In China, corporates are also the party’s business

Hypercontrol, interventionism, currency manipulation — no, China is not a market economy

There, they said it: China is not a market economy.

In December, 15 years after China’s accession to the World Trade Organization, the European Union, the United States and Japan formally refused to grant Beijing the coveted label, denying it important concessions on tariffs and other trade restrictions.

This is partly a response to economic distortions caused by government intervention, including an excess supply of steel, which China exports and dumps in advanced industrialised countries, harming local producers and workers. China’s many high-profile moves to open up its markets in recent years turn out to have been halfhearted, if not intentional hoodwinking.

Despite the much-ballyhooed dismantling of the more than 2,000-yearold state monopoly on salt, all salt producers are still state-owned. Foreign asset-management companies are now allowed to operate wholly foreignowned businesses in China, but only in deals with institutional investors and private-equity funds, not retail investors. Partly to steady the renminbi, Beijing no longer allows Chinese citizens to take up to $50,000 a year out of the country, and it has recently restricted the repatriation of capital by foreign firms like Deutsche Bank.

Hypercontrol, interventionism, currency manipulation — no, China is not a market economy. But it’s worse than that: The Chinese Communist Party (CCP) has systematically infiltrated China’s expanding private sector and now operates inside more than half of all non-state firms; it can manipulate or even control these companies, especially bigger ones, and some foreign ones, too. The modern Chinese economy is a party-corporate conglomerate.

It all began in 1927. The idea was to instil a fighting spirit throughout the ranks by ensuring the party’s top commands would be relayed all the way down. Party branches were set up at the company level, party cells at the platoon and squad levels, and together they recruited foot soldiers who were solid party material. In a few years, an unruly peasant army was whipped into a formidable fighting force. The rest is history.

Fast-forward to 2002 and the CCP’s 16th national congress, convened under Jiang Zemin. In the interval, China underwent two revolutions. The first, in 1949, established a communist state; the second, in 1978, jettisoned a stagnant socialist planned economy in favour of pro-market reforms. By 2002, China was competing with France to be the world’s fifth-largest economy, and the Chinese people’s entrepreneurial spirit had been reawakened. Much of the political elite, including relatives of party and government officials, had become the owners and managers of private businesses.

To legitimise the growing importance of these so-called new social strata, the party congress inducted many of their influential members into the CCP. The move would have been heresy under canonical Marxism, but it was made acceptable by the convenient adoption of a new ideology: socialism with Chinese characteristics. It was also an astute bargain. In return for becoming politically acceptable, capitalists and top business managers at private firms would come under the party’s chain of command.

The year before the party started controlling the managerial classes, it had already begun to manipulate how private companies ran their businesses. Starting in 2001, every private sector firm with at least three CCP members among its employees was required to have a party unit. Much like the party cells in the Red Army decades earlier, party units in companies were expected to “firmly implement the Party’s line, principles and policies,” as the constitution of the CCP stipulates.

This control mechanism had been a fixture of state-owned enterprises since the first days of the communist republic. It was brought into the private sector in earnest in 2001 — just on the heels of China’s accession to the WTO — and extended after the 2002 party congress. Around 2006, it was introduced to private firms set up with foreign capital, like Wal-Mart. Official figures for 2015 show that nearly 52 per cent of all nonstate firms had party cells in-house. Such cells are now also common in foreign companies, and even foreign nongovernmental organisations, at least among bigger, more established ones.

This should greatly worry foreign businesses and foreign governments because the constitution of the CCP requires all members to “adhere to the principle that the interests of the party and the people stand above everything else, subordinating their personal interests to the interests of the party.”

Consider the implications. For example, a foreign firm employs a Chinese senior manager, giving him access to its proprietary technology; he is also a member of the CCP and the firm’s party unit. One day his party superior orders him to transfer a trade secret from the firm to a local rival. In the name of party and country, he can only comply.

The problem isn’t just that the Chinese economy isn’t a market economy. Its very structure, including in the private sector, has been designed — and is redesigned, again and again — to serve the CCP’s will and its interests, economic and political. This party-corporate complex is only going to expand as most state-owned enterprises, inefficient holdovers, are being supplanted by the fast-growing private sector.

Yi-Zheng Lian is a commentator on Hong Kong and Asian affairs. —The NYT Syndicate

The very structure, including in the private sector, has been designed and redesigned to serve the CCP’s will and its interests, economic and political