Zhang Lin writes that China’s private enterprises are becoming more like state-owned ones as they set up internal party cells and other political organisations.

China’s large privately owned firms are becoming more like state-owned enterprises, as many in recent years have implanted in their businesses cells of the Communist Party, the Communism Youth League and even discipline inspection committees.

The party’s organisation department found that 68 per cent of China’s non-state enterprises had set up party cells by the end of 2016, and that 70 per cent of foreign-funded firms in China had also done so. The ratio is even higher now given the party promotion that has taken place over the past two years.

The proportion is higher in large-scale internet companies. Nearly all of China’s listed internet firms have set up party committees. Senior executives were appointed to serve simultaneously as leaders of the party organisation.

It may seem strange that internet firms show the highest political loyalty in China, for most online commerce and services are apolitical. But it’s exactly for that reason that private entrepreneurs need to prove their loyalty and gain support from the party by showing that they can serve the party’s political course.

This spread of party cells in private firms is not a good development, for either politics or business.

Party cells in private firms can’t enhance the leadership of the party. According to a field survey by the Unirule Institute of Economics, an independent think tank in Beijing that has been shut down by the government, more than 94 per cent of private entrepreneurs believe it’s useful to have connections to government but fewer than 4 per cent care about the party’s development.

In other words, private entrepreneurs are setting up party cells as a tool to secure protection or access rather than because of their belief in the hammer and sickle. But healthy politics isn’t based on fear and benefit. Party cells are an extra cost for the private firms and foreign companies who have set them up, which in turn showcases the lack of rule of law.

Party cells in private firms, often ironically with the business owner as the party secretary, sometimes devolve into a tool to defend commercial interests – some large companies use their Communist Party status to help them negotiate with local governments, which can result in corruption and damage the legitimacy of the party at the grass-roots level.

From the perspective of the private entrepreneur, setting up a party cell is a good deal when the move reduces interference or secures protection from the local government. But this can lead to unfair competition in exchange for political favours and recognition as a government confidante, which in turn can trap the entrepreneur in a political power struggle, resulting in personal danger.

It’s absurd to see China’s richest tycoons portray themselves as guardians of Communism dogma. To name a few: Richard Liu of JD.com, often known as China’s Jeff Bezos, once said communism would be realised in his generation and all commercial entities would be nationalised; Xu Jiayin of Evergrande Group, the country’s largest property developer, said everything the company possessed was given by the party and he was proud to be the Communist Party secretary of his company; Liang Wengen of Sany Heavy Industry, another tycoon, said his life belonged to the party.

These highly successful entrepreneurs made these statements out of insecurity, with the Communist Party cells in their businesses becoming their amulets to guard against political threats.

Richard Liu, chairman of JD.com, and his wife, Zhang Zetian, at Princess Eugenie’s wedding at Windsor Castle in Britain on October 12. Photo: YouTube

Party cells in private firms show the vulnerability, not the strength, of China’s private entrepreneurs. They act as if they are being chased by a bear – they are powerless to control the bear, so they are competing to outrun each other to escape the animal.

This behaviour is understandable since most successful private enterprises are beneficiaries of the environment the Communist Party provided. For instance, Chinese internet companies benefited significantly from strict controls of real economy, particularly internet censorship; China’s manufacturing industry benefits from supportive state policies and subsidies; and China’s property developers have gained much from the state monopoly of land as well as infrastructure investment from state-owned companies.

But the result is the relationship between business and the party remains very fragile: when the economy rises, they cheer together; when economy declines, they begin to resent each other. As Beijing’s anti-corruption campaign continues, many officials have been put in prison and private business owners have suffered accordingly – private investment growth started to tumble in 2015 after three years of the campaign. The trade war with the US this year exacerbated the loss of confidence among private entrepreneurs.

As the recession of the downstream private economy starts to spread, the upstream state-owned economy also faces great risks because it needs to sell monopoly resources to downstream firms. That’s why Beijing is busy trying to revive the confidence of private economy through financial support and promises of tax cuts. But the cause of the problem has not been touched: the government and the party need to stay out of private businesses.

It would be a good start if China can stop pushing for party cells in private and foreign companies, a move that would help to restore private investors’ confidence. It will also reduce the concerns about the Chinese economic model among foreign investors.