Influence without Ownership: the Chinese Communist Party Targets the Private Sector

Sources: ACFIC’s Chinese Private Enterprise Survey ; Macropolo

Based on an official survey of Private Enterprises, the attached figure shows the progressive increase in Party coverage of the private sector, with a clear acceleration after 2012. While we are still far from comprehensive coverage, with only 48.3% of the surveyed private businesses hosting a party unit, this is largely due to the small size of these companies which do not employ three party members, the minimum to form a cell. Penetration of large private companies is, by contrast, almost total, with over 92% of China’s top 500 private enterprises hosting party cells. The coverage should soon be total as it is since 2018 mandatory for domestically-listed companies to establish a party unit.

A Modern enterprise system with Chinese characteristics

While new data on the burgeoning of party cells in private companies, especially foreign ones, attracts media attention, this is only part of the story. Party cells, which, in a Leninist system, answer only to upper-level party organs and are rarely held accountable by courts or regulators, have so far mainly played a secondary role in private businesses. This includes recruiting party members and organizing study sessions for them, providing welfare assistance to workers, and more broadly, focusing on business-friendly operations, such as training programs or social gatherings for employees. This is now changing as new guidelines published in September 2020 illustrate.

These new guidelines strengthen the party’s co-optation strategy towards entrepreneurs. They expand the recruitment of businesspeople into the party as to "cultivate a team of private economic persons who are resolute in walking with the party", and who can be relied upon "in times of crisis". To do so, CCP units in firms, together with local governments, are to compile "representative person databases and talent banks" to be recruited in the CCP and its representative bodies, for example as leaders of local branches of the All-China Federation of Industry and Commerce. Beyond recruitment, entrepreneurs are to be further educated and monitored to make sure they remain in line with the Party’s positions, but also so they "regulate their own words and actions", "cultivate a healthy lifestyle" as well as work in a "down-to-earth manner and be modest and low-key". It is therefore not only about ensuring the businesspeople political loyalty, but also shaping their working style and public image.

n a speech published soon after the aforementioned guidelines, Ye Qing, vice-chairman of the All-China Federation of Industry and Commerce - an organization in charge of linking private businesses and CCP departments - clarified what that entails. According to Ye, firms should strengthen the socialist system with Chinese characteristics by recognizing in their charter the leading role of the party, as well as their support for party work, including through specific funding. While CCP guidelines are not binding on non-party entities, such as private businesses, writing them in corporate charters leads to a legal codification of CCP requirements. The relationship between the party organization and the board of directors should also be clarified. In practice, party secretaries in firms are hence becoming key firm actors. Large firms, in particular, are expected to appoint full-time party secretaries and party workers, as well as to give them "big stage to fully display their talents". These changes to company charters are in line with what the party-state has asked from State-owned enterprises since 2016. Private businesses have expected that the same would be soon asked from them, and some started to amend their own charters as soon as 2017.

Ye’s interview also clarifies another of the September guidelines’ key, yet broad, formulas: firms must "adhere to the principle of the Party exercising leadership over personnel management". It means that firms are expected to ensure that the party organizations have a leading role in hiring decisions by establishing a party-led HR structure. The main goal is to avoid "professional managers promoting whoever they like". It is only after a "comprehensive inspection" is conducted, and appointments are approved by party cells, that they are to be communicated to the Board of Directors, as well as forwarded to the management team for implementation.

Ye also recommends firms to establish a monitoring and auditing structure under CCP leadership. It should ensure the firm’s compliance with laws and regulations, monitor employees and in particular "abnormal behavior" as well as deal with disciplinary violations. Under the claim of building "friendly and clean" relationships between business and governments, the CCP appears to be using its grassroots units to expand its disciplinary apparatus beyond the public sector.

In addition to the quantitative expansion of CCP units in private business, we see a qualitative change in the CCP's penetration of the sector. This evolution blurs traditional distinctions between private and public, by providing means for the CCP to influence the inner workings of private companies, beyond the question of ownership. Party units are hence increasingly playing similar roles in private and state-owned businesses. To better cope with this challenge to corporate autonomy, European companies and governments should increase their understanding of the CCP operations in private businesses and work to ensure greater transparency. Similarly to what happened in 2017, when European businesses and the European Union Chamber of Commerce in China pushed back against efforts from their SOE joint venture partners to insert the party organization in their articles of association, consistent and coordinated response from companies and foreign trade groups is needed to minimize the effect of these measures on foreign businesses operating in China.

Copyright: NOEL CELIS / AFP