Chi­nese en­trepreneur­s now have to toe Pres­i­dent Xi’s party line

En­trepreneur­s get help from the state—and more threats Ex­ec­u­tives must “ac­tively prac­tice so­cial­ist core val­ues”

Bloomberg Businessweek (Asia) - - CONTENTS - Dex­ter Roberts and Jas­mine Zhao

China’s en­trepreneur­s shouldn’t sim­ply make money. They must “love the mother­land, love the peo­ple, love the Com­mu­nist Party, and ac­tively prac­tice so­cial­ist core val­ues,” Pres­i­dent Xi Jin­ping told busi­ness­men in March.

The lat­est to dis­cover this is Ren Zhiqiang, a re­tired real es­tate ty­coon who must serve a one-year pro­ba­tion for pub­lish­ing “er­ro­neous views” that “se­ri­ously vi­o­late the Party’s po­lit­i­cal dis­ci­pline,” ac­cord­ing to a May 2 state­ment by a Bei­jing party com­mit­tee. A party mem­ber, he got in hot wa­ter af­ter ques­tion­ing the pres­i­dent’s call for tighter con­trols over the me­dia.

Xi’s push for ide­o­log­i­cal pu­rity— di­rected at jour­nal­ists, lawyers, and aca­demics—is now tar­get­ing business. It’s a big shift from the pres­i­dency of Jiang Zemin, who wel­comed en­trepreneur­s to the party in 2002. Some Chi­nese have “un­wit­tingly be­come trum­peters of Western cap­i­tal­is­tic ide­ol­ogy,” which could lead to “dis­as­trous con­se­quences,” Xi warned in a speech in De­cem­ber at Bei­jing’s Party School, re­ported Qiushi, the party mag­a­zine. The speech’s con­tents were made pub­lic on April 30. Such de­lays are com­mon; the tim­ing sig­nals the gov­ern­ment wants Xi’s hard-line mes­sage out now.

There are about 73 mil­lion pri­vate en­ter­prises and fam­ily busi­nesses in China, ac­cord­ing to the State Ad­min­is­tra­tion for In­dus­try and Com­merce. They range from real es­tate and phar­ma­ceu­ti­cal gi­ants to startup game de­sign­ers and small eater­ies. Pri­vate-sec­tor com­pa­nies make up more than 60 per­cent of the econ­omy. While their prof­its rose last year, those at state-owned en­ter­prises fell.

De­spite re­peated gov­ern­ment pledges to grant pri­vate com­pa­nies equal ac­cess to credit and con­tracts, en­trepreneur­s have seen lim­ited progress, says Hu Xing­dou, an econ­o­mist at the Bei­jing In­sti­tute of Tech­nol­ogy. And they must deal with a newly harsh tone in of­fi­cial speeches and me­dia. On March 10, China Daily wrote that ty­coons col­lud­ing “with cor­rupt of­fi­cials” have sparked “wide doubt over the pri­vate sec­tor and its role.” Other state me­dia chimed in. “Some busi­ness­peo­ple in the non­state econ­omy, es­pe­cially some en­trepreneur­s, are hav­ing er­rors in their think­ing.” They “lack faith in Marx­ism, so­cial­ism, and com­mu­nism,” while imag­in­ing “China un­der cap­i­tal­ism would be bet­ter,” said party pe­ri­od­i­cal Red Flag Man­u­script on April 8. While state me­dia is­sues warn­ings, of­fi­cials are set­ting up sup­port for in­no­va­tive com­pa­nies and cut­ting red tape and taxes for smaller busi­nesses. Un­der Pre­mier Li Ke­qiang, the No. 2 in gov­ern­ment and tra­di­tion­ally the one in charge of the econ­omy, reg­is­ter­ing a new com­pany has be­come much sim­pler and faster. The num­ber of ad­min­is­tra­tive ap­provals com­pa­nies need has been cut by a third, Li said on March 16, re­ported the of­fi­cial Xin­hua News Agency. “The sit­u­a­tion is much bet­ter than be­fore,” says Li Yonghui, chair­man of Kaiyuan Group, a pri­vate con­glom­er­ate in He­bei prov­ince. “It’s much more mar­ket-ori­ented.”

Still, the pub­lic rhetoric is dispir­it­ing. “The ear­lier gen­er­a­tion of lead­ers were much more open about pri­vate en­ter­prise than most to­day,” says Bei­jing In­sti­tute’s Hu. He notes that Pre­mier Li is an ex­cep­tion. “Pri­vate en­ter­prises, for the gov­ern­ment, are an in­dis­pens­able part of the econ­omy,” Hu says. “But if they de­velop too well, of­fi­cials may knife them. A strong state can at any time bank­rupt or elim­i­nate them.”

In the first eight months of last year, se­nior man­agers from 34 com­pa­nies went miss­ing when they were picked up in con­nec­tion with in­ves­ti­ga­tions, ac­cord­ing to China’s Se­cu­ri­ties Times. In Jan­uary, Zhou Chengjian, head of ap­parel la­bel Meters­bonwe, dis­ap­peared, reap­pear­ing about a week later. The phrase “lost con­tact,” or shil­ian, has be­come short­hand for the prac­tice.

Zhou wasn’t charged with any wrong­do­ing. Nei­ther was Guo Guangchang, chair­man of Fo­sun Group, a pri­vate con­glom­er­ate. He dropped from sight in De­cem­ber. Trad­ing in Fo­sun’s Hong Kong-listed shares halted un­til Guo resur­faced a few days later. He’s “one of China’s big­gest en­trepreneur­s, whether mea­sured by taxes paid or rev­enues earned,” says Liu Xi­u­jie, a phar­ma­ceu­ti­cals en­tre­pre­neur. If Guo isn’t safe from shil­ian, no en­tre­pre­neur is.

The bot­tom line Xi is de­mand­ing ide­o­log­i­cal fealty from China’s en­trepreneur­s, who had been wel­comed into the party by ear­lier Chi­nese lead­ers.

“Some busi­ness­peo­ple in the non­state econ­omy, es­pe­cially some en­trepreneur­s, are hav­ing er­rors in their think­ing.” ——Party pe­ri­od­i­cal Red Flag Man­u­script

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