mainly imported port cranes from other countries at a high price, many of
them being used ones. “You cannot imagine the arrogance of the foreign competitors. They simply looked down
upon us,” sighed Guan.
In 1978 the government proposed “Market-oriented Economy Revolution” and opened the door for overseas

8
and Yang Weizhong
4 / 17

business. However, both economy and policy environment were not stable until General Secretary Deng Xiaoping’s
Southern Tour in 1992. Since that time local private enterprises had been emerging. However, due to the lack of
technical skills, most had to start processing and manufacturing at the bottom of the value chain. They had to
transition from low cost and price wars, to a focus on high tech by integrating industry-academy-research; from
“wait, depend and request” to service against global competitors in market economy; from imitating to promoting
independent innovation to facing international competition. ZPMC was aiming to the American market for Guan
thought “American clients are tough in the world, and their admission means a lot. If ZPMC can take American
orders, of course, its products will admitted by all the other clients”. Guan proved himself right. This Chinese
enterprise worked to surpass their western counterparts accumulating half a century experience in just two decades.
“Why did our employees always rush on regardless of their own safety in the face of difficulties? It’s the
patriotism and sense of mission to rejuvenate the nation that helped people overcome difficulties and earn honor for
our country. As a colleague wrote in his annual report, ‘I reshaped my understanding of the value of my life after I
joined ZPMC’.” The mission to “lead the world and rejuvenate China” is rooted in Chinese traditional culture. It
guides and encourages ZPMC people to deliver amazing performance.”9
Leading through Example

A practical attitude toward work is found at ZPMC’s staff, from Guan Tongxian himself to the front-line
workers. “Modest” and “low profile” is how acquaintances describe him. He said, “People at my age think
differently from the young people today. We want to do things well. We do things just because we like to do them
instead of to get awards. Awards are just the natural results of what we have achieved.” Under Guan, ZPMC’s
culture was one of professionalism and pragmatism, advocating employees serving customers in a professional and
loyal manner, being devoted to the company and having a practical attitude toward work. Guan recalled ZPMC’s
experience of breaking into the Hong Kong market, “The Hong Kong buyer required us to remove two old
machines and replace them with two new cranes (each 1,500 tons) in a 48 hour time period. It was nearly
impossible (it usually cost 4 or 5 days for equipping one crane). However, we had some ‘warriors’ who, while not
well educated, were skilled. By careful preparation, we were confident we could fulfill the mission. Unfortunately,
on the day of installation, it rained heavily. While others were watching on the wharf with umbrellas, our workers
stood firmly in the rain and following carefully every order as even a slight error might be dangerous. We
accomplished the mission on time.”10 Hong Kong, the wharf with the highest container handling efficiency in the
world, has high standards for its handling machinery. Previously it only bought equipment from Japan, Korea,
Europe and America. However, ZPMC, after this success, dominated the HK market.
In his seventies, Guan still works from 7:00 in the morning to 8:00 in the evening, sometimes even to midnight.
He always stays overnight in the company hotel, and takes neither weekends nor holidays. His mobile phone is on
around the clock. Vice President Dai Wenkai recalled, “Mr. Guan is so energetic. Most of his waking hours are
spent at work. On international business trips, he will sleep during the journey and start the meeting immediately
upon arriving at the destination, not stopping due to jet lag. He immediately flies back after work is finished. If the
destination is Hong Kong, he usually comes back the same day. His influence encourages employees to come to the
company directly from the airport instead of going home, unless it is night time. This professional attitude and
working style, has enabled us to win market share and respect from customers. International customers and partners

9
Source: Science & Technology Industry Parks, issue 07, 2006, “Through Independent Innovation, Our Products Lead the World –
Report on Independent Innovation of ZPMC”, Chen Gang
10
Source: First Financial Daily, June 21, 2011, “Founder of ZPMC: Employees’ Personal Affairs must be Disciplined”, Wang You
5 / 17

today now recognize that ZPMC is a large high-performing international company.”11
Front-line workers are influenced by the attitude of executives. “Employees of some other companies play
cards after work or even think about how to entertain themselves during working hours. At ZPMC, instead of
playing cards, migrant workers like to work because they want to earn more money by the end of the year for their
family,” noted Guan. Groups of migrant farmers have been trained to become practical industrial workers at
ZPMC. At the Changxing Island production base, they work overtime voluntarily until the company lights-out time.
Innovating
Through independent innovation, ZPMC has both maintained its global leadership in port machinery and
opened new markets of the marine heavy machine industry equipment and steel structures. Having worked as a
technician, Guan has proposed many ideas on product innovation. He is enthusiastic about technical seminars, and
has strong views on the development of industrial technology. He notes, “Apart from product quality, price and
post-sale service, the main competitive tool for an enterprise to survive the market competition is continuous and
independent innovation.” Employees must “learn to swim by swimming” and the company must “develop a
world-class product every year.” “ZPMC is not only making qualified products, but also cultivating talents. And we
learn in actions”
Globalization has increased demand for marine transportation and port equipment. When a ship enters and
leaves the port, container handling efficiency is the most important thing. Guan challenged his staff noting: “the
most advanced equipment can only lift one 40-inch boxes at a time. We, however, will make a gantry crane that
can lift two 40-inch boxes at a time.” Guan believed anything could be possible through innovation and lead his
colleagues working on it. After 3 years, the first two 40-inch crane was launched in Shanghai. It cost another 3
years to get foreign clients’ admission. By now nearly 300 sets have been sold, and “two 40-inch” became a key
project of ZPMC. During the product development, he dealt with routine affairs in the daytime, and worked on the
project at night; he usually postponed dinner until 20:00, and after dinner, then joined the R&D personnel again.
The technical problems were solved one after another. According to Shan Jianguo, machine office director, “We
faced many difficulties while developing the ‘two 40-inch’ crane, but usually regained our confidence after
discussing them with Mr. Guan.”12 The “two 40-inch” crane was an immediate commercial success.
It surpassed Japanese, American and Korean competitors lifting 80 tons at a time and improving efficiency by
50%. This crane has become the first choice of many newly built wharfs in America or Europe. Even the Germans,
who doubted the feasibility of “two 40-inch” at the beginning, are now purchasing this product.
In July 2008, the Euromax Terminal, the world’s largest and most advanced container automated terminal,
opened in Rotterdam, the Netherlands. This terminal has an annual throughput of 2.3 million standard containers.
It operates with 50 employees. Its 76 pieces of automated equipment, 16 container gantry cranes, 58 rail-mounted
gantry cranes and 2 railway cranes worth over 200 million euros were all built by ZPMC. During the bidding,
although an Austrian container crane manufacturer offered a price lower than ZPMC, the Port of Rotterdam
selected ZPMC. “That’s because the Port of Rotterdam focused more on overall durability of the equipment.
Container gantry cranes are both technology- and labor-intensive. As container ships become larger, consignors
have tighter requirements for shipment date, and shipping companies call for shorter handling time, and efficiency

11
Zheng Wei
12
Source: Jiefang Daily, March 25, 2010, “ZPMC Former President Guan Tongxian: A Miracle in His Latter Half of Life”, Xu Ruizhe
6 / 17

requirements for container gantry cranes have increased,” explained Guan.13
The technical advantages of ZPMC accumulated through practice and continuous learning from success and
failure. For example, in 2000 when GPS was invented with accuracy of only 1 centimeter, ZPMC began to
incorporate it with its other technologies. ZPMC was able to ultimately introduce control software which
coordinates operation of gantry crane through GPS, which can now locate a container position to an accuracy of 15
millimeters.
The company invests 3% of its gross output value into technical R&D every year, and owns 328 domestic and
foreign patents. It won the first prize of National Science and Technology Progress competition in 2005 (this honor
has never been awarded to a company before), the second prize in 2008, and the first prize in 2010 with the project
“Key Technologies and Applications of Revolving Floating of Marine Heavy Duty Lifting Equipment” based on
the key technologies of 4,000-ton and 7,500-ton revolving floating cranes.
Institution Building
Guan extended the independent innovation culture of ZPMC from product technology to institution building.
ZPMC has both the prestige of a state-owned enterprise and the flexible, independent operation of a joint venture.
“As a state-owned enterprise, we are far from Beijing. Additionally, the Shanghai government supports but does not
intervene into our business,” joked Guan.14 The group company is organized in full compliance with Chinese
company law. The management is nominated by the President and approved by the board of directors instead of
being assigned by higher authority. The enterprise is owned by shareholders and the President is responsible to
shareholders. As to the role of the Party in the company, Guan explained, “According to the party constitution, the
primary role of the Party is not to lead the business operation of the organization... According to Chinese company
law, a party organization manages Party members instead of cadres in a company... Who decides the management?
The President. How can we operate the business if I can’t choose the management?” Then Guan said, “ZPMC is a
company that strictly implements the Chinese company law and acts in line with national policies. ZPMC has
combined advantages of a state-owned enterprise, a joint-venture and a private company.”
People-oriented. “We need educated ones, but not only them; we need young ones, but not only them; we need
capable ones, but not only focusing their previous performance” Guan proposed his employee selection rule. He
defines innovative people as lying in two categories: the first are well-educated people with basic skills in foreign
languages and computers; the second are people who are not well educated but are enthusiastic and skillful. Our
policy brings both categories of motivated employees together, giving full play to their respective advantages to
promote business development. Some employees with medium academic education are recruited to form a
technical echelon. These employees are aspiring, humble and, most importantly, stable. Influenced by ZPMC’s
culture, they undertake further study at night school or university. Many go on to complete university degrees and
become the backbone of the company. Some become department managers. For example, the top three winners of
the annual Chinese and English typing contest are always among them. An effective technical team, needs a
combination of high academic degrees (masters degree and above), general academic degree (college students) and
technical school students to achieve the best performance.15
Training and Development. Guan believes that talent cannot be bought but must be cultivated by a company.

13
and Yang Weizhong
14
Source: 21st Century Economic Report, September 26, 2009, “A Cool 76-year-old President of a Central Enterprise: Guan
Tongxian”, Wang Jie
15
Source: Guangming Daily, June 26, 2006, “Independent Innovation Keeps our Products Ahead of Global Peers”, Guan Tongxian
7 / 17

Although engineers, technicians and managers graduate from schools, they become true engineers, economists and
accountants only after re-training at ZPMC. For well-educated individuals, Guan emphasizes that the company
considers their special cultural requirements and psychological needs to give full play to their advantages.
Innovation is what attracts these individuals to work. ZPMC creates conditions and select the right leader for them
so that the team can grow bigger and stronger through practice. Today, the design and R&D team of over 800
people is one of the biggest, strongest and most experienced industry teams in the world. ZPMC also focuses on
training front-line workers. Guan repeatedly notes that although not well educated, migrant workers are hard
working. ZPMC can train migrant workers to become skillful. Today, ZPMC has the world’s biggest welder team
consisting of thousands of people.16
Institutional Innovation. ZPMC employees are both white collar and blue collar: white collar are non-manual
workers, and they are engaged in functional management, technical development, marketing and post-sale services.
Technical developers account for over half this group. Blue collar are manual workers, and they are engaged in
product manufacturing and assist production at the company’s facilities. Most are migrant workers with only a few
from the city.17 The blue collar workers account for more than 90% of the total number of people at ZPMC. They
are not “regular employees” but work for ZPMC through signed service contracts. The company manages the huge
team of blue collar workers through a “contract system”, which principle is “quantitative evaluation and more pay
for more work ”. In fact, ZPMC signs contract with the labor service companies. The contractors undertake
construction tasks of the facilities and employ workers. They take charge of product manufacturing, technological
instructing, financial accosting, quality monitoring, and safety controlling on behalf of ZPMC facilities.
Generous Compensation. ZPMC employees’ hard work is closely tied to the company’s reward system. In
ZPMC, the average salary of the first-line workers is nearly 3,000 yuan (RMB), (Analysis on Salary Condition of
Grass-rooted Employee in Yangtze River Delta 2011 officially published by Suzhou Humanpool Human Resources
Institute indicates the average salary of Shanghai first-line workers in 2011 is 2,193 yuan) which is comparatively
higher than other companies in Shanghai. Additionally, ZPMC provides employees with generous welfare, and
gives allowances or interest-free loans for home purchase, sickness leave, and children’s overseas schooling.
Although the company’s annual profit is hundreds of millions of dollars, the annual incomes of senior executives
averages only 450,000 Yuan, while Guan’s annual income of 350,000 Yuan is not among the company’s top ten
(See Table 2). Guan said with a smile that his low salary is due to his poor English. In ZPMC, an English
examination is held every year. The score is linked to salary, and the eligible employees can enjoy the allowance of
thousands of Yuan per month if they do well on the test. ZPMC has about 4,000 management and professional
technical personnel with average monthly income of over 10,000 yuan. The maximum salary of these individuals,
however, is no more than three times that of the minimum one. According to Mr. Guan, “leaders shall make some
sacrifice.”18 However, in order to encourage innovation, ZPMC sets generous bonus targets for scientific and
technical personnel with annual expenditures in this category of more than ten millions yuan. In 2003, there were
four one million RMB awards. Additionally, ZPMC introduced the “Toast of ZPMC” that grants the winners a
gold medal and a monetary award. Winners also got better housing, medical insurance and better support in
retirement. The “Toast of ZPMC,” selection is not linked to position and education background but only to
company contribution. It is the highest honor and reward for independent innovation. It is an honor available for
everyone. Guan insists that all employees should benefit from the development of ZPMC. For blue collars, he takes

