In 1998, during my field research in Shanghai for my last book, Selling China, I asked a government official whether he could introduce me to some private entrepreneurs. He gave me a quizzical look and asked, “Are you a Harvard professor?” (I was teaching at Harvard then.) “As a Harvard professor,” he continued, “why are you interested in those people selling watermelons, tea, and rotten apples on the street?”

Somewhat taken aback by his response, I gently reminded him that companies such as Microsoft and Hewlett-Packard were all founded and run by private entrepreneurs. I then ventured to him that maybe the reason private entrepreneurs in Shanghai were just selling watermelons and tea is because these were the only activities the government allowed them to do.

The comment by that Shanghai official has always stayed with me, and it provided the initial inspiration to write this book. (One chapter in this book is entitled, “What is wrong with Shanghai?”) It is striking how his comment contrasts with much of the theorizing about Chinese reforms in the West. A prevailing view among Western academics, especially economists, is that the goal of the Chinese state was to create a market economy based on private ownership, but the reforms were blocked by political obstacles. For political expediency, policy makers then settled for the second-best options to achieve the same goals – such as partially privatizing state-owned enterprises (SOEs), introducing foreign competition, and encouraging new entrepreneurship while retaining SOEs.