I have a piece in the SCMP today with Deng Yuwen, on what the Liu Han case says about doing business in China. We argue that while there are good reasons for entrepreneurs to team up with political patrons, with big potential payoffs, such alliances come with no guarantees and when the political winds change, business-people tend to take the fall.

…enjoying political patronage does not mean entrepreneurs can rest on their laurels. Officials can easily employ the machinery of the state to force commercial partners to toe the line, or break the law. And when, for whatever reason, the relationship sours, it is inevitably the entrepreneur who is sacrificed. Bo’s crime crackdown was the perfect example of officials turning on their former corporate allies due to a change in the political wind.

Many entrepreneurs seek out political patrons because, in the process of accumulating a fortune, most of them also accumulate some dirt. But as Liu Han’s case demonstrates, the politics-business alliance is unreliable. Ultimately, it is unreliable because it is dishonest and illegal.

In order to provide security for entrepreneurs, China must quickly complete the transition from a chaotic market economy to one that is bounded by the rule of law, where fair and open competition replaces the opaque contortions that still prevail at the moment. Read more..