16
Source: Guangming Daily, June 26, 2006, “Independent Innovation Keeps our Products Ahead of Global Peers”, Guan Tongxian
17
Source: Teaching case of School of Economics and Management, Tsinghua University, 2007, “Blue Collar Management of
ZPMC”, Wang Xueli
18
Yifan
8 / 17

good care of their accommodation during workdays, and arranges shuttle buses for their family reunion by the end
of the year. Guan said: “I myself was at the bottom of society for a long time, so I know what they need and what
they think.”19
Benevolence to Employees. In 2007, Guan announced that ZPMC will annually raises the employees’ salary
by 10% for its rapid development, (in semi-annual increments), higher than the inflation rate. And he fulfilled his
promise. During the early days, ZPMC bought houses for employees by borrowing money from banks, and
providing interest-free housing loans. In addition, ZPMC also provided employees with interest-free loans for autos
and their license fees.
To relieve the stress on key experienced engineers, the company employs students from technical schools as
their assistants or secretaries. In 2008, ZPMC established a foundation for mutual assistance among employees at
the proposal of Mr. Guan, (who gave it his full amount of bonus in that year). On seeing this, all other executives
(some with reluctance), also gave out their own bonus to the foundation.
Not all focus was on technical personnel, ZPMC also focused on the first-line workers. In addition to the
technical training for the blue-collar workers including migrant workers at the base, ZPMC also carried out seven
other initiatives. These included apartments with rooms for 4-6 people, free laundry facilities and an annual
physical examination. Guan Tongxian believed that an innovation culture must include both technical managers and
first-line workers.
Retaining Employees. According to the company’s regulations, the retirement age is not age contingent. All
people will be retained provided that they are in good health, capable and needed by the job. “Since it always takes
5-10 years to launch a major business in an enterprise, if the people of sixty have to retire, then only those below
fifty could work on these projects” Indeed, the development of ZPMC is inseparable from the retention of
experienced senior employees. Guan Tongxian may be the eldest CEO in a domestic listed company. In ZPMC
there is an interesting rule that if you are capable and can climb to the top of a crane (about 70-80 meters high), you
can stay. To prove that he is in good health and competent for the job, he has even climbed a crane. Wu Xianda,
ZPMC’s chief engineer who is three years older than Mr. Guan, not only personally still draws designs, but is the
head for solving the company’s emergencies.
Global Vision with Chinese Roots
As a native Beijinger and born into a scholarly family, Guan was influenced by the old generation of
intellectuals in his childhood: “At that time, there were old Xiucai and Jinshi20 in Beijing, and I followed them to
learn Chinese poems and listen to them speak of Confucianism that promotes the idea of ‘cultivating oneself,
putting one’s family in order, ruling the country and giving peace to the world.’”21 As one of the second year
university students after the founding of the People’s Republic of China, Guan recalled: “The university students at
that time were all simply studying to build the country. Though majoring in engineering, everyone was active and
would recite a poem after turning out the light at night. I gradually came to appreciate the beauty in the classical
literature. Take Libai’s Preface to Spring Banquet with Brother in Peach Garden for example, ‘the world is an inn
for all creatures and time is a passing traveler of endless generations. The floating life is like a dream, and how

19
Source: Baosteel Daily, January 30, 2010, “Interview with Guan Tongxian—Former President of ZPMC”, Wang Danyun
20
Xiucai and Jinshi are two different titles of traditional Chinese scholars. Xiucai was awarded to those who passed the imperial
examination at the county level, and Jinshi refers to third degree candidate in the national level.
21
Yifan
9 / 17

brief the enjoyment is.’ Life was thoroughly interpreted in just such few words.”
When he was twenty-four years old, Guan Tongxian wrongly classified as a rightist served as a farmer for ten
years and as a factory worker for another decade in the Great Northern Wildness in northeast China. At the time for
reform and opening up, Guan was already middle aged. Whenever people talked about the injustice and suffering in
those years, Guan always keeps silent and simply says: “It is all over now”. Look for the good, the hardship
strengthen his willpower. Starting ZPMC at nearly sixty, he threw himself wholeheartedly into the company. Even
after his retirement, he notes, “I feel life is meaningful only by working on something. I’ve never thought of
retirement ”Although all his relatives live abroad, he still want to stay in China.
As head of one of today’s few China enterprises with both a world famous brand and a public listing, President
Gong Tongxian still doesn’t have a separate office. The area for the president is only ten square meters. Over the
decades, he has insisted on working beside the subordinates just as in the beginning. Guan never bought a house in
Shanghai, but stays in the company hotel.
Guan treats the ZPMC’s employees like his family members with strict requirement and considerate care. In
ZPMC, there are some “imperative” regulations. For example, whatever leadership position you take, smoking,
excessive drinking and gambling are prohibited as long as you work for ZPMC. “We even prevent the employees
from getting involved in extramarital affairs.” Guan said, “Some people say the employees’ personal affairs are
beyond my control, but I disagree. Harmony brings wealth, so the family harmony is of significant importance. As I
can fire them, it is more effective than the court judgment and social moral condemnation. Only by strictly
implementing orders and prohibitions can an enterprise achieve combat-effectiveness.”22
According to Tian Hong, ex-Vice President of ZPMC, all executives in ZPMC have the Encyclopedia of China
History, China Stories and Series of World’s Influential Progress presented by President Guan Tongxian as gifts.
He has often stated at meetings that without ambition and vision, enterprises cannot be sustained. Without dreams,
people cannot be talented. ZPMC’s dream is China rejuvenation which stimulate all its employees.
Tian Hong notes, “Take the President as an example. He cares little about money. His annual income is less
than the scientific and technical personnel who win the major prize. His house is in Beijing but he hasn’t bought a
house in Shanghai although he has been here for many years. When his wife comes to Shanghai, they accommodate
themselves in the company’s hotel. The accommodation condition for tens of thousands of migrant workers in
ZPMC may be the best in Shanghai. Six people live in one apartment that has air conditioning, color TV and
bathing facilities. During the Wenchuan earthquake this year, the company made a total donation of 30 million yuan,
nearly half of which was voluntarily donated by the employees. Even some first-line workers made personal
donations of more than one thousand Yuan. This all embodied the enterprise’s cohesion that converges into national
cohesion.”23
Guan noted “Our first crane was sold to the port of Vancouver. At the beginning of the 21st century when we
were producing the 1000th crane, Mr. Murphy from Vancouver who bought our first crane came to me to indicate
that Vancouver would show the friendship and support for ZPMC by purchasing the crane. I told him that we can
sell the 1000th crane to him at the same price as the previous decade (5.46 million dollars, while the market price
now was more than 8 million dollars). Why to take such action? In China we have an old saying ‘when drinking
water we should think of its source just like to remember where one’s happiness comes from.’ China is a nation that

22
23
Zheng Wei
10 / 17

values friendship and mutual benefits. We think friendship outweighs money. Had they not purchased our first
crane, we would not have the opportunity to rapidly enter the world market.”24
Guan and colleagues from ZPMC rapidly learned about market competition. He recalled, “Initially, we had
difficulties in transportation. A ship is 70-80 meters high when the port cranes are loaded on it. There was only
one professional shipping company in the world with the capability to transport such a product from Shanghai to
Vancouver. For the first shipment, they charged 0.95 million dollars per crane, and 1.2 million dollars for the
second time. From then on, we began to construct our own fleet.”25 “We should see the good side of the pains, and
they might be the sources of opportunity. At least, ZPMC benefits from them”, Guan said. He believed that the
secret for ZPMC’s rapid growth and success was its independent innovation capability. He always quotes Mao
Zedong’s words that “we shall learn to swim by swimming and learn war through battles.” According to Guan,
competing with the powers in the fierce market competition was the driving force for ZPMC’s constant innovation.
Guan’s personal style is caught in his analysis of the state-owned enterprise system and the market rules. In his
view, “to strictly adhere to Chinese company law” and “to be loyal to the country in thought and politics” are not
mutually exclusive. Guan personally summarized ZPMC’s successful experience to lead in the world as “first, a
good market and core competitive advantage over the competitors; second, a highly motivated and capable team
with ambition; third, constant and independent innovation.”26 In terms of company’s internal management, Guan
once said: “one third of my time is used for technical development, another third for market research and the
remaining third for production research.”27
Guan said: “I’ve worshiped nobody throughout my life. Li Hongzhang, Zeng Guofan, Zhang Yuanji (founder
of the Commercial Press), and Zhang Qian are all famous people with noble virtues and super talents. I admire
them, but not worship them.
Guan always attributed his achievement to the environment brought by China’s reform & opening up: “Deng
Xiaoping’s south tour in 1992 was an unforeseen background when we started the business. Without such a tour, we
cannot keep a foothold in Pudong. It changes our political officers’ mind in economy. Xiaoping felt very anxious
about the slow development. Sixty years after the founding of the People’s Republic of China, we can see the real
commodity economy only started after Xiaoping’s south tour which created a favorable environment for us.”28
Although he achieved the remarkable success in career, Mr. Guan also has his regret: “I owe nobody but my
mother in my life. It is she who taught me to be strong. When I encountered the misfortune, many people around
me made a clean break with me. My mother didn’t discard me. At the age of one hundred and one, my mother
passed away in 2002, while I was in Shanghai when she was sick.
ZPMC Today
While Guan has resigned from his position as president of ZPMC, the enterprise continues to prosper. In
September 2013, the U.S. San Francisco-Oakland Bay Bridge was successfully completed, and ZPMC, along the
blueprint outlined by Mr. Guan, successfully entered the marine heavy machine industry and large-scale steel

24
25
Yifan
26
Source: First Financial Daily, June 5, 2008, “Market Drives Us to Move Forward”, Xiao Yao
27
Source: First Financial Daily, April 30, 2008, “ZPMC Port Machine: Made in China, Lead the World”, Xiao Yao
28
Yifan
11 / 17

structure market as new businesses. In addition, ZPMC also constructed in Changxing Island the world’s first
environment-friendly full-automation port demonstration area for the emerging market 8 years ago, which has been
highly regarded by experts at home and abroad and recognized as the direction for the future development of the
world’s ports. Such a fully-automated port featuring energy conservation and environmental protection creates
production efficiency improvements of at least 50%. Though the one-time investment is 1/4-1/3 higher than the
normal port, the operating cost is 1/2 of the normal port. ZPMC is currently researching and developing the
new-generation gantry cranes. It has also manufactured the larger floating crane that can hoist 12,000 tones of
goods… Asked if he is accustomed to the retired life after resigning from ZPMC as president, Guan smiled: “It is
not the time to relax totally, learning how to use a computer, teaching in college, and mentoring some graduate
students. I’m still busy now, haw-haw…”29

