China blurs lines between private and state business

Private enterprises have played the leading role in China’s economic transformation but it is no longer possible for trade partners to assume these companies are free agents © Ales Plavevski/EPA-EFE/Shutterstock

This week’s revelation that a former Chinese government official worked in a key role at TikTok raises issues that reach far beyond the wildly popular short-video app itself. It helps to illuminate, more broadly, the changing status of private enterprises in China’s authoritarian state. This is of crucial importance: western businesses and governments have long treated private Chinese businesses more favourably than their state-owned cousins.

The disclosure by the Financial Times that Cai Zheng — who had worked in the Chinese embassy in Tehran — had been responsible for deciding what content to allow on TikTok came after repeated denials by ByteDance, the app’s Beijing-based owner, that the Chinese government has any influence over TikTok’s operations. The news coincides with ByteDance’s efforts to forge a deal with Oracle and Walmart to avoid a US ban on TikTok. President Donald Trump has painted TikTok as a threat to national security since its user data on American people could end up in the hands of China’s government.

Western partners have generally been more relaxed towards private-sector Chinese businesses than to their state counterparts. Partly that reflects the view that state-owned corporations may enjoy access to subsidies and funding that private competitors in the west cannot match. Private companies have also largely been seen as free agents driven, like their western counterparts, by the profit motive, not Chinese Communist party orders.

As the TikTok case shows, this view is increasingly outdated. Recent CCP diktats along with legal provisions are making it much more difficult to tell private and state-owned enterprises apart. This has implications not only for western companies choosing Chinese partners but for trade pacts such as the EU-China bilateral investment treaty, under negotiation since 2013.

In September, China released a document called “Opinion on Strengthening the United Front Work of the Private Economy in the New Era”. The unwieldy title identified it unmistakably as a communist party brainchild. It called for the realisation of the CCP’s leadership over the private sector, requiring companies to conduct themselves in accordance with its policy objectives and ideologies.

It builds on two laws, the 2016 Cybersecurity Law and the 2017 National Intelligence Law, that require all enterprises to assist with national security and intelligence work, and to keep their assistance secret. Beijing is also insisting that all companies must assist when called upon to further “military-civil fusion”. Under this programme, the CCP is bent on acquiring from all potential sources — including private enterprises — the intellectual property and technology it needs to turn the People’s Liberation Army into a “world-class military” by 2049. The effort is led by China’s president Xi Jinping, who heads the Central Commission for Military-Civil Fusion Development.

Beijing knows well that its private enterprises have played the leading role in its economic transformation. Many of its most successful companies, such as Alibaba and Tencent, remain privately owned. Their dynamism stems in large part from the freedom to chase profits without being lumbered by a welter of Party directives.

But it is no longer possible for China’s trade partners to assume private enterprises are free agents. As western suspicions grow over their true missions, Chinese private companies may find doors closing where once they would have been open. That amounts to an own-goal for China’s development — scored by the country’s own leadership.