The Chinese Communist Party – What Foreign Business Owners Need To Know

The Chinese Communist Party (CCP) has a huge influence on world politics, but it still relatively unknown. In fact, 80% of listed Chinese companies are State Owned Enterprises (SOEs). The rise of State Capitalism is a hot topic, extensively covered in the latest issue of The Economist and a crucial talking-point at the upcoming World Economic Forum in Davos. The Chinese Communist Party is at the heart of this development. Doing business in China, knowledge of the political system, and the role of the Chinese Communist Party are imperative.

With more than 80 million members, the Chinese Communist Party is the largest party in the world. Simultaneously, the Chinese Communist Party holds absolute power – including power over the judiciary, the armed forces and intelligence apparatus, and SOEs. But for Westerns doing business in China, the Chinese Communist Party is largely invisible. While power is centralized at the top, it is decentralized at local level. There is no total control ála 1984, but if something is in the party’s interest it will most likely be implemented.

Chinese Democracy

“All power in the People’s Republic of China belongs to the people,” the People’s Republic of China constitution proudly proclaims. But Chinese democracy is defined (by a CCP whitepaper) as “Democratic government is the Chinese Communist Party governing on behalf of the people.” Only 5-10% of people applying are accepted into Party ranks. Consequently, being accepted is seen as a status mark similar to an Ivy League education in the U.S. There are no direct benefits of membership – you pay a monthly fee (salary deduction) and have to submit two patriotic essays annually. Only the most ambitious, well-connected, and educated are accepted. It has been a conscious CCP strategy to target the best and brightest. The Chinese Communist Party has transformed itself from a mass organization for workers mobilization to a “technocratic leadership corps”, according to Professor Jeremy Paltiel of Carleton University in Ottawa, a CCP expert.

Propaganda

The propaganda starts at an early age. The CCP’s youth organization (7-14 year olds) outlines in their official mission statement, that their goal is to promote “indoctrination of children by cultivating [positive] feelings of the Party and the socialist motherland.” In the most comprehensive survey to date, when Mainland Chinese where asked how democratic their current system was, Chinese gave it 7.22 on a 10-degree scale – third in Asia and well ahead of Japan and South Korea. It is important to recognize that Chinese don’t necessarily strive for a Western governance model with a multiparty system – but rather freedom of information, improved rule of law, and greater accountability for local officials.

In a collectivist culture like the Chinese, the one party system has worked remarkably well. Other influential cultural threads are the Chinese endurance and resilience as well as the society’s long-term orientation. Today, it is hard to see an alternative to the Chinese Communist Party. Mostly because so many of the most able people are now party members – more than one in ten of the urbanized (665 million) population is now a party member – as almost all natural leaders have been swooped up by the Party there is no viable leadership alternative.

Special Interests

Not having to directly placate special interest groups or changing policy directions after an election has served the Chinese economy well. But while pressing issues may be addressed quickly there is a problem when SOEs need Party guidance in strategic issues. Although all Chinese SOEs have direct communication lines to top-level Party officials, the decision process can be protracted, especially as decisions are made through somewhat lengthy internal consensus-building. Also, there has generally been a problem for Chinese SOEs to execute more complex financial maneuvers as the financial aptitude is lagging. But this is rapidly changing. One of the greatest assets of Chinese SOEs have been access to State owned bank funding (both for themselves and their customers). These banks are also directly or indirectly influenced by the Chinese Communist Party.

The Chinese Communist Party has cultivated an international non-intervention perception, but the Party is omnipresent. Officials’ loyalty is foremost to the Chinese Communist Party and keeping the current system in place, second only to the State and the people. Hu Jintao is primarily Chairman of the Chinese Communist Party (and Chairman of the Central Military Commission – just as important) and secondarily President of the PRC.

Five Year Plan

China’s biggest dirty little secret is its 5-year plans. This is a fairly detailed insight into the Chinese Communist Party’s plans for the country. In a bureaucratic communist country where Party and State is almost one and the same, one thing is sure: plans are going to get implemented. The current 5-year plan was enacted in 2011. The plan outlines a range of sustainability and equality-oriented policies growing out of the (socialist) “scientific development concept.” More specifically the plan will address these issues:

  • Counter rising inequality and create an environment for more sustainable growth by prioritizing more equitable wealth distribution with increased domestic consumption, and improved social infrastructure and social safety nets
  • Re-balanceing its economy, shifting emphasis from investment toward consumption and from urban and coastal growth toward rural and inland development – initially by developing small cities and greenfield districts to absorb coastal migration
  • Enhance environmental protection, accelerate the process of opening and reform, and emphasize Hong Kong’s role as a center of international finance

Richard McGregor published the highly acclaimed The Party: the Secret World of China’s Communist Rulers in 2010 which is a great insight into how the party works. McGregor makes the acute observation that the Chinese Communist Party works very much like the Vatican, with arcane election procedures and absolute power. Moreover, this Chinese “Vatican” runs on Leninist-inspired structures and principles.

Foreigners should be very conscious with which information they share. Locally engaged staff in China will be expected to deliver intelligence on your operations to the authorities if your business is perceived to be sensitive to Beijing’s broad definition of ‘national security’ – the Chinese intelligence community could pressure any ethnic Chinese (for example using travel privileges as leverage), even expats, to provide them with information.

Finally, one should remember that two thirds of Chinese businesses (as percentage of GDP) are not owned by the State. This means that when engaging with small to mid-size companies, the Chinese Communist Party exercises no direct influence over your counterpart.

By Andreas Fried and Jessica Chang of Universal Consensus, a leading international cross-cultural consulting firm.

Leave a Reply

Your email address will not be published. Required fields are marked *

*