29
Source: Baosteel Daily, January 30, 2010, “Interview with Guan Tongxian—Former President of ZPMC”, Wang Danyun
12 / 17


Table I: Major Accounting Data and Financial Index of ZPMC during 2001-2009
Index items 2001 2002 2003 2004 2005 2006 2007 2008 2009
Major business
2,885,460,045 3,074,237,616 4,628,172,800 7,193,674,688 12,104,795,828 16,808,374,363 21,005,474,031 27,443,405,347 27,564,115,642
revenue
Net profit 191,532,232 137,004,461 277,692,747 465,028,796 1207,529,083 1,602,472,072 2,004,572,836 2,551,063,379 839,853,345
Total assets 4,467,633,868 5,205,288,896 7,281,864,087 10,828,538,152 13,975,965,881 19,640,876,401 29,115,331,106 53,582,768,850 51,066,425,862
Shareholders’
equity (excluding
the minority 1,805,331,883 1,851,036,344 2,128,729,091 3,487,064,467 4,571,319,950 5,865,608,022 11,113,874,846 15,320,701,808 15,812,245,251
shareholders’
equity)
Net assets per

3.95 4.05 4.66 3.39 2.97 1.90 2.94 3.49 3.60
share (yuan/share)
Net cash flows per

share from -0.44 -0.33 -0.27 0.15 -0.30 0.29 0.17 -1.21 0.13
operating
Earning per share
0.42 0.30 0.61 0.45 0.78 0.52 0.65 0.76 0.19
(fully diluted)
Weighed average
return on net
assets after 9.94 7.23 15.31 19.78 30.04 30.70 27.72 10.44 4.63
non-recurring
profit and loss (%)
Source: 2000-2009 Annual Report of ZPMC
13 / 17


Table II: Remuneration of Senior Executives (President and Vice President) of ZPMC in 2008
Total rewards
Whether be
Shares Shares Amount of Amount of given by the Amount of
Amount of Exercise given by the
held at held at shares with shares Company in the shares with Amount
Name Position Gender Age stock price shareholder
beginning end of trading increased/de report period exercisable exercised
options held (RMB) units or other
of year year restriction creased (10K RMB, right
associated units
pre-tax)
Guan Tongxian Executive director, Male 76 0 0 0 0 0 35 0 0 0 No
president
Liu Qizhong Executive director, Male 45 0 0 0 0 0 38 0 0 0 No
vice president
Yan Yunfu Executive director, Male 50 0 0 0 0 0 37.91 0 0 0 No
vice president
Sun Li Executive director, Male 37 0 0 0 0 0 35.45 0 0 0 No
vice president
Wang Jue CFO, director Male 45 0 0 0 0 0 33.83 0 0 0 No
Huang Hongyu Vice president Male 55 0 0 0 0 0 37.49 0 0 0 No
Tian Hong Vice president Male 46 0 0 0 0 0 36.55 0 0 0 No
Cao Wenfa Vice president Male 62 0 4,000 0 0 4,000 35.45 0 0 0 No
Cao Weizhong Vice president Male 53 0 0 0 0 0 36.89 0 0 0 No
Zhai Liang Vice president Male 63 0 0 0 0 0 35.45 0 0 0 No
Huang Qingfeng Vice president Male 34 0 0 0 0 0 36.3 0 0 0 No
Dai Wenkai Vice president Male 42 0 0 0 0 0 41.14 0 0 0 No
Fei Guo Vice president Male 47 0 0 0 0 0 42.67 0 0 0 No
Zhou Qi Vice president Male 37 0 0 0 0 0 36.47 0 0 0 No
Chen Gang Vice president Male 42 0 0 0 0 0 33.66 0 0 0 No
Liu Jianbo Vice president Male 46 0 0 0 0 0 40.63 0 0 0 No
Source: 2008 Annual Report of ZPMC
14 / 17


Table III: Top 20 container terminals and their throughput for 2007, 2008 and 2009 (in TEUs and percentage change)
2007 2008 2009

Percentage change Percentage change
Port name 20-feet standard 20-feet standard 20-feet standard
2007–2008 2008–2009
container container container
Singapore 27 935 500 29 918 200 25 866 400 7.10 -13.54
Shanghai 26 150 000 27 980 000 25 002 000 7.00 -10.64
Hong Kong 23 998 449 24 248 000 20 983 000 1.04 -13.47
Shenzhen 21 099 169 21 413 888 18 250 100 1.49 -14.77
Busan 13 261 000 13 425 000 11 954 861 1.24 -10.95
Guangzhou 9 200 000 11 001 300 11 190 000 19.58 1.72
Dubai 10 653 026 11 827 299 11 124 082 11.02 -5.95
Ningbo 9 360 000 11 226 000 10 502 800 19.94 -6.44
Qingdao 9 462 000 10 320 000 10 260 000 9.07 -0.58
Rotterdam 10 790 604 10 800 000 9 743 290 0.09 -9.78
Tianjin 7 103 000 8 500 000 8 700 000 19.67 2.35
Kaohsiung 10 256 829 9 676 554 8 581 273 -5.66 -11.32
Port Klang 7 118 714 7 970 000 7 309 779 11.96 -8.28
Antwerp 8 175 952 8 663 736 7 309 639 5.97 -15.63
Hamburg 9 900 000 9 700 000 7 010 000 -2.02 -27.73
Los Angeles 8 355 039 7 849 985 6 748 994 -6.04 -14.03
Tanjung Pelepas 5 500 000 5 600 000 6 000 000 1.82 7.14
Long Beach 7 312 465 6 487 816 5 067 597 -11.28 -21.89
Xiamen 4 627 000 5 034 600 4 680 355 8.81 -7.04
Laem Chabang 4 641 914 5 133 930 4 621 635 10.60 -9.98
Total Top 20 234 900 661 246 776 308 220 905 805 5.06 -10.48
Source: Review of Maritime Transport 2010 (p. 97)
15 / 17


Table IV: World Seaborne Trade in 2001-2009 (Millions of tons)
Good Good
Loaded unloaded
2001 5832 6107
2002 6120 6325
2003 6500 6598
2004 6846 6893
2005 7109 7122
2006 7682 7886
2007 7984 8136
2008 8210.1 8272.7
2009 7842.8 7908.4
Source: Review of Maritime Transport 2002, 2006, 2010
16 / 17


Table V: Global Orders of Ship-to-shore Container Cranes in 2001-2009
World’s
ZPMC ZPMC (%)
Total
2001 51 215 23.7%
2002 57 164 34.8%
2003 103 206 50.0%
2004 149 249 59.8%
2005 223 334 66.8%
2006 240 323 74.3%
2007 174 248 70.2%
2008 304 389 78.1%
2009 175
Source: World Cargo News 2001-2010
17 / 17
Author's personal copy
Human Resource Management Review 22 (2012) 165–178
Contents lists available at SciVerse ScienceDirect
Human Resource Management Review

journal homepage: www.elsevier.com/locate/humres
Confucianism, socialism, and capitalism: A comparison of cultural ideologies

and implied managerial philosophies and practices in the P. R. China
Baiyin Yang ⁎
School of Economics and Management, Tsinghua University, Beijing, 100084, PR China
a r t i c l e i n f o a b s t r a c t
Keywords: This article posits that management theories and practices in the P. R. China have been influenced
Confucianism by three cultural forces: Confucianism, socialism, and capitalism. It explores the impact of the
Socialism three ideological systems, cultural values, and beliefs on managerial philosophies and practices.
Capitalism
It is suggested that contemporary organizational behavior and management practice in the P. R.
Cross cultural management
China tend to reflect ideologies of three cultural forces.
P. R. China
© 2012 Elsevier Inc. All rights reserved.
1. Introduction
Cross-cultural study of management, as an area of intellectual and academic study, has existed for many years. There are no lack of
theories and models explaining organizational behavior and managerial practices across different cultures and unique aspects of the
Chinese culture (see a comprehensive review by Peng, Lu, Shenkar, & Wang, 2001). Yet a well-developed paradigm to create coher-
ence in cross-cultural study is still lacking. Concerns have been raised as to whether or not modern organizational concepts developed
in Western culture are applicable to the Chinese context (Chinese Culture Connection, 1987; Miner, Chen, & Yu, 1991; Nevis, 1983).
Studies on Chinese management are particularly problematic because the Chinese culture as a construct in the social and behavioral
sciences is reflected in different geographic regions (e.g., Hong Kong, P. R. China, Taiwan, and Singapore) as well as in different
economic and political systems. It is more troublesome for some foreign researchers to understand different economic forms
in the P. R. China—private firms, state-owned enterprises (SOEs), and foreign-owned and joint ventures. Contemporary studies
of organizational behavior on greater China tend to neglect cultural differences within the area and lack a dynamic perspective
of cultural change (Peng et al., 2001).
Culture has long been considered one of the significant determinants for organizational behavior and managerial practice
(Hofstede, 1980; Peng et al., 2001; Triandis, 1995). At the surge of globalization and new economics, it is crucial to understand
the diversity of culture and how it impacts on management theories and practices. There is an abundance of literature on the concept
of culture and cross-cultural study of organizational behavior and managerial practice (Lytle, Brett, Barsness, Tinsely, & Janssens,
1995; Peng et al., 2001). One timely approach is to investigate Chinese culture and implications for management in areas conceptu-
alized in the Western literature, such as entrepreneurial orientation (Lee & Peterson, 2000; Tan, 1997), motivation (Miner et al., 1991;
Nevis, 1983), organizational design (Vertinsky, Tse, Wehrung, & Lee, 1990), work value and human resource management (Pelled &
Xin, 1997; Ralston, Gustafson, Terpstra, & Holt, 1995; Warner, 1996), and strategy management (Peng & Heath, 1996; Tan, 1997).
Another approach is to examine certain unique Chinese concepts related to organizational behavior, such as guanxi (Luo & Chen,
1997; Tsui & Farh, 1997) and Confucian work dynamism (Chinese Culture Connection, 1987). However, a comprehensive framework
explaining organizational behavior is not readily available. Furthermore, many have believed that there is a “Chinese culture” available
⁎ Tel.: + 86 10 62796314; fax: + 86 10 62772021.

