Shaun Rein's  Instablog

The first time I met Li Lili, she was no longer the movie star who had made millions of Chinese swoon. In her heyday, she had been a mix of Angelina Jolie and Julia Roberts. She had had Jolie's athletic appeal and Roberts' glamour and acting chops. Along with Ruan Lingyu and Butterfly Wu, she ruled China's box offices in the 1930s and '40s.

I met her one sweltering Beijing day decades after she had stopped acting and retired as a professor at the Beijing Film Academy. I was nervous about meeting her, not because she was famous and I had seen her movies but because she was going to become my grandmother-in-law, and I wanted to make a good impression.

It was obvious that even though she was now an old woman she still had an "it" quality that could light up a room. Tony Blair is the only other person I've met who has given me that feeling.

Within minutes, Li Lili took me aside. "Sometimes you need to swim against the current," she told me. "Even if everyone is going in one direction in a bad way, you do what is right and moral. Even if that means going against everyone else. Never forget that." Over the next five years, until her passing, I met her dozens of times. Each time she told me more about her remarkable life and taught me more about how to lead mine. I learned countless lessons from her and the how she had lived her life. My only regret is that she never met my son, Tom, who was born after she died.

Her story started 80 years earlier. She was a star when Bette Davis and Greta Garbo ruled Hollywood, and Lou Gehrig and Joe DiMaggio the baseball diamond. Fans thronged to her movies. She married Luo Jingyu, one of China's most famous filmmakers and head of the China Film Studio, who received a medal from President Franklin Roosevelt for his efforts in the resistance against the Japanese in World War II. They lived a good, comfortable life.

Then a third-rate actress with a fiery temper named Lan Ping came into their orbit. She battled with directors and actors and actresses alike, demanding more lines and more prominent placement on posters. But audiences didn't care for her, and she never made it beyond being a minor actress.

How different modern Chinese history would be had Lan Ping only been a little more talented. Instead she became known to the world as the tyrant Jiang Qing, the wife of Mao Zedong. As the leader of the "Gang of Four" she wreaked havoc on millions of lives and settled personal scores during the Cultural Revolution. During those dark days of the 1960s and '70s, Jiang Qing went after political competitors and people in the movie industry who she blamed for keeping her down.

She saw Li Lili as both. Li Lili was a star, of course, but also her father, Qian Zhuangfei, was one of the early heroes of the Chinese Communist Party, which recently named him one of the 50 most important people in the country's history. My grandmother-in-law and her husband became prime targets of the Gang of Four.

Like many in the film industry, Li Lili had her head shaved by Red Guards, and she and her husband were denounced and repeatedly tortured. They suffered particularly badly, as Jiang Qing ordered the attacks personally, both because they had outshone her and because of their political connections. Still, Li Lili never denounced her husband or others. For her, doing the right thing was too important, even when faced with the wrath of one of history's worst persecutors.

Her husband was hounded and tortured until he died. Only his glasses were returned to his family. Even during the worst days, however, Li Lili never gave up hope for a return to normality and for a better life for her family and China.

After the Cultural Revolution ended, and after military leaders arrested Jiang Qing and the rest of the Gang of Four, Li Lili's life flourished once again. She married a famed painter, Ai Zhongxin. Her son, my father-in-law, Luo Dan, and his wife, Ye Xiangzhen (also known as Ling Zi, daughter of Marshal Ye Jianying who became head of state during the initial reform stages in the late 1970s), made the award-winning movie Savage Garden. Her grandchildren thrived personally and professionally, too, and they all helped set China on a path of reform.

That she was able to endure and overcome such hardship with hope and determination and lived to see those hopes realized has been a true inspiration to me.

Not only did Li Lili teach me always to stay optimistic and never to sacrifice morality despite facing evil; she also taught me to make sure to give back to one's homeland and to take care of the poor. Although she and her husband spent several years in the U.S. and Europe in the 1940s, she returned to China after the founding of the People's Republic, at Zhou Enlai's behest, to help rebuild the film industry.

She wanted her grandchildren, like my wife, Jessica, who went abroad for education, to learn best practices from around the world and then use that knowledge and expertise to help China. It was their duty to give back. If they did not, she taught them, the tragic sacrifices of all those before them would be for nothing.

Although Li Lili is most famous for her acting, I remember her for far more. She taught me never to sacrifice ideals and morality, even when the world around is crazy and evil reigns. If she could maintain her resolve to do the right thing and help people through torture and tragedy, then anyone can do so in less trying circumstances. It is our duty.

