Commentary on Political Economy

Thursday 14 January 2021


The Ever Longer Arm of China’s Communist Party

Xi Jinping has “drastically extended the reach of the Chinese state into the economy and Chinese firms,” a report says

Peter Coy

It’s widely known that China’s government exerts strong control over state-owned enterprises. What’s less known is that the Chinese Communist Party (CCP) has vastly increased its influence over privately owned companies since President Xi Jinping came to power in 2012.

The new form of state capitalism is so different from the old one that it needs a new nickname, Jude Blanchette, who holds the Freeman chair in China studies at the Center for Strategic and International Studies, writes in an article appearing in the winter 2020 issue of China Leadership Monitor. Instead of “China Inc.,” he dubs it “CCP Inc.”

The lines between state-owned and private companies have become blurred, Blanchette writes. Whereas China Inc. described a core group of “national champion” companies operating in vital sectors such as energy and telecommunications, CCP Inc. is “more akin to an ecosystem than a formal, coordinated network, and one that operates up and down the entire value chain – from rare earths to fintech,” he writes.  He cites an interview given by Hao Peng, party chair of SASAC, the State-owned Assets Supervision and Administration Council, who said, “Regardless of whether state-owned or private enterprises, they are all Chinese enterprises.”

Here’s why the change matters for the rest of the world: It is making China more powerful. Mergers among state-owned enterprises in the past several years have created the world’s largest shipbuilder and largest train builder, among other giants. And there are elaborate cross-holdings and alliances between SOEs. “In the aggregate U.S. and Western governments possess nothing like China’s super-scaled state actors,” Blanchette writes. For example, he writes, the deepwater Greek port of Piraeus, which is majority owned by a Hong Kong subsidiary of state-owned COSCO Shipping Group, “now serves as a beachhead for dozens of Chinese state- and privately-owned firms entering the European market.”

Meanwhile, the Chinese Communist Party is exerting more influence over privately owned tech companies such as Alibaba Group Holding Ltd. and Tencent Holdings Ltd., which used to operate freely. In November the government halted a $35 billion initial public offering of shares in financial company Ant Group Co., which was to have been a spinoff of Alibaba. “The party’s sway over business has become even clearer over the past 12 months as Xi pushes to consolidate power ahead of next year’s big party congress, when he’s expected to extend his rule for at least another five years,” Bloomberg News wrote Jan. 6.

On Jan. 13, Bloomberg reported that the U.S. Treasury Dept. considered but rejected a request from the Defense Dept. to ban Americans from investing in Alibaba and Tencent on the grounds that they aided the military.

The incoming Biden Administration will have to wrestle with the same sorts of decisions. Summarizes Blanchette: “More than four decades after the death of Mao Zedong, the CCP has proven itself capable of significant (illiberal) governance innovations, often motivated by fear of losing power. With the increasing geopolitical frictions, this motivation will only intensify.”

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