Money Matters | Invisible hand of the market gives way to the visible hand of the Party at China’s state-owned firms

Citic Group Corporation is revising its Articles of Association to specify “the leading status, establishment and operation” of the Chinese Communist Party committee”, it said in a recent report to the Central Commission for Discipline Inspection, the Party’s graft fighter.

The move, however, sounded the death knell for President Xi Jinping’s planned reforms to give private capital and the market a bigger role in the economy, by co-opting entrepreneurs and career managers to state firms. Citic was to be the flag bearer of this reform.

Within months of Xi making the pledge, Beijing approved Citic’s bold plan to inject all of its 227 billion yuan (HK$263.4 billion) worth of assets into Citic Pacific, its Hong Kong-listed subsidiary.

By doing so the conglomerate moved its incorporation from the mainland to Hong Kong, thereby making possible various reforms. It later sold a 20 per cent stake to several international and local investors.

Back then, a confident Chairman Chang Zhenming called Citic the “pioneer” of state sector reform. Other State firms followed Citic’s footsteps. Sinopec commemorated the 2014 birthday of the Communist Party by selling 30 per cent of its gas stations subsidiary to private investors and unveiled a plan to bring in career managers. Hopes were high for further market reforms.