Shaun Rein is the founder and managing director of the China Market Research Group, a strategic market intelligence firm. He writes for Forbes on leadership, marketing and China. Follow him on Twitter @shaunrein.

The Hilton Hotel in Chongqing in western China was briefly shut down recently and stripped of its star rating. The problem wasn't bad service or bedbugs. The local government closed it because a brothel was operating in the same building complex.

Although Hilton itself didn't seem to have direct affiliation with the brothel, the hookers and johns were using guest rooms for their assignations. Such open activity in an international luxury hotel might be shocking to many Americans, but for most Chinese it was not surprising that a bordello was operating there, but that local government authorities actually shut it down.

Countless brothels operate across China, often thinly veiled as karaoke bars, saunas, massage parlors and hair salons. On a recent trip I counted nearly a dozen such establishments in a five-minute walk from my hotel. That is actually sharply down from the several dozen that were around five years ago, before rising real estate costs and incomes forced many places to shut or turn to the Internet.

The closing of brothels like the one attached to the Hilton Chongqing is the exception rather than the rule. Most operate in the open, with girls sitting in store windows under the glow of pink neon lights. Yet at the same time the government has embarked on a massive crackdown on Internet pornography and has been shutting websites and arresting their operators. Porn isn't the only focus of the morality campaign; one professor in Nanjing was recently jailed for "group licentiousness"--arranging orgies, in other words.

These seemingly contradictory actions confuse many foreign observers. How can the government let brothels operate freely while Internet pornography is stopped, they ask? While it might seem confusing at first, it really is not, if you understand how the government in China is set up.

Although many analysts tend to view the Chinese government as one big monolithic entity, nothing could be farther from the truth. In fact there is a huge difference between the wants of the central government and how those policies are actually carried out at the local level. The central government has considerable power, all right, but in practice it doesn't always reach all the way down the chain.

The ministry offices that crack down on Internet porn report directly to the central government. Their heads all want to get promoted or curry favor with senior leadership. It is very clear that the central government wants to crack down on pornography and prostitution, viewing them as socially destructive forces. That's why more and more arrests have been made lately in Beijing, close to the seat of power, while farther away from the capital policies are more relaxed (except where politicians, like one in Chongqing, are angling for senior leadership positions).

At the local level police and other officials face different issues. Police and local officials are way underpaid and aren't allowed to move into the private sector after they've reached a certain rank. Even relatively senior local officials often make only several hundred dollars a month. They get lots of benefits, like housing and cars, but they don't have much personal money of their own. One result is that corrupt officials protect brothels for protection fees.

These corrupt officials and police don't want to lose that income, so they let brothels operate freely as long as they don't become hubs for more serious crimes, like drug sales, or violence--and as long as there isn't overwhelming political will to shut things down, as there was around the Beijing Olympics in 2008 and the run up to the World Expo in Shanghai this year. Many brothels throughout the country were shuttered in the three months leading up to the Olympics, but most were up and running again soon after.

Porn sites' owners often work in secret out of their homes and in areas where police don't go. So when porn site owners get caught, they get arrested.

For anyone doing business in China, understanding the relationship, differences and interplay between the central and local governments is critical. No matter whether your company is a large one, like Apple or Google, or a tiny one, you need not only a clear picture of the differences that exist between different ministries and levels of government but also clear communication with the government at all relevant levels, to make sure whatever you plan to do is OK before you move forward with a project.

It's not just foreign companies that need to learn this lesson. The domestic auto manufacturer BYD, backed by Warren Buffett's Berkshire Hathaway, recently learned the difference between local and central approval the hard way, when the Ministry of Land and Resources halted construction of a $730 million factory it was building in Xian. BYD had obtained approval from the local government, but what it was doing was still viewed as a land use violation by the central authorities. Companies need to realize that local officials saying something is OK and ministry-level officials giving the green light are not the same thing. If you don't get that, you can make the kind of costly mistake BYD did.

Foreign companies need to keep a close watch on their operations to avoid bending rules, be they local or national. Too many foreign companies fool themselves into believing they have to bend rules because that's how things are done in China. They should never engage in illegal activity. The central government likes to make examples of foreign companies that break the law, as it did when it jailed the Chinese head of Rio Tinto for 10 years for accepting bribes. It is easier politically to arrest executives of foreign companies than of domestic ones.

It's true that local officials do call the shots in their areas, but they can also be replaced or become subject to central government-inspired crackdown campaigns. That was what happened in the prostitution squeeze in Chongqing.

Shaun Rein is the founder and managing director of the China Market Research Group, a strategic market intelligence firm. He writes for Forbes on leadership, marketing and China. Follow him on Twitter @shaunrein.