E-mail address: yangby@sem.tsinghua.edu.cn.
1053-4822/$ – see front matter © 2012 Elsevier Inc. All rights reserved.
doi:10.1016/j.hrmr.2012.01.002
166 B. Yang / Human Resource Management Review 22 (2012) 165–178
for us to conduct research on and understand. However, P. R. China is so vast and complicated that no single version of cultural
description can grasp its complexity. For instance, the prevailing wisdom hypothesizes that financial incentives will have less
impact on Chinese employee motivation and productivity than on their American counterparts (Earley & Singh, 1995; Pelled &
Xin, 1997). This hypothesis is based on the belief that a masculine cultures tend to have greater demands for remuneration.
Contrary to the above hypothesis, empirical evidence shows that the Chinese prefer differential reward rules, and are more eco-
nomically oriented than are the more humanistically oriented Americans (Chen, 1995). Due to the dramatic reforms and
changes that have occurred in China, Chinese culture is changing, and it has multiple facets. In other words, we need to
study several dominant cultural forces and explore how these forces have influenced managerial philosophy and practice in
today's mainland China.
In this paper, I will first identify key cultural dimensions that influence philosophy and practice of management and organization
in contemporary Chinese society. Second, I will use P. R. China as an example to illustrate the influences of cultural ideologies on
management practice and organizational behavior. It is posited that culture is a dynamic and fluid concept and that all cultures
are changing at different speeds in different directions. I will identify ideological differences, cultural values, and beliefs among
three dominant cultures—traditional (Confucianism), socialism, and capitalism. Third, I suggest that contemporary organiza-
tional behavior and managerial practice can be understood through dynamic relationships among three cultural forces. I will
base my argument on observations and secondary analyses in a “hybrid form” (Earley & Singh, 1995).
2. Cultural forces and their impacts
2.1. Cultural and cultural dimensions
What is culture? Culture is one of the key concepts for understanding international or cross-cultural studies of organizational
behavior and managerial practice (Maznevski & DiStefano, 2000; Peng et al., 2001). Culture has been generally conceptualized
as a complex set of norms, values, assumptions, attitudes, and beliefs that are characteristics of a particular group (Lytle et al.,
1995). Triandis (1993) maintains that culture is the group's strategy for survival and it constitutes the successful attempt to
adapt to the external environment. It is generally accepted that culture represents “software of mind” (Hofstede, 1991, p. 3)
rather than hardware. For the purpose of consistency, I define culture as a complex set of beliefs, values, and social norms shared
by a group of individuals. Here, culture is regarded as a complex system with three interrelated sub-systems: values, beliefs, and
social norms.
The above definition of culture, as a social construct with three major components, attempts to clarify potential confusion
around the concept. There have been many conceptualizations of culture in various forms and terms. Among the reasons for
this diverse conceptualization of culture and cultural dimensions is the lack of an agreeable definition of culture itself. An ordinary
definition of culture normally consists of many interrelated terms. The current definition posits that there are three basic compo-
nents of culture: values, beliefs, and social norms. According to Kluckhohn (1951),“A value is a conception, explicit or implicit,
distinctive of an individual or characteristic of a group, of the desirable which influence the selection from available mode,
means, and ends of action” (p. 395). A belief is an explicit conception that has been viewed as a representation of reality, while
social norms are conventions, habits, and behaviors of individuals or groups evident in their daily lives. The above distinction
among the three concepts, values, beliefs, and norms, suggests that culture consists of three distinctive but interrelated components.
The values component reflects what is important for an individual or group of individuals. A value system distinguishes good from
bad, right from wrong, and “ought to” from “ought not to.” The beliefs component indicates what is true among human beings' con-
ceptions, and distinguishes this truth from falsehoods. The norms component consists of unspoken conceptions about behavior in
daily practice. For instance, one expects to use chopsticks rather than a fork and knife when dining in a Chinese restaurant in Beijing.
Rokeach (1973) compared the relationship of values to an individual's belief system and definition of self. He contends that values
imply a preference pattern and a conception of preferability. Values emphasize the desirable rather than something that is merely
desired.
What are culture dimensions? Because culture is a complex concept, and there are many ways to define and examine this
concept, it is necessary to break the complex concept into explicable and operational dimensions. The dimensions are used to
reflect different aspects of the construct of culture. Here, dimensions are referred to as “components that cannot be easily sub-
divided into additional components” (Bollen, 1989, p. 180). Tayeb (2001) points out that breaking down culture into its constituent
dimensions has certain merit in facilitating cross-cultural studies. There are many approaches to define cultural dimensions and to study
cultural differences. Kluckhohn and Strodtbeck (1961) suggest six cultural orientations: (1) relation to environment; (2) relationships
among people; (3) human nature; (4) activity; (5) time; and (6) space. Perhaps one of the most popular classifications of cultural
dimension is that proposed by Hofstede (1980). Based on factor-analytic techniques with a dataset from employees of a multina-
tional company, Hofstede (1980) suggested four dimensions underlying organizational behavior: power distance, individualism,
masculinity vs. femininity, and uncertainty avoidance. A fifth dimension, long-term orientation, was added later (Hofstede & Bond,
1984).
Organizational behavior and managerial practice, which tend to be the subjects of many cross-cultural studies of management,
can be regarded as sub-dimensions of social norms because they are reflective of certain behavioral patterns within organizations
or societies. Consequently, the following analysis on cultural dimensions will focus on two major cultural systems—values and beliefs.
Table 1 lists several basic cultural dimensions within two subsystems.
B. Yang / Human Resource Management Review 22 (2012) 165–178 167
Table 1
Identification and definition of cultural dimensions.
Cultural dimensions Definition
Belief system
Nature of human beings What is the basic and underlying nature of humans?
Religious faith Is there a superpower (e.g., God) external to humans?
Nature of knowledge Can human beings objectively know the natural world?
Nature of change What is the nature of changes around human beings?
Motivation of human beings What is the basic motivation of human beings?
Value system
Relation to natural world How important is human beings in relation with the natural world?
Relation among people How important is individual vs. group accomplishment?
Priority of activities Which of the basic mode of human activity that contributes to accomplishment most, thinking, feeling or doing?
Basis of moral standard Where do human beings establish moral standard? Or should moral standard be based on reasoning or feeling?
Priority along time What is most important human beings along the time, past, present or future?
Ideal & vision What is ideal state of human beings?
2.2. Cultural influences on managerial philosophy and practice
The concept of culture has received a great deal of attention in the management literature (Earley, 1997; Hofstede, 1980; Lytle
et al., 1995; Peng et al., 2001; Triandis, 1995). It is generally agreed that managerial philosophy and practice can be understood as
a function of cultural factors. Similarly, culture also influences organizational behavior. Here organizational behavior can be loosely
defined as an approach to organizations and management shared by a group of people within a certain geographic area. Cultural
and social variables have dynamic relationships and they have direct impact on organization behavior. On one hand, cultural factors
and social variables determine managerial philosophy in general and organization practice in particular. Managerial philosophy and
practice are viewed as parts of organizational behavior at the national/country level. On the other hand, organizational behavior has
reinforcement functions that perpetuate its context, such as cultural and social structures. Lytle et al. (1995) suggest that cultural
orientations are reinforced and perpetuated through socialization, training, rewards, and sanctions. While the dynamic relation-
ship between culture and management can be examined through various perspectives, this paper will mainly focus on three
dominant cultural ideologies and their influence on organizational formation and transformation in the P. R. China.
2.3. Chinese culture as a result of three competing ideologies
Three major competing and merging ideologies, Confucianism, socialism, and capitalism, have shaped Chinese culture. Culture
as a concept is so close to ideology that sometimes they have been used interchangeably. Viewing culture as a social construct
with different elements, this paper examines ideology in two major cultural components, values and beliefs, and their impact
on the third cultural component, organizational institutions and behaviors. Ogden (1989) suggests an approach that examines
issues in the P. R. China in terms of cultures: tradition, socialism, and development. She maintains that “the interaction of these
three variables permits us to merge historical, cultural, economic, political, and social factors, and to see from this just how rich
is the mosaic that today is China” (p. 352).
This paper examines capitalism as a culture [ideology and implied managerial practice] instead of “development” for the following
reasons. First, Western liberal conceptualizations of development tend to associate economic growth with a capitalist approach.
Capitalism as an ideology has existed long enough for us to examine its underlying values, beliefs, and implied organizational
practices. Thus, capitalism is a better term than development for theoretical analysis. Second, the P. R. China has in practice
been borrowing managerial approaches mostly from those capitalist economies. Even though the term “capitalism” has been
carefully avoided in the media and official documents, and replaced with the phrase “international developed nations” for
political and ideological reasons, there is no doubt that nearly all of the developed nations have been largely influenced by
capitalist ideology. Third, development has different meanings and interpretations according to various values and beliefs.
It is almost impossible to predict the actual developmental direction for the P. R. China, and for virtually every nation, because
the factors influencing development are so complicated. However, China will clearly tend to form its unique developmental
direction under the influences of traditional, socialist, and capitalist values and beliefs. It is unlikely, and in fact impossible,
that China will simply copy the developmental model of those capitalist nations. However, capitalism will have strong influence
on its aspiration and development. According to Ogden (1989): “China's achievements must be judged by criteria appropriate to
a developing country with socialist and traditional Chinese cultural values” (pp. 4–5).
The three main cultural ideologies followed different historical trajectories in the P. R. China. The first ideology, Confucianism,
was firmly established as a predominant creed in Chinese history and may be the most representative of Chinese culture (Xing,
1995). It is a very common belief that Chinese culture is almost equated with Confucianism (Xiong, Luo, & He, 1997). This paper
refers to traditional Chinese culture interchangeably with Confucianism. The second ideology, socialism, was the dominant dogma
and has been institutionalized for at least thirty years since the communist party took power in 1949. Even though it continues to
influence the Chinese daily, and will to a certain extent in the foreseeable future, its orthodox ideology was challenged and thus
began fading in late 1980's when China initiated economic reform and an open-door policy. The third ideology, capitalism, was
regarded as evil during the socialist movement. Since the economic reform, it has been recognized that certain capitalist elements
such as free market and financial incentives could not be eliminated, and that China has to borrow the advanced managerial
theories and tools of capitalism. In fact, some social and managerial aspects tend to be more capitalist in certain parts of the P. R.
China than in capitalist countries.
3. Cultural values and beliefs as ideologies
Based on the previous arguments, it is imperative to examine three competing cultural forces in the P. R. China. Table 2 identifies
the characteristics of Confucianism, socialism, and capitalism on major dimensions of value and belief systems. It should be noted that
these characteristics have been identified largely based on normative analysis rather than empirical data. In reality, a pure socialist
society does not exist. No matter how much effort was devoted to “cut the capitalist tale” [in Mao's terms] during the Cultural
Revolution, free-market values could not be gotten rid of completely. On the other hand, nearly all of the capitalist societies have
some degree of socialist measures in terms of government intervention into the free economy and increasing social welfare programs.
Thus, we should analyze the essence of culture—cultural values and beliefs—viewing culture as ideology first and then examining im-
plied managerial practices.
3.1. Belief system
This paper argues that beliefs are different from values. The value system concerns priority or importance, while the belief
system determines what is true in the world. Therefore, the belief system is composed of basic assumptions about the natural
world and human beings. These assumptions are basic and fundamental hypotheses that cannot be easily proven to be true
or false, and thus human beings have to accept certain assumptions in order to act. Human beings have to hold some basic beliefs
as guidelines for their thinking and actions. These beliefs have the same function as axioms in mathematics. Even though no one
can, or has even tried, to extend two parallel lines into infinity, it is generally accepted that they will not meet. This belief provides
one of the fundamental axioms for the Euclidean geometry. However, non-Euclidean geometry has been developed based on other
beliefs [e.g., two parallel lines will cross eventually]. Thus, the belief system includes basic assumptions about the natural world
and human beings that cannot be easily tested. While the value system reflects the priorities of an individual or a group of individuals,
the belief system contains views about the natural world and human beings. At least five dimensions can be identified to examine
cultural beliefs: human nature, religious faith, the nature of knowledge, the nature of change, and human motivations.
The first dimension of the belief system is the nature of human beings. Capitalism is built on the Western traditional assumption
that the basic nature of people is essentially evil. This was probably due to the Christian influence that accepts mankind as a result of
eating the fruit from the tree of good and evil. On the contrary, the Chinese belief about human beings tends to assume that the basic
nature of people is essentially good, or at least is changeable. Confucianism assumes that evil comes about later in life (ren-zi-chu,
xing-ben-shan, i.e., a human is born with goodness). Socialism recognizes an evil part of human beings and believes that most
are capable of being educated toward good. Based on the doctrine of class struggle, socialist practice normally views oppressors
as evil and thus they need to be sent into labor camps for re-education in order to become a “new person.”
The second dimension of the belief system is related to the first one. One's religious faith is one of the fundamental keys to
one's basic assumptions about the world and his/her actions in daily life. Capitalism grew from the Western culture that seems
to have a strong religious faith. Though there are different kinds of religions, the major religion in the Western world is Christianity.
Christianity views God as a single superpower external to human beings. Instead of arguing that Christianity is the necessary
condition for the capitalism, the paper points out that religion has played an important role in capitalist development. The traditional
Chinese religion did not have such a belief about a single superpower. The Chinese word for god, shen, has many meanings rather than
being attached to one superpower. Shen means god or divinity; it also means anything that is mysterious, marvelous, or supernatural.
Table 2
Comparison of three value and belief systems as cultural ideologies.
Cultural dimensions Confucianism Socialism Capitalism
Belief system
Nature of human beings Naturally good Class-bond Naturally evil
Religious faith No single superpower No religious faith Single external superpower – God
Nature of knowledge Subjective, situational truth Subjective, positional truth Objective, absolute truth
Nature of change Cyclical change Linear & cyclical Linear change
Human motivation Spirit Spirit Material
Value system
Relation to natural world Harmony Mastery Mastery
Relation among people Hierarchical Collectivism Individualism
Priority of activities Being and doing Doing and being Thinking and doing
Basis of moral standard Feeling Common good Reasoning
Priority along time Past oriented Future oriented Present oriented
Ideal & vision Harmonized society Communism Developed individuals
In the Chinese literature of mythology, there are many gods that hold power over human beings. For example, there is guan-yin who
takes care of human reproduction, and there is guang-ti who is in charge of war affairs. As far as socialism is concerned, no religious
faith was believed and no religious practice was allowed.
The third dimension of the belief system concerns the nature of knowledge. Western culture has leaned heavily toward a
rational tradition, which views knowledge as objective and that reality exists independently from mental representations of
the world. Such tradition also posits that logic and rationality are formal and that intellectual standards are not arbitrary.
This tradition maintains a view of absolute truth about the world. The traditional Chinese view of knowledge is subjective
and has an instrumental function. The subjective view posits that knowledge is contextually based and thus truth is situational.
Different perspectives on the nature of knowledge are related to views about reality. The objective perspective of knowledge
might be a result of a view of a single reality, which is assumed to be created by a single superpower, and to have consistent
and lawful relationships among its elements. The subjective perspective of knowledge views multiple realities and implies
an interpretive approach to the natural world (Roth & Yang, 1997). Socialism accepts the subjective view of knowledge and
views that it is created according to one's social and political position, such as status or class. Therefore, truth is subjective
under socialism, and the concept of positionality is the key to understanding relative truth.
The fourth dimension of the belief system is about change in the natural world. Marshak (1994) compared the organization
development (OD) model of change popularized by Lewin to the model based in East Asian and Confucian cultural tradition.
Different assumptions about change are revealed. The author contends that the Western OD approach is grounded in certain
beliefs and assumptions that view change as linear, progressive, destination or goal oriented, based on creating disequilibrium,
and planned and managed by people who are separate from, and act on, things to achieve their goals. On the other hand, the
Eastern model comprises beliefs and assumptions that change is cyclical, processional, journal oriented, based on maintaining
equilibrium, and observed and followed by people who are one with everything, and must act correctly to maintain harmony in
the universe. Beliefs and assumptions about change are related to the belief dimensions previously discussed. Western culture
holds that there is a single best reality [created by God] for humans to achieve in a forward-moving way. Eastern culture assumes
multiple realities, and that there is no best or better mode of change. For example, Taoism emphasizes that there is a constant ebb
and flow to the universe and everything in it is cyclical. There is a Chinese saying: tian-bu-bian, tao-ye-bu-bian (i.e., nature is not
changing and so the Tao remains constant). Socialism views the nature of change as a combination of linear and cyclical. Overall
the world is changing in a linear fashion, from primitive communism to slavery, feudalism, capitalism, socialism, and then to
communism.
The fifth dimension of the belief system relates to the inherent motivation of human beings. Based on the assumption that
human beings are inherently evil, Western culture presumes a materialistic motivation. Thus, capitalism tends to largely rely
on materialistic motivation. Individual interests tend to be legitimate, and thus a conflict of interest is acceptable. Eastern culture,
particularly Confucianism, however, maintains that the essence of human kind is in its spirit. In the case of conflict between
material and spirit, people should pursue the spiritual direction rather than the material one. Eastern culture recognizes that
people might be seduced by the materialistic world and by selfishness and so calls for self-control and cultivation. There is a
Buddhist scripture that captures such a view: ku-hai-wu-bian, hui-tou-shi-an (i.e. the materialistic sea is endless, coming back [to
be the good one] you can reach the shore). It is virtuous to have moral discipline and to impose self-control (Chinese Culture
Connection, 1987). In the battlefield, Western soldiers are instructed to protect themselves, while Chinese soldiers are educated
to she-shen-qu-yi (i.e., sacrifice your body for justice and righteousness). The socialist belief of human motivation tends to be similar
to that of traditional Chinese culture.
3.2. Value system
