Commentary: Why Chinese state companies are getting the Communist party's attention

Commentary: Why Chinese state companies are getting the Communist party's attention

Party committees are springing up in many state-owned enterprises. The Chinese Communist Party see this as a prerequisite for state-sector reforms, argues the Financial Times' Tom Mitchell.

BEIJING: When the head of a US multinational's China operations recently sat down for talks with the chairman of a large state-owned enterprise (SOE), he was surprised when his old friend presented him with a new business card.

The two men had met regularly over the years to review matters at a joint venture established by their companies, but on this occasion the Chinese executive was not just representing his SOE.

In addition to his chairman title, he was also now secretary of the SOE's Communist party committee.

"I thought 'Oh, this is new'," the foreign manager said. "He had never mentioned the party committee before." 

The ruling Chinese Communist party has maintained representative committees inside SOEs for decades, but they were often moribund bodies.

That has been changing over recent years, as President Xi Jinping and the head of his anti-corruption campaign, Wang Qishan, seek to extend the ruling party's representation in - and control over - the state-backed groups. 

TOO LONG A LEASH

To most western executives and analysts, the party's higher profile at SOEs undermines the authority of their company boards and is more bad news for state-sector reform, which they feel has been neglected by Mr Xi's administration.

In comparison with the Chinese president's bold anti-corruption campaign and military reorganisation, SOE reform has largely been an exercise in party-directed mergers that create bigger, but not demonstrably better, state companies. 

To Mr Xi and Mr Wang, the party's more prominent profile in SOEs is actually a prerequisite for state-sector reform. In their view, the party had given SOEs too long a leash, leading to mismanagement at best and unchecked corruption at worst.

The J-20 is manufactured by China's state aerospace company AVIC, which is also working on a
The J-20 fighter aircraft is manufactured by China's state-owned aerospace company Aviation Industry Corporation of China. (Photo: AFP/STR)

For Mr Xi, who last year described SOEs as "the major force to boost the comprehensive strength of the country and to protect the common interests of the people", state companies are too important for the party not to play a more active role in supervising and, if necessary, managing. 

THE ECONOMIC REFORMER

Whether stricter party oversight will ultimately help or hinder SOEs is no mere academic debate.

It could well determine the fate of Mr Xi's larger project to end the Chinese economy's dependence on debt-fuelled investment and establish himself as a "transformative" economic reformer in the mould of Deng Xiaoping, the architect of China's post-Mao "reform and opening" strategy. 

In Communist party speak, the proliferation of party committees at SOEs is in keeping with a larger strategy of quan fu gai, or "full coverage".

For better or worse, people who do business with or invest in SOEs are going to be seeing a lot more of the party. 

COMPANIES OUTSIDE OF BEIJING PLAY BALL

In Hong Kong, where the internationally listed arms of China's largest SOEs have traditionally downplayed their party links, they are now redrafting bylaws to formally establish party committees that previously existed only at the group level. 

Over the past year, more than 30 Hong Kong-listed SOEs have amended their articles of association accordingly.

The State-owned Assets Supervision and Administration Committee says that China's 100 largest SOEs have formally amended their articles of association to emphasise the importance of "party building" activities.

Further reflecting the party's higher profile within SOEs, the chairmen of 74 companies administered by this committee now also head their group's party committee. 

Visitors look at a model of Linglong One, a nuclear reactor developed by CNNC at an expo in Beijing
Visitors look at a model of Linglong One, a nuclear reactor developed by the China Nuclear Engineering and Construction Corporation, at an expo in Beijing in, 2017. (Photo: REUTERS)

State-owned China Nuclear Engineering and Construction Corporation, which formally designated its chairman head of its party committee late last year, said in June that "party construction" work is as important as the safety of its nuclear reactors.

The group's employees, it added, should "love the party as they love their children". 

Initially, some SOEs did not get the memo on the newfound importance of party committees. In January, enough shareholders at Tianjin Realty Development, a state-owned real estate developer in Tianjin, the port city bordering Beijing, voted against a resolution mandating the establishment of a party committee. 

It took just five months for the party to recover from that setback and ensure "full coverage" at Tianjin Realty.

In May the same resolution, which promised that the party committee would discuss all "major company issues" before they went to the board, passed with support from investors holding 99.9 per cent of shares voted.

© 2017 The Financial Times Ltd 2017. All rights reserved. Not to be redistributed, copied or modified in any way.

Source: Financial Times/sl

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