The Persistence Of Party Power Over China’s Private Enterprises

Xinhua has lifted the skirts of the Party’s influence over private enterprises. Some 3.8 million grassroots Party organizations, which will include those in private enterprises, but also everything from private schools to non-governmental organizations, now exist, up from 2.1 million in 1978, it says. The exact number of Party cells in companies is difficult to determine, though we have seen statistics that said there were Party organizations in 250,000 companies (including foreign owned companies such as Wal-Mart) with 3 million members at the end of 2006, plus 800,000 self-employed Party members. The numbers have surely risen since, as overall Party membership has risen from 70 million to 80 million, with 23% of the total, or some 18 million people now, managerial level staff in public and private enterprises. The implication of the Xinhua piece is that the Party’s goal is to have a presence in every private enterprise with at least 80 employees.

The Party has never made any secret of its belief that it provides the political guidance for the whole economy. In a country where the Party mimics the organs of government and state and once controlled all businesses of any size, to do the same for the private-sector economy should come as no surprise. Free-market capitalism has no meaning in China, if by free is meant free from the Party’s leading role.

Yet beyond the statistical titillation of the apparent success of a policy to  grow formal representation in private enterprises that was kick started in 2002 lies the questions of whether this provides an explanation of how private companies’ business goals are kept aligned with Party policy and how it changes the structure of the country’s elites. Have the old elites secured control of the new economy: or is their power only temporarily persisting in it, to wane as market institutions eclipse the administrative power of the cadres; or are the old elites just being replaced those made newly wealthy by business?

We suspect the answer lies along the lines of the second option and that temporarily is being strung out over decades by the adeptness of local Party committees in keeping their fingers in the decision-making pie of private enterprises thanks to a institutional environment that is already based on formal and informal personal connections. For companies, sponsoring a Party cell, is as much about winning a “red hat” as it is about making a “black hat” available for local officials whose careers have been judged by their success in achieving local economic development. A vested interest shared limits the resistance to reform. Political capital is still as important as financial capital to an enterprise in China. Close ties between a company and local officials make access to scarce resources such as capital easier for a company via the Party’s network of connections, and minimizes the risk of the thing any business most dislikes, uncertainty, particularly policy uncertainty.

It is anyway a delicate line to walk for a Party whose commitment to national economic growth is taken as a basis of its political legitimacy to rule. The growing liberalization, internationalization and industrialization of the economy demands to an increasing degree professional managerial expertise in enterprises. Cadre core skills such as price controls, plan fulfillment and quota setting are not the functional expertise required of a manager in a modern company.

State-owned companies, by definition, already have a high degree of political involvement, including those with publicly-listed subsidiaries, which may prompt some interesting corporate governance and disclose-to-shareholder questions. Perhaps such companies should have to list in the their annual reports their top-ranking Party members as they are required to list their directors and top earners?

What strikes this Bystander is how the liberalization of China’s economy has been accompanied by a relatively stable power structure and the survival of the political elite, which has also acquired an extensive stake in the economy. Unlike in Russia, part, not full privatization of state-owned enterprises, particularly in the pillar industries, has been an important to prevent the creation of large areas of privately owned property in the economy beyond officialdom’s sway.  The Party has, so far at least, found a way of absorbing the rise of private power that which elsewhere in industrializing economies has led to the rise of new centers of political power. Indeed for central government, the bigger challenge is the power of semi-independent local party bosses on whom have to be imposed periodic crackdowns from the center in the form of anti-corruption campaigns.