Six major dimensions within the value system are interrelated factors that influence individual and organizational behaviors.
The first dimension is a human being's relationship with the natural world. Kluckhohn and Strodtbeck (1961) suggest that there
are three possible values attached to the relationship between human beings and the environment: (1) subjugation assumes the
role of understanding and subjugating ourselves to the plan determined by a larger natural or supernatural element; (2) mastery
calls for control over nature and the environment around us; and (3) harmony requires us to maintain a balance among the
elements of the environment in relation to human beings. Capitalism was established in the Western culture, which places
value on mastery, while the Eastern culture emphasizes harmony. Traditionally, the Chinese view harmony as the ultimate
goal of humankind (i.e., tian-ren-he-yi or the great harmony between humanity and nature). Like capitalism, socialism places
value on mastery but emphasizes that all of society, not just a few elite, should be masters of the world.
The second dimension within the value system is the relationship among people. Kluckhohn and Strodtbeck (1961) point out
three orientations along this dimension: individual, collective, and hierarchical. The individual orientation maintains that our
main responsibility is to and for immediate family and ourselves. The collective orientation assumes that our main responsibility
is to and for a larger extended group. The hierarchical orientation upholds that it is normal and good that power and responsibility
are unequally distributed throughout society, and are stable over time. Hofstede (1980) posits that this dimension is a conglomeration
of values concerning the relationship of a person to his or her collective or group. There is no doubt that capitalism is characterized by
individualism, while Chinese traditional culture is typified as hierarchical based on Confucian doctrines. Beliefs of Confucianism state
that social stability is the foremost value and it can be achieved via unequal relationships between people. Five basic principles (i.e.,
wu-lun) define desired relations between ruler and subject, father and son, older and younger siblings, husband and wife, and older
and younger friends. Socialism was based on collectivism, and committed to communism in theory, but was hierarchical in reality. In
general, most socialist countries have displayed a high level of collectivism (Peng & Heath, 1996).
The third dimension within the value system is the perceived importance among various activities conducted by human
beings. Kluckhohn and Strodtbeck (1961) contend that the activity dimension is concerned with the most basic modes of engaging
in activity. Three orientations have been suggested: doing, thinking, and being. The doing orientation maintains that our natural
and preferred mode of activity is to be continually engaged in accomplishing tangible tasks. The thinking orientation maintains
that our natural and preferred mode of activity is to consider all things carefully and rationally before taking action. The being
mode is to do everything in its own time. Capitalism seems to place priority on thinking and then doing, Confucianism's emphasis
is on being and doing, and socialism puts priority on doing and then being. Thinking is the least preferred in socialism because it
assumes that great thinkers such as Marx, Lenin, and Mao had outlined an ideal society.
The fourth value dimension is the basis of moral standards. The first three dimensions offer explicit and implicit standards for
individual and group judgments, while the fourth one suggests preferred ways of making a moral judgment. Wilson (1993)
argues that there are four universal morals shared by all people: sympathy, fairness, self-control, and duty. The Western culture,
soil for capitalism, tends to use reasoning as a tool in making moral judgments (Kohlberg, 1969) and is concerned with different
levels of judgment: good, right, and “ought” (Girvetz, 1973). Consequently, the Western moral standard leans to fairness and
contractual duty among societal members, i.e., equality. Chinese traditional culture tends to view sympathy and self-control
as the moral standard and socialism places common wellness as the moral standard, and at the same time it has to rely on certain
doctrines in reality. However, the main concern of these two ideologies is equity instead of equality. Capitalist societies such as
the United States tend to establish moral standards on reasoning and rationality. Earley (1997) contends that: “if one examines
the icons of American society, it is easy to observe such figures as Madonna, Mick Jagger, O. J. Simpson, and Bill Gates and it is
much more difficult to take notice of those responsible for social concerns and values. Thus, lian [concerns the rules underlying
moral character and basic ethics] is viewed as somewhat important to the extent that it is instrumental in maintaining an edge
over one's competitors” (p. 205).
The fifth dimension in the value system is the priority along time, and it directs our main concerns and energy along the
nature-time framework. Kluckhohn and Strodtbeck (1961) list three orientations along this dimension: past, present, and future.
The past orientation posits that the past, and past precedents, provide the best models for how we should look at decisions today.
The present orientation maintains that today's needs are the most important and should be met regardless of past patterns or
future possibilities. The future orientation argues that we should look toward the long-term future and sacrifice what we need
to in order to achieve our future goals. While capitalism is present-oriented and socialism tends to be future-oriented, Confucianism
emphasizes the past mode with regard to time orientation. The traditional Chinese culture views time as a process of eternity, and it
succeeds the past oriented mindset and behavior (Xing, 1995). The difference of time orientation between intrinsic value and conse-
quence should be noted here. Socialism has a strong preference for the long-term future [e.g., to build a communist society] but in
reality many of its long-term plans tend to be impractical and invalid. A common slogan in the P. R. China was “production first,
life later” [xian-shen-chan, hou-shen-huo]. This approach worked well when the central planning system was initially built on a market
foundation. However, the central planning system failed to continuously maintain productivity because production was not driven by
the consumers' needs. On the other hand, capitalist production tends to meet consumers' present needs, and producers tend to have
long-term plans based on various rational forecasts. Therefore, capitalism places a strong present emphasis on consumption and
future emphasis on production with regard to time orientation. Weber (1904/1930) asserted that “time is money” for the
Protestants. Time orientation is somewhat related to religious beliefs. Weber contended that: “Waste of time is thus the first
and in principle the deadliest of sins. The span of human life is infinitely short and precious to make sure of one's own election.
Loss of time through sociability, idle talk, luxury, even more sleep than is necessary for health. . . .is worthy of absolute moral condem-
nation. . . .[Time] is infinitely valuable because every hour lost is lost to labour for the glory of God. Thus inactive contemplation is also
valueless, or even directly reprehensible if it is at the expense of one's daily work. For it is less pleasing to God than the active perfor-
mance of His will in a calling” (1904/1930, pp. 157–158).
The sixth dimension of the value system is concerned about the ideal destination for human beings or the vision for a society. The
capitalist ideology emphasizes individual rights and freedoms and views fully developed individuals as the ultimate goal. Traditional
Chinese culture places harmony among human beings and nature as the ultimate goal. Thus, a harmonized society is viewed as much
more important than an individual's rights or growth. The dimension of ideal destination relates to one of relationships among people
in the value system, but these two dimensions are different because one concerns the end and the other concerns the means. The
dimension of ideal destination assumes the kind of goal that human beings should pursue in a society while the dimension of
human relation speaks to the means used to pursue such a goal. The Western culture and capitalism tend to seek fully developed
human potential with an active individualistic approach, while Confucianism places peace and harmony as the ultimate goal.
Consequently, Confucianism uses a collective approach and a predetermined hierarchy with assumed roles. The ideal destination
under socialism is communism, where human beings are supposed to act “from everyone who can and to everyone who needs” as
articulated by Karl Marx. Consequently, socialism views equity as more important than equality (Nevis, 1983).
4. Managerial philosophies and practices under different cultural ideologies
Analyses in the last section reveal that three competing cultures, capitalism, Confucianism, and socialism, have different values
'and beliefs. The above analyses may risk the possibility of being stereotyped and biased. Xing (1995) contends that cultural
generalization tends to be dangerous but necessary. It is dangerous because an easy categorization may be biased without
solid empirical evidence, and there are always a few individuals from a culture who tend to deviate from its mean, while the
generalization is normally established on means. It is necessary because a certain degree of cross-cultural consensus is needed
for understanding and adapting to different cultures. This section attempts to generalize managerial philosophies and practices
under the influences of different cultural ideologies, namely Confucianism, socialism, and capitalism.
4.1. Managerial philosophy
Table 3 summarizes the major differences of three approaches to management under Confucianism, socialism, and capitalism
ideologies. Cultural values and beliefs tend to form the basis of different economic, social, and political institutions. The interactions
among value and belief systems and social norms have resulted in different spiritual attachments in different social contexts. In his
classic study, Weber (1904/1930) studied the capitalist spirit and emphasized the psychological conditions that made possible the
development of capitalist civilization. He observed that for the Calvinist “The world exists to serve the glorification of God and for
that purpose alone. The elected Christian is in the world only to increase this glory of God by fulfilling His commandments to the
best of his ability. But God requires social achievement of the Christian because He wills that social life shall be organized according
to His commandments, in accordance with that purpose” (1904/1930, p. 108). For those who were educated by Christianity in the
West, the term “spirit” means the relationship with God. Thus, the spiritual life is standing detached from worldly affairs in
the capitalist culture. On the contrary, the dominant spiritual idea in Chinese society is Confucius' teaching: “xiu-sheng, qi-jia,
zi-guo, ping-tian-xia” (i.e. cultivate moral qualities, set up family, serve for the country, and work toward equality and a harmo-
nious world). Consequently, the traditional Chinese view of spirit is that it exists only in entering into worldly affairs. Socialism
views socialist society as the prior stage to communism and calls for tributes to this great social status. Lei Feng, a PLA soldier
who has been praised as an exemplary model for people to learn, captured the socialist spirit: “Treat comrades with warm as
in the spring, treat duties with fervent as in the summer, treat individualism just as swiping the leaves in the fall, and treat
enemies with cold-blooded and ruthless as in the winter” (1960). Because modern concepts of organization and management
have been developed in the capitalist world, the following paragraph will start discussion from managerial philosophies and
organizational approaches as implied in the capitalist ideology.
As a result of interactions among values, beliefs, social contexts, and spiritual attachment the dominant organization and
management theory in most capitalist societies tends to rely on technical rationality. Private ownership of business is the main
characteristic of capitalism. Organizations are set up to maximize their earnings or profits. Organizations are established on an
individual basis. Individual employees are hired and fired based on mutual will. The overall managerial strategy is characterized as
a proactive approach which requires positivistic means in problem solving (i.e., an empirical approach, a fact-finding process toward
a positive direction). Decision making is characterized as a rational process (i.e., linear, step-by-step, maximizing outcomes).
Harrison (1995) summarizes six steps in a rational decision-making process: (1) define the problem, (2) identify the decision criteria,
(3) allocate weight to the criteria, (4) develop the alternatives, (5) evaluate the alternatives, and (6) select the best alternative. March
(1994) identifies a set of assumptions that underlie rational decision-making. Such a decision-making model assumes that the
problem is clear and unambiguous, and that managers clearly know their options and preferences. These assumptions reflect Western
values and belief systems (e.g., single reality, objective knowledge, mastery over nature, and preferred reasoning and thinking style).
The capitalist management approach also emphasizes innovation and progression as viable means to reach the organizational mission
(i.e., maximizing profit). At the same time, organizational systems and structures have weighed heavily in management theory and
practice. In summary, the capitalist management philosophy can be featured as technical rationality (Redding, 2002). Accordingly,
most foreign-owned enterprises, and some joint-venture firms, in the P. R. China tend to identify with a capitalist managerial
approach.
Viewing the world as chaotic and human beings as naturally good (or at least individuals can be educated to be good), Chinese
traditional management philosophy takes a vastly different stand from the West. The dominant Chinese culture impels individuals to
enter into worldly affairs to find their spirit [though some sub-cultures such as Taoism might have different views]. In the long history
of feudalism, the emperor owned all lands and other resources, while private ownership was also recognized. Traditional private
businesses are set up on a family basis with a managerial philosophy of benevolence and righteousness. Very often a family is the
majority collective investor and keeps control (Redding, 2002). Business is viewed as an instrumental entity to yield goods and
Table 3
Managerial philosophies and approaches implied by three cultural ideologies.
Characteristics Confucianism Socialism Capitalism
Managerial spirit Enter into worldly affairs Tribute to the communism Stand aloof from worldly affairs
Ownership Private in empire Public Private-individual
Organizational value Benevolence and righteousness Common wealth Maximizing profit
Organizational form Family basis Class basis Individual basis
Managerial strategy Reactive Central planning Proactive
Problem solving Naturalistic means Doctrine Positivistic means
Managerial emphasis Process and practice Values and vision System and structure
Decision making Intuitive Rely on rules Analytical
Managerial strategy The golden mean (harmony) Authoritative commands Innovation and progression
Main characteristic Center on social morality Based on planning economy Rely on technical rationality
services to fulfill its social responsibility. Chinese businesses tend to depend on networking closely related to family and lineage (Chi-
Cheung, 1998; Weidenbaum, 1996). The overall managerial strategy is reactive (i.e. ying-bian) or sometimes passive (wu-wei-er-zhi,
i.e., manage by letting things take their own course). Such managerial philosophy is consistent with the naturalistic/interpretive
problem solving method. The decision-making process is intuitive and can be characterized as “muddling through.” One of Deng Xiao-
ping's major reform theories is so called mo-zhe-shi-tou-guo-he (i.e., grope for stones while crossing the river). Deng Xiaoping was
brave enough to initiate the economic reform because he saw the need to leave one side of the river (i.e., Soviet-style stagnated eco-
nomic system) for the other (market-oriented system), but he was limited by social and cultural contexts. Why didn't he think
through the process and then lead his followers across the river? Are there any better alternatives, such as building a boat or
constructing a bridge? What are the consequences if the river floods or the stones in the river are wobbly? These technical
and detailed questions normally do not get adequate attention from Chinese leaders/managers who are constrained by the traditional
mindset. What appears to be important for Chinese managers is the question: are they doing the right thing (good vs. bad)? Related to
this problem solving style is the emphasis on the human side rather than the system side in management. Rules and regulations do
not appear to be as important as human beings. Managers in a collectivistic culture prefer personal appeals and emotional strategies
rather than analytical decisions (Shane, 1994). Consequently, organizational process and practice have received more attention than
have structure and system. From a Western perspective, organizational structure in a collective culture tends to be ambiguous and de-
emphasize formal authority for the reasons of informality and egalitarianism (Weihrich, 1990). Though there are various managerial
theories and preferred methods, the essence of the Chinese managerial approach can be found in the dated Confucianism classic the
Doctrine of the Golden Mean (i.e., zhong-yong). Basically, the mean managerial method prefers to bring about equilibrium rather
than create disequilibrium. Such equilibrium requires balance, not only between human beings and the environment but also
among people in a community or society. As a consequence, unity and harmony within the organization are highly valued. Main-
taining a systematic harmony has been regarded as the fundamental goal (Sun, 2002). The underlying force that drives such
managerial philosophy is social morality that calls for organizational ethics and social responsibility. Zhang (1993) contends that
“yi-li-lian-quan” (i.e., the overall balance between justice/righteousness and profit) is the driving force for enterprise competition in
East Asia. Private business in the P. R. China and ethnic overseas Chinese firms are inclined toward a business approach implied by
Confucianism.
Convergences and divergences between orthodox socialism and the mainstream traditional culture, Confucianism, can be
identified in the Chinese-style socialist approach. Public ownership of business was the main characteristic of socialism before
China launched economic reform. Even though other forms, such as collective and private ownership, did exist to a certain extent,
Mao wanted to minimize and eventually eliminate those economies, particularly the later one that provides the foundation for
capitalism. Nearly all properties belonged to the public (Nevis, 1983). Economic egalitarianism can be traced thousands of
years back to Chinese history that is filled with corrupt old dynasties and new dynasties in turn. The new dynasties were normally
brought by uprisings with certain egalitarian slogans (e.g. tian-xia-wei-gong, or land under heaven belongs to all). Organizations
such as factories and people's communes were set up to generate common wealth that had no clear ownership among the
participants. Managerial spirit speaks as a tribute to communism. In Mao's time, there was a slogan: “Think contribution,
not compensation.” (i.e., zhi-jiang-feng-xian, bu-jiang-bao-chou). Organizations were established on a class basis, where
working classes such as the proletariat and farmers were supposed to take leadership while other classes had no rights.
They were to follow and obey. The overall managerial strategy was based on a central planning system and managers at the low
level had little or no decision making power. Most decisions were made based on rigid rules and required taking ideology
into account (Nevis, 1983). The whole nation became one firm, and managers had to passively receive instructions from the
top. The socialist management approach also emphasized communist values and vision as viable means to reach great harmony. At
the same time, Marxist and Maoist doctrines are viewed as universally applicable theories, and thus ordinary people had to simply
learn and apply them. Managerial decisions were carried out through authoritative commands. Therefore, the Chinese socialist
management approach is congruent with its root ideology and the central planning economy. The SOEs exemplify such an approach.
4.2. Managerial practice
This paper argues that economic institutions can be explained not only by social and historical factors but also by cultural
values and beliefs. It suggests that cultural ideologies determine managerial philosophies, which in turn influence managerial
practice, and that such interactions form different institutions. Following Weihrich (1990), this paper compares and contrasts
managerial practices implied by three cultures based on a framework of managerial functions. It has been widely recognized
that key managerial activities can be categorized into four groups: planning, organizing, leading, and controlling (Rubbins,
1998). Table 4 compares managerial practices in Confucianism, socialism, and capitalism. These three cultures are reflected in
mixed economic entities. Confucianism can be observed from these individual and family-based enterprises with traditional
form. Because SOEs were set as examples for socialism, socialism tends to reflect itself more in the SOEs than in other economic
entities. In the meantime, capitalism tends to be more identifiable in foreign and joint ventures.
4.2.1. Planning
Planning seems to be a Western concept that assumes that managers have the ability to articulate organizational goals and
means by which they can be achieved. Rubbins (1998) suggests that planning “includes defining goals, establishing strategy,
and developing plans to coordinate activities” (p. 3). The traditional Chinese managerial practice did not value planning because
the traditional culture emphasized implicit or tacit knowledge and learning-by-doing. While the traditional Chinese planning
Table 4
Managerial practices in three different institutions.
Managerial practices Confucian Socialist Capitalist
Planning Intuition Top down Empirical

