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Communist party asserts control over China Inc

Chinese business & finance

Communist party asserts control over China Inc

Push for cells in joint ventures follows moves to tighten grip on state-owned firms

China has sought greater control by the Communist party and state over the economy and civil society © EPA

China’s Communist party is making clear that it expects to dictate business decisions — not only at state-owned enterprises, but also at private companies and joint ventures with foreign partners. 

Under President Xi Jinping, the party has become more assertive, reclaiming functions that the civil government and industrial groups carved out during decades of liberalisation. Beijing has largely abandoned a list of promised economic liberalisation issued four years ago, opting instead for greater control by the party and state over the economy and civil society.

For businesses, that control takes the form of party cells, long a feature of SOEs but increasingly a part of corporate life at private companies and foreign joint ventures.

In the past week, the party has moved to define its role in business. A government statement laid out Beijing’s definition of “entrepreneurship”, saying it involves patriotism and professionalism, followed by observing discipline, obeying laws, innovation and serving society. Profits did not feature, although the statement did reassure entrepreneurs that their property would be protected.

Meanwhile, Xiao Yaqing, head of the State Assets Supervision and Administration Commission, told reporters last week that “excellent, well-managed, profitable companies have a good management team. That is surely because the party leadership plays an important role in team-building and corporate governance”. 

Mr Xiao’s organisation is overseeing forced mergers of indebted state-owned enterprises to mould them into internationally competitive national champions.

The document on entrepreneurship from the party’s Central Committee and the State Council, China’s capital, follows months in which regulators have reined in the country’s most aggressive and well-connected, and indebted, private dealmakers. It comes after five years of a corruption purge that has broken up patronage networks within the party, particularly in the state-run oil sector and the military.

More generally, the party is recapturing the large segments of the economy that developed outside its purview in the nearly 40 years since Deng Xiaoping tossed out classic Marxist recipes such as price controls and state ownership. 

It has set up cells in private companies and altered articles of association in SOEs’ Hong Kong-listed units to explicitly include the role of the party in management decisions. It has tracked down dues from lapsed members and established party-controlled unions in foreign multinationals’ Chinese operations. 

The latest front is a push into foreign-invested joint ventures, which at the best of times have to navigate cultural differences and divergent corporate goals. While not explicit or written, overtures have been made to some foreign businesses operating in China about formally establishing a party cell in their joint ventures. 

While foreign investors are generally aware their state-owned Chinese partner answers to the party, adding cells within the joint ventures makes relations more difficult than usual by adding opacity to day-to-day operations. 

It also potentially increases costs for which line managers are not accountable, if the joint venture has to foot the bill for party activities and dues, and raises the risk that people will be promoted based on party activities rather than workplace competence.

Meanwhile, the party has already made its enhanced presence felt. 

“It’s not so much the idea of party cells in their joint ventures, it’s the difficulty of dealing with the party decision makers within their state-owned partners,” said one adviser to foreign businesses in China. 

Purely business decisions that once might have been handled by division managers within an SOE are getting routed through the party hierarchy instead, leading to frustrating delays at the operational level.

European companies in China have found that the pressure to introduce a party cell varies considerably by region and by industry.

Additional reporting by Archie Zhang

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