Embedded Power: What This Book Finally Explained About China's Economy — And My Own Missed Opportunities

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Dec 1, 2022

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A review of Lan Xiaohuan's landmark book on China's political economy — and why understanding how the Chinese government thinks about land, debt and development still matters for anyone doing business in China.

The Conversation I Wish I'd Had Earlier

Two moments from my own life keep coming back to me while reading this book.

The first: 2008 or 2009, just starting university. Property prices in Wuhan were rising in a way that felt unusual even to an 18-year-old with no savings and no real understanding of how any of it worked. I noticed the numbers going up. I didn't understand why. Tianjin followed a few years later. These weren't random fluctuations — in hindsight, they were part of a very legible cycle, one that anyone who understood how local government financing actually worked in China could have seen coming. I didn't understand it then. Nobody in my immediate circle explained it to me. I did nothing.

The second: about 2015, a few years into working life, living in Beijing. By this point I had some savings, some sense of how the world worked, and a growing awareness that the property developers were doing something aggressive — the land auctions were becoming spectacles, prices were being pushed hard, leverage was being stacked in ways that felt unsustainable even from the outside. I had the instinct. I did not have the framework to act on it. And crucially, I didn't have Beijing household registration — hukou — which meant that even if I'd had the down payment, I didn't have the legal standing to buy.

I already knew by then that I'd likely spend time living abroad. So I told myself it was fine. I moved on.

Society, as we say in Mandarin, beat me soundly regardless.

Lan Xiaohuan's Embedded Power — originally published in Chinese as 置身事内, a title that roughly translates as "being inside the matter" or "embedded in the game" — is the book that would have given me the framework I was missing in both of those moments. It's a book about how the Chinese government actually works in the economy: not as regulator standing outside it, but as a participant embedded within it. It's written by a Fudan University economics professor in language that is remarkably clear given its subject matter, and it's become one of the most widely discussed economics books in China in recent years.

As of writing, there is no official English translation. I hope there will be.

What the Book Is Actually About

The central argument of Embedded Power is stated clearly and early: in China, the government does not merely influence how the economic "cake" gets distributed. It participates directly in baking it. This is not a criticism or a defence — it's a description of a structural reality that shapes almost every significant economic phenomenon in the country.

Lan organises the book in two parts.

The first half works at the micro level — the mechanics. What does a local government in China actually do day to day? Where does its money come from? How does it spend? The land financing system gets significant attention here, and rightly so: the way local governments in China have historically used land sales as a primary revenue mechanism is one of the most important and least-understood features of the country's economic model from the outside. It's not corruption (mostly). It's a structural feature of how the fiscal relationship between central and local government was designed, and it has downstream consequences for almost everything — infrastructure investment, debt accumulation, the behaviour of property developers, the trajectory of housing prices.

The second half zooms out to the macro level — urbanisation and industrialisation, regional inequality, debt risk, the structural imbalances in domestic demand, and the origins of trade tensions with the West. These are phenomena that show up in headlines constantly. What Lan does is connect them back to the micro-level mechanisms described in the first half. Once you understand how local governments are incentivised and constrained, the macro picture becomes considerably more coherent.

The book doesn't require an economics background to follow — this is one of its genuine achievements. Lan writes with an academic's rigour but a teacher's instinct for clarity. Complex fiscal arrangements get explained with examples grounded enough that a non-specialist can follow the logic.

Why This Matters for Anyone Working in or With China

I've spent over ten years building marketing strategies for brands operating across both North American and Chinese markets — working with everything from major international consumer brands entering China to Chinese founders trying to grow a presence elsewhere. And one of the most persistent gaps I've seen on both sides is a structural misunderstanding of how China's economic incentives actually work.

Western brands entering China frequently approach the market with frameworks built for contexts where government is primarily a regulator — something you need to comply with, navigate around, occasionally lobby. The reality in China is more complex and in some ways more interesting: local governments have their own economic interests, their own revenue needs, their own development timelines. Understanding those interests doesn't just help you navigate compliance — it can tell you which cities are actively trying to attract foreign investment, where infrastructure investment is likely to flow, which sectors have political tailwinds, and which relationships are worth building.

For small business owners and marketing professionals trying to understand why certain Chinese platforms, content categories, or consumer trends emerge when and how they do — the underlying logic often runs back to exactly the kind of government-economy relationship Lan describes. RedNote's growth, the rise and regulation of the live-commerce sector, the government's ambivalent relationship with the domestic tech giants — none of these is fully legible without understanding the structural context.

This is not a book that will tell you how to run a campaign or close a deal. It will tell you something more foundational: how the system your campaign or deal is operating inside actually works. That knowledge compounds.

The Real Estate Chapter and the Personal Reckoning

The book spends considerable time on housing and land — perhaps more than on any other single topic. For readers who lived through China's property boom of the 2000s and 2010s, these chapters land differently than they would for someone reading about the period purely historically.

Lan's explanation of why housing prices rose when and where they did is not about market dynamics in the conventional sense. It's about the fiscal pressures facing local governments, the structure of land auction mechanisms, the way infrastructure investment creates value that gets captured through subsequent land sales, and the feedback loop this created over two decades. When you understand the mechanism, the regional patterns of price increases — why Wuhan moved when it did, why Tianjin followed — stop looking like chaos and start looking like a logical output of a particular set of incentives.

I'll be honest: reading this section while remembering both of my missed moments was not entirely comfortable. The opportunities weren't invisible — they were legible to anyone with the right framework. I didn't have the framework.

What I take from this now, working in a market advisory capacity with clients navigating the China business environment, is that the structural knowledge in this book is genuinely perishable. The specific mechanisms Lan describes — land financing, local government debt, the particular shape of the urbanisation model — are themselves changing. The government has been actively trying to shift the economy away from infrastructure-and-property-investment-led growth toward domestic consumption and technology. That transition is ongoing and uneven and genuinely uncertain. Reading Embedded Power tells you how the system worked and, importantly, why — which gives you a basis for thinking about what changes as the model evolves and what doesn't.

Who Should Read This

Embedded Power is not a light read, but it's not an inaccessible one either. The audience it seems written for is exactly the audience it deserves: thoughtful people who want to understand China's economy at a structural level rather than through the simplified narratives that dominate most English-language coverage.

For international readers: if you work with China in any professional capacity — sourcing, investment, brand expansion, platform strategy — this book will give you a foundation that most of your competitors don't have. That's worth something concrete.

For marketers and business owners working in the Greater China market: the political economy backdrop Lan describes is the operating environment you're inside. The more fluent you are in its logic, the better your decisions will tend to be.

For anyone who, like me, has a few "I should have understood this earlier" moments from their own relationship with China's economic development — this book is a rewarding and occasionally humbling experience.

I'll be watching for the English translation. In the meantime, the Chinese original is worth the effort if you can manage it.