Organizing Collective Bureaucratic Individual
Leading Clan & paternal Education or force Entrepreneurial
Controlling Peer pressure & group norms Idiosyncratic and political Performance against standards
tends to be based on intuition of individual managers, the capitalist style of planning tends to be formal, rational and quantitative-
ly oriented. Unlike planning in the socialist society which relies heavily on the top–down approach based on every five-year plan,
planning in the capitalist society tends to be empirical in the sense that it has no formal nationwide economic plan, but most firms
rely on certain forms of forecast based on the assessment of market needs. Planning tends to be empirically based on data from
market and consumer needs in the capitalist economy.
4.2.2. Organizing
Organizing is another managerial function that involves setting up a structure to coordinate efforts so that all employees can
contribute to the business goals in an effective and efficient way. The traditional Chinese organizing effort places emphasis on
collective responsibility and accountability. At the same time, individual responsibilities are implied instead of being explicitly
described in a formal organizational structure. Organizational change is normally reached by a changing process. It is facilitated
by an agent of change within the firm, and is aimed toward the maintenance of harmony among those affected (Marshak, 1994;
Weihrich, 1990).
The organizing practice in the orthodox socialist organization tends to be rigid and bureaucratic. Normally speaking, they tend
to be inefficient, rigid, insensitive to the market, and filled with redundant workers (Broadman, 2001). Individual responsibilities
are not clearly defined and documented. Accountability is not an issue under the socialist ideology because it assumes that those
in leadership (i.e. the proletariat) are conscious of liberating themselves and all human beings. Therefore, educating the masses
and identifying the right personnel from the working class are the main organizing strategies under socialism. A top–down
approach is common in organizational change and development. Nevertheless, it should be noted that a democratic organizing
method, such as workers' participation in firm management, was emphasized in theory and was once a common practice
before the reform started. Vertinsky et al. (1990) find that Chinese managers have scored higher on worker participation in
decision-making and a democratic value of organization than have their Canadian and Hong Kong counterparts.
As far as the capitalist organization is concerned, emphasis is placed on individual responsibility. Job descriptions are excellent
examples of organizing effort to clarify and make explicit who is responsible for what (Weihrich, 1990). Accountability is emphasized
at each level of the organization. Conflict is tolerated and normally accepted because of an individualistic view and the acceptance of
individual interests. Organizational change is often conducted by an external agent of change, with changing of goals and structures
instead of processes (Marshak, 1994; Weihrich, 1990). Based on behavioral science, organization development (OD) is a widely used
tool for organizations to reduce conflicts and improve performance.
4.2.3. Leading
Leading involves “motivating subordinates, directing others, selecting the most effective communication channels, and resolving
conflicts” (Rubbins, 1998, p. 3). Confucianism views leaders as social integrators who are a part of a work group and who have concern
for the welfare of their subordinates. Weihrich (1990) identifies a Japanese leadership style that is also valid for the traditional
Chinese concept of management: “The role of managers is to create an environment of esprit de corps, and they are willing to help out
in doing the same work their subordinates do. In an attempt to maintain harmony at almost any cost, managers avoid face-to-face
confrontation” (p. 7). Managers are expected to be the role model for their subordinates and to build and nurture personal relation-
ships. Individual interests are expected to follow group and organizational interests. While there are some universally desirable
leadership attributes and behaviors (e.g., integrity, inspiration, administrative competence, vision, and collaborative team orientation)
there are also a few uniquely Chinese attributes, such as abiding by principles and the father figure (Fu & Tsui, 2003). In sum, the
traditional Chinese leadership style tends to be a clan and paternalistic approach.
While socialist leadership shared considerable commonalities with the traditional one, it had dual approaches—education for
comrades and those who were educatable, and force for enemies and those who resisted following. One of Confucianism's funda-
mental thoughts is benevolence or humanity (i.e., ren) (Xiong et al., 1997). Assuming that humans are innately good, Confucianism
requires leaders to rely on benevolence and righteousness in leading their followers. Categorizing humans as belonging to either of
two struggling social classes, the socialism leadership approach relies on education for the comrades and treats enemies with
force. Group leading is much emphasized (i.e. ji-ti-ling-dao). Communication is primarily top–down following commands of the
party central committee. Mao outlined the principles of leading as: “Minorities must obey the majorities, subordinates must
obey supervisors, and all party members must obey the central committee.” Managers are instilled with the values of dedication
and self-sacrifice.
The managerial function of leadership is carried out differently in most capitalist contexts. Weihrich (1990) observes that
“leaders are seen as the decision-maker heading the group; they are expected to be directive, strong, and determined” (p. 7).
Leaders are expected to develop a vision for the organization, to clarify the direction of the group or organization, and to make
correct decisions. Communication tends to rely heavily on formal channels and formats such as the written memo. While the
communication pattern is a bottom–up approach, through an established democratic system, each organization tends to build
a hierarchy with a top–down approach. Therefore, leadership under the capitalist ideology tends to be entrepreneurial, tends
to emphasize technical competence and skill, and is change and risk oriented (Fu & Tsui, 2003).
4.2.4. Controlling
Controlling involves “monitoring activities to ensure they are being accomplished as planned and correcting any significant
deviations” (Rubbins, 1998, p. 3). The managerial function of controlling in traditional Chinese culture tends to rely on peer
pressure and group norms in order to reinforce certain desirable performance standards. Individual performance receives less
attention than group performance. Attention to controlling is placed on organizational process and daily practice rather than
on formal structure and systems.
The managerial function of controlling in the socialist context tends to be idiosyncratic. The orthodox socialists' controlling
interests lean in a political direction [i.e., socialism vs. capitalism] instead of financial outcomes. Therefore, political and ideological
controlling was the foremost important task in most socialist societies. In reality, controlling practice was idiosyncratic because of
the lack of an adequate reward and performance evaluation system. SOEs lack an adequate governance system and thus managers
often ended up with de facto control over the enterprises (Broadman, 2001). Controlling efforts and procedures varied greatly,
depending on individual managers in charge. Some conscientious managers made controlling efforts on productivity and individual
performance but received strong criticism for a “walk toward capitalism.” Mao Zedong removed Deng Xiaoping twice from his
position for his efforts toward productivity and economic performance. Other managers cared less for, or took no interest in,
productivity. Due to its ideological values and beliefs, socialism placed rigid control on its class enemies and followed a generous
policy of laissez-faire for its comrades. It assumed that the key task for the communists was to fully arouse masses and then they
would identify their own needs and devote massive energy and effort in building the socialist country. While no one individual
should take personal credit for accomplishment (Nevis, 1983) it was hard to find a single responsible person when things went
wrong under the group leadership approach. Consequently, controlling was the weakest managerial function in socialism.
Controlling in capitalist organizations tends to focus on measuring performance against precise standards. Control emphasizes
formal evaluative structures and procedures. Management by objectives is an example of this, because it requires verifiable
objectives as a foundation for performance evaluations. Furthermore, control tends to be individually based because employees
are accountable for their jobs, and managers for their business units. Top-level managers, such as the CEO, assume responsibility
for organizational performance. CEOs are often under pressure by shareholders to show favorable financial outcomes.
4.3. Human resource management practice
This section identifies the differences between human resource practices across different economic institutions with differentially
dominated ideologies: Confucianism, socialism, and capitalism. I select this managerial aspect because human resource management
practices strongly reflect cultural values and beliefs. Table 5 lists major characteristics.
The traditional Chinese economic forms are family-based, and the priority of employment is given to closely related persons.
Under Confucianism, the dominant management philosophy is one of social harmony by conforming to the traditional order.
Westwood, Chan, and Linstead (2004) observed that Chinese employment relations are based on reciprocity values, and sustained
by a tacitly held personal moral order. As most traditional Chinese business is organized in family form, employee selection is
dominated by nepotism (Björkman & Lu, 1999). Promotion is mostly focused on morality and social acceptance. Compensation
depends largely on seniority and only a small difference can be found between employees and managers. Such a philosophy works
toward a harmonious society, and requires leaders to have strong morals and personal integrity so as to implement a benevolent
policy (i.e., ren-zhen). Throughout the long history of China, virtually every party and government emphasized the importance
of morality and personal integrity. Appointments are made primarily on the basis of a person's morality or loyalty to the party in
power. Leaders and managers are selected even though they are not necessarily technically competent. Consequently, morality
and social connections play important roles in employee selection. An ancient Chinese politician and scholar, Sima Guang, in his
Table 5
Dominated characteristics of human resource practices in three different institutions.
Characteristic Confucian Socialist Capitalist
Employment nature Family or kin Iron rice bowl Contract based on will
Selection Nepotism Social class/connection Ability/competence
Compensation Seniority Egalitarianism Performance
Promotion Personal loyalty/social acceptance Political loyalty/connection Contribution & potential development
Evaluation Qualitative method Qualitative method Quantitative method
Succession Family/seniority Moral/political purity Competency
Union role No role Consultation Negotiation
HR development Management and utilization Development of morality and loyalty Training and development
HR function Social outcomes Political outcomes Economic outcomes
HR goal Social harmony Communism Developed individuals
Main characteristic Rule by human beings Rule by human beings with rigid approach Rule by law
famous annalistic-styled historic book “Zi Zhi Tong Jian” best summarized such personnel practice. This book became a must-read for
later rulers. Sima Guang proposed a dialectic relationship between two key qualities of an individual: de (i.e., morality or virtue) and
cai (i.e., competence or merit). He posited that morality is the commander of competence, which in turn provides strength for
morality. He further classified all individuals into four types. The first type is called sheng-ren (i.e., wise person) who possesses
both strong morals and talent. The second type of person is called jun-zi (i.e., person with virtue) who shows strong morality but
probably has less competence. The third type of person is named as xiao-ren (i.e., mean person or villain) who has certain ability
and poor personal integrity. The fourth type of person is called yu-ren (i.e., mediocre person) who is low in both competence and
morality. Sima Guang suggested that the wise person should be the first choice in personnel utilization, followed by the person
with virtue. When neither the wise person nor the person with virtue is available, Sima Guang maintained that the mediocre
person should be selected rather than the villain, because the mean person would work for his/her own interests rather than
work for the community and society. Though less competent, the mediocre person is better than the villain because he/she
will not be able to do harm to the organization/community/society. The key principle of Chinese human resource is often called
de-cai-jian-bei (i.e., having both political integrity and competency). Under the traditional ideology, it is common to treat one's
political integrity as personal morality or virtue. Therefore, traditional Chinese HR practice emphasizes social outcomes and
harmony, and thus its main characteristic is rule by human beings (i.e. ren-zhi or yi-ren-wei-ben).
The socialist practice of human resource in the P. R. China had many features similar to the traditional practice. Employment
was long-term, long enough to be life-long (Ding & Warner, 2001). People normally use the term of “iron rice bowl” to describe the
durable nature of employment under socialism. Similar to the traditional approach, employee selection was based on morality
and social connections, and personal competence was regarded as less important. In China, guanxi (i.e., social connections)
have been formalized as valid means of employment. Guanxi refers to a network of personal favors and obligations stemming
from various social ties. Guanxi tends to have strong influence not only on employee selection but also on other aspects of orga-
nizational behaviors, such as work relationships, performance evaluation, and work outcomes (Tsui & Farh, 1997). Aufrecht and
Bun (1995) observe that the lack of a free market for so many commodities makes guanxi a particularly tricky obstacle to over-
come. Compensation established on the socialist philosophy of egalitarianism, and a mild variation did exist, but that was largely
attributed to seniority rather than to performance (Ding & Warner, 2001). The reward system was established on the socialist
values and beliefs that people are not motivated by material incentives, and everyone should sacrifice and thus be compensated
equally. Consequently, poor performers received the same reward as did excellent performers (Nevis, 1983; Shenkar & Chow, 1989).
Those who performed better only got political praise such as “model worker” (Shenkar & Chow, 1989). Promotion and succession of
senior management was conducted on the basis of political loyalty, and sometimes social connection [i.e., guanyi] played a far more
important role than technical factors such as managerial skills. Political competence (i.e., moral and ideological purity) has weighed
much more heavily than managerial competence (Miner et al., 1991). Performance evaluation was largely qualitative in nature and
tended to be subjective. Self-appraisal used to be the starting point for performance evaluations (Björkman & Lu, 1999). The role of
the labor union was consultative, and tended to be coordinative since the reform (Warner, 1996). Human resource development
(HRD) emphasis was placed on developing loyalty and morality. Consequently, most HRD effort was placed on ideological education.
For example, the practice of educating firm managers through “party school” continues and is still common nowadays. Human
resource is a new concept being introduced to China after the reform. Most organizations have personnel departments to
take care of all personnel related affairs. Even though the economic reform and open-door policy were launched more than
two decades ago, most government agencies still use the old terms such as department of personnel and education or division
of cadre. One of the major HR functions was to bring about desired political outcomes (e.g., no one should be unemployed)
rather than economic outcomes (e.g., profit and efficiency). Thus, personnel and cadre practice was supposed to function as a
part of the broad social and political system working toward communism. In summary, personnel practices guided by socialism
were characterized by ideological and rigid approaches.
Human resource practices in the capitalist context tend to be congruent with its cultural values and beliefs. Furthermore, HR
practice has been integrated into its social and cultural systems and becomes part of the social norm system. Most jobs in the
capitalist society are contracts that are based on will. That is, both employers and employees find the best fit to meet their mutual
needs in a free job market. Westwood et al. (2004) maintained that such employment relations could be characterized by a model
of impersonal rational economic exchange in which individuals conduct utilitarian calculations. Such an approach tends to be
based on the capitalist value that emphasizes the maximizing of economic outcomes and the optimizing of individual development
opportunities. Employee selection is largely based on ability and competence. Employee compensation is established on the basis of
work performance and contribution to his/her organization. Performance evaluation is conducted with quantifiable data in a scientific
way. The labor union plays an important role in negotiation and bargaining on behalf of its members' interests. HRD has been placed
in training and development to meet long-term goals. The basic function of HR practice is to contribute to the overall organizational
performance in terms of profit making and thus is viewed as one kind of capital (e.g., human capital). The implicit goal of such HR
practice is to fully develop individual potential in a competitive job market. Overall, the capitalist HR practice can be characterized
as a rational approach that is ruled by law.
4.4. Summary of cultural influences
Table 6 summarizes the influences of three cultural ideologies (Confucianism, socialism, and capitalism) on management and
organizational models existing in contemporary Chinese society. It is proposed that three models of organizations (e.g., paternalistic,
communal, and market) co-exist in China and they can be traced to three ideological ideas. First of all, the paternalistic model of
Table 6
Influences of three cultural ideologies on organization models.
Organization models Confucianism Socialism Capitalism
Paternal model High Medium Medium

