- December 16, 2020 POLITICS
Party Committees in the Private Sector: Rising Presence, Moderate Prevalence
Despite China’s authoritarian system, business is a powerful force. Private firms constitute 84.1% of all enterprises, increasing from just 443,000 in 1996 to 15.6 million in 2018. That’s why General Secretary Xi Jinping hopes to lift the presence and power of “Party organizations“ (dang zuzhi)—to boost private sector compliance with central priorities.
Although these Party committees have existed in some private companies for decades, concerns about political interference in corporate decision-making are growing. But just how prevalent are Party organizations in the private sector? They are less ubiquitous than one might expect under Xi, according to the All-China Federation of Industry and Commerce (ACFIC), the Party-led group responsible for the political coordination of private business.
Data based on ACFIC corporate surveys, which are more consistent and contemporary than figures from the Party’s Organization Department, show that: 1) The prevalence of Party organizations in private firms has continued to grow under Xi, but falls short of a majority; 2) Party organizations are widely present in the largest private enterprises; and 3) Party organizations remain uncommon in foreign companies.
Rising Presence, Moderate Prevalence
The share of private firms with Party organizations has climbed steadily, according to ACFIC’s Chinese Private Enterprise Survey (CPES), a long-running official survey of thousands of private firms. The most recent CPES found that 48.3% of private firms had Party organizations in 2018, up from 35.6% in 2012, meaning average annual growth of 2.1% over Xi’s tenure (see Figure 1).
Figure 1. Rising Proportion of Chinese Private Firms have Party Organizations (%) Note: Percentage of sampled private firms with a Party organization (2018, N=3,973).
Sources: Yan & Huang [1993-2012]; Li & Chen ; He et al .
Previously, prevalence leveled off at ~35% under Hu Jintao, after rising from 4% to 27.4% under Jiang Zemin. It’s notable though that the plateau during Hu’s leadership coincided with the Global Financial Crisis, when many firms went bust and the increase in private companies slowed. Xi’s efforts appear to be an accelerated continuation of previous trends.
Why do so many private firms not have Party organizations? The reason cited by 84% of these firms is that they employ too few Party members—a minimum of three is required to form a committee. Since only 6.6% of China’s population belong to the Party, such groups are uncommon in smaller businesses.
CPES data also illuminate significant geographic and industry variations. In 2018, only 31.5% of private firms in southern China had Party organizations, compared to 58.7% of companies in northwest China. Nationwide, 61.7% of private manufacturers had Party organizations, far higher than the 26.2% for wholesale and retail businesses—likely because many Chinese retailers are too small to find the numbers for a Party organization.
Bigger Companies, More Party Committees
Party organizations are more pervasive in big companies, present in 92.4% of China’s top 500 private enterprises, according to ACFIC’s 2019 “Top 500” annual report (see Figure 2). This coverage has held steady at 92-93%, but could increase further now that Beijing has made these committees mandatory for listed companies.
Figure 2. Most of China’s Top 500 Private Firms have Party Organizations Note: China’s top 500 private firms by annual revenue. Firms on the list vary year-to-year.
Source: ACFIC China Top 500 Private Enterprises Research & Analysis Reports (2017-2020).
Xi believes Party organizations help mobilize companies to support top-level policy agendas. And Top 500 reports show the number of firms that participated in “national strategies” (guojia zhanlüe)—like the Rural Revitalization Strategy and the Belt and Road Initiative—rose from 384 in 2015 to 471 in 2019. Harnessing private sector cooperation makes practical sense for Xi as last year these 500 companies boasted collective assets of 37 trillion yuan ($5.4 trillion).
Lower Prevalence in Foreign Companies
Foreign businesses are especially concerned about Party organizations. The Asian Corporate Governance Association found that only 3% of foreign investors thought the Party had “a clear and accountable role” in listed companies. This uncertainty probably explains why only 12% of foreign-invested enterprises have Party organizations, according to official data from the city of Hangzhou (see Figure 3).
Figure 3. Few of Hangzhou’s Foreign Enterprises Have Party Organizations Source: Hangzhou Investment Promotion Bureau (2019).
Hangzhou authorities elaborated that, from a Party building perspective, “joint ventures are better than wholly foreign-owned enterprises, Japanese and Korean enterprises are better than European and American enterprises, Hong Kong and Macao enterprises are better than Taiwan-funded enterprises, and SMEs are better than MNCs.” But the poor overall coverage overall demanded “urgent improvement” in organizing and recruiting Party members in foreign firms.
The data above demonstrate that Xi has managed to increase Party organizations in private firms, but this undertaking has advanced far farther in large domestic enterprises rather than in small or foreign businesses.
As their numbers rise, the degree to which these committees may impact corporate strategy or profit margins remains unclear. However, Xi clearly wants more heft for the Party, with a recent regulation signaling a greater role for Party groups in business decisions and personnel matters.
The ambiguity is unlikely to disappear soon. On the one hand, the presence of Party organizations raises the potential for political risk to impact the dynamism of private firms. On the other hand, it also brings the Party, which has long influenced companies in China, out into the open and makes its position more transparent.
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