(e.g., traditional
private business)
Commune model Medium High Low
(e.g., SOEs)
Market model Low Low High
(e.g., Western firms)
Hybrid model Medium (mostly in the area of human Medium (mainly in the aspect of strong Medium (reflected in market-orientation,
(e.g., emerging and relations and preserving the values of state, emphasizing on common wealth with profit seeking, and rational and
future Chinese firms) social order and harmony) and social responsibilities) analytic managerial approaches)
organizations refers to those firms that are established on traditional cultural values of Confucianism and are represented by some of
typical traditional private business. Secondly, the communal model of corporations was built on socialist ideology and was mostly
reflected in those SOEs. Lastly, the market model was largely influenced by capitalist values and beliefs and is more likely to be iden-
tified from Western-related firms such as joint-ventures and multi-national companies. Furthermore, an emerging model, namely a
hybrid model, is developing in many Chinese firms because of the convergence of cultural influences. Many Chinese organizations are
learning quickly from various economic institutions and managerial tools applicable to their unique cultural contexts.
There is growing empirical evidence supporting the above proposition that different cultural values and beliefs impact differ-
ent organizational models to various extents. In an attempt to test the applicability of two theories of corporate governance (i.e.,
agency theory vs. stewardship theory), Tian and Lau (2001) examined the impact of board composition and leadership structure
on the performance of Chinese shareholding companies. It was discovered that the stewardship hypotheses received stronger
empirical support. Since the above theories are based on conflicting assumptions about human behavior and thus offer different
prescriptions about governance mechanisms, the influence of cultural values and beliefs on Chinese organizations is evident. On
one hand, the agency theory is rooted in Western industrial and organizational economics, and it assumes that human behavior is
naturally opportunistic and self-serving. Consequently, it calls for regulative control over managerial behavior in order to ensure
that top managers act in the interests of shareholders. On the other hand, the stewardship theory accepts the assumption that
managers are good stewards of the corporation. The latter theory assumes that managers are trustworthy and will work diligently
for corporate interests and shareholders' benefits. Although the stewardship theory was developed in the Western context, its
assumptions and propositions tend to be congruent with Confucian values and beliefs regarding human behavior. While the
two organization theories have certain explanatory power, the fact that the stewardship theory is a better explanation for
the contemporary Chinese corporate governance indicates the continuous impact of Chinese traditional cultural values and beliefs,
despite the introduction of capitalist managerial mechanisms.
Chinese private business under the influence of Confucian ideology can be best described as paternalistic (Farh & Cheng, 2000;
Redding, 2002, Smith, 2003). The paternalistic model of organizations is reflected in strong role compliance and hierarchical
structure based on moral reciprocity. Managers and leaders are expected to take care of their subordinates and employees and
therefore prolong the relationship. On the other hand, employees benefit from such relationships in welfare provision, selection,
and promotion based on such measures as loyalty, length of service, and skill profile. Smith (2003) observed paternalist management
practices in many areas, particularly in the southern Pearl River Delta.
While the Western (mostly capitalist) ideology has been gaining a greater influence in Chinese organization and management
practice, it is predicted the emerging hybrid model will adopt the essence of capitalism—rationality. Based on an extensive study
of economic history, Braudel (1982) contended that “capitalism could not exist without rationality” (p. 576). Here, rationality refers to
an analytic approach to organization and management characterized by application of reasoning, continuous adaptation of means to
ends, and an intelligent calculation of possibilities. Redding (2002) analyzed the evolution of capitalism in the Chinese private sector
since the 1980's and concluded that “In two decades the capitalist has gone from pariah to member of the elite, and the surrounding
ideology and institutions have equally re-formed themselves at high speed” (p. 237). Nevertheless, this analysis also revealed the
enduring and dynamic influences of traditional values such as social harmony, hierarchy, control, and family collectivism. Government
played, and will continuously play, a vital facilitator role in developing Chinese capitalism. In addition, it has been noted that the
evolving Chinese private business can be termed as “network capitalism,” which is largely based on personalized guanxi, and low
on horizontal coordination.
It is posited that an emerging organization model of Chinese firms can be described as a hybrid that is shaped by all three cultural
values and beliefs (Ding & Warner, 2001). Some recent studies provide evidence of co-existence, overlapping, and even convergence
of three different cultural values in Chinese organizations and management practices. Ding and Warner (2001) traced China's labor-
management system since the 1950's and concluded that a hybrid human resource management model is taking place with both
Chinese characteristics and the influence of foreign multinational corporations. Fu and Tsui (2003) analyzed pieces on business
leaders in two major official Chinese newspapers, and found that the government reinforces the traditional values that are consistent
with communist ideologies. Meanwhile, the Chinese government also introduces such Western management values as personal
competence and skills. The researchers examined leadership attributes described in the official news media, and discovered that
these attributes could be adequately coded into three ideological categories: Confucian, communist, and modern Western values.
In sum, studies have demonstrated an emerging hybrid model of Chinese organizations and management practices. Such a model is
evolving by adapting three seemingly different, potentially overlapping, and possibly converging ideologies: the continuing prevalence
of Confucian values on harmonious human relationships, the socialist ideologies emphasizing the strong role of state and government
and common wealth, and the Western rational style of managerial approach.
5. Conclusion
In comparing three influential cultures in the P. R. China, this paper does not intend to evaluate which of them is the best or
most suitable for social and economic development in China. As ideologies, all three cultures have both merits and flaws. The
questions regarding the best social and economic institutions and the best organizational approach are largely determined by
cultural values and beliefs. It is posited here that contemporary organizational behavior and managerial practices in China can
be better understood through examining conflict and convergence of three cultures. Consequently, three corresponding forces
need to be taken into consideration in examining current organizational transformation.
Suppose a researcher has conducted a survey to compare work values between Chinese and Americans, and found that Chinese
scored much higher on individualism, does that mean that Chinese employees no longer carry their traditional values? Not at all
(see for example, Ralston et al., 1995). In fact, one is likely to discover strong capitalist influences in many East Coast areas such as
Shanghai and Shenzhen. According to the above analyses, Chinese culture needs to be understood as conflict and convergence
among three competing cultural systems. Many young employees tend to be quite individualistic, partially due to the influence of
the Western culture, and partially reflecting a backlash against the socialist egalitarian ideology. While this paper does not offer
any specific future direction of organizational transformation in China, it provides a framework for studying the major influences
on organizational behavior and managerial practice. The main theme of this paper is that the organizational transformations in
private, state-owned, and foreign-owned enterprises need to be studied through the confluences of Confucianism, socialism, and
capitalism. The intent of this paper is neither to predict the future development in the P. R. China, nor to argue a preferable direction
for Chinese society and management in organizations. Nevertheless, the theme of this paper suggests that three cultural forces will
co-exist for a long time, and that the future will be determined to some degree by the convergence of these cultural forces.
The conceptual framework presented in this paper also provides a useful tool for building organizational theories and analyzing
managerial concepts that are unique to China. For example, guanxi as a Chinese indigenous concept can be examined in relation to
cultural values and beliefs. It is commonly recognized that developing renqing (i.e., social or humanized obligation) is a precondition
for the establishment and use of guanxi. It is believed that guanxi is useful because people involved in certain social networks will
exchange humanized obligations. Therefore, such belief is rooted in several fundamental values and beliefs including the belief
in human nature [i.e., goodness] and moral standards [i.e., based on feeling]. However, some people may not prefer guanxi or are
less likely to fulfill renqing. Therefore, it is necessary to investigate the relationship between the guanxi practices and embedded
cultural values and beliefs.
This paper has identified several important cultural dimensions and analyzed differences among three cultures in terms of
values, beliefs, and managerial philosophies and practices. As Tayeb (2001) has rightly pointed out, there is danger of losing
sight of the big picture in any attempt to simplify and reduce complex cultural phenomena into neat categories. Culture should
be viewed as a dynamic rather than static concept. More importantly, it is crucial to examine interactions among three cultural
systems: values, beliefs, and social norms. For instance, some capitalist values and beliefs might be adapted into the Chinese context
along with the institutionalization of the free market system. While scholars of cross-cultural study have long been interested in
understanding the cultural influences on management theory and practice, the perpetuation function of the practice and orga-
nizational behavior (as part of social norms) as suggested by Table 1 should not be overlooked. A systematic examination of the
dynamic relationships among three cultural components is beyond the scope of the current paper. It should be emphasized that
culture as a collective learning outcome among a group of individuals, is a totality of three sub-systems: shared values, beliefs,
and social norms. Furthermore, those who are interested in cross-cultural studies should adopt both historical and contemporary
perspectives in examining the dynamic changes of ideologies and social norms.
Acknowledgement
The research was supported by the National Science Foundation of China (NSFC Projects. 70725005, 70890081 and 71172009).
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YANG Baiyin - Chinese Leadership and Management

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Chinese Leadership

Baiyin YANG, Ph.D.

Presenter: Baiyin Yang

 Outstanding Scholar, AHRD

 Cheung Kong Scholar Professorship (Ministry of Ed)

© Baiyin YANG, Tsinghua University 1

© Baiyin YANG, Tsinghua University 2

Organization & Management

© Baiyin YANG, Tsinghua University 3

Extracts from the World Bank - 1

© Baiyin YANG, Tsinghua University 4

Extracts from the World Bank - 3

© Baiyin Yang All rights reserved 杨百寅版权所有

© Baiyin YANG, Tsinghua University 5

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How Does China Look Like?

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GDP (PPP), US $ trillion

China Germany India Japan USA

Source: http://www.economywatch.com/ updated 17th March 2015

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China Germany India Japan USA

Source: http://www.economywatch.com/ updated 17th March 2015

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N° Country 2030 Country 2050

Comparing Chinese Provinces with Countries

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Comparing China’s Economy with USA & EU

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Sectors 1980 2000 2012

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Society: Rural & Closed  Urban & Open

 FDI = $127 billion > (USA: $86 billion)

 As % of GDP: 1978=10%  2005 =62%

 Share in global exports: 1978<1%  2010=9.5%,

replacing Germany as the biggest exporter

 1998=8.43million  2010=56 million

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 Village election and township election

An Iceberg Model of Culture

Under the Water Beliefs

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Three Competing Forces

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Confucianism – Chinese tradition

Socialism – exploratory practice

Capitalism – global influences

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Comparison of Belief System (2)

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© Baiyin YANG, Tsinghua University 16

Unfreeze Movement Refreeze

Yin-Yang Cyclical Change

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© Baiyin YANG, Tsinghua University 18

Relation Among People