State-owned Enterprises

How the Communist Party controls China’s state-owned industrial titans

The state-owned enterprises in China contain 10 million Communist Party members and 800,000 party committees, according to the director of the State-owned Assets Supervision and Administration Commission

PUBLISHED : Saturday, 17 June, 2017, 9:01am
UPDATED : Saturday, 17 June, 2017, 10:27pm

Out of the 40 million people who work for China’s state-owned industrial behemoths, more than 10 million are Chinese Communist Party members. What is more, according to the top regulator of China’s state-owned assets, these enterprises contain more than 800,000 party committees.

At the same time, Xiao Yaqing, director of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), wrote in the Central Party School’s Study Times, when a state-owned enterprise has a board of directors, its party boss also tends to be the board chairman.

Communist Party members at state enterprises form the “the most solid and reliable class foundation” for the Communist Party to rule the country, Xiao wrote in an article published on Friday.

Since President Xi Jinping came into power, the Communist Party has been boosting its presence in China’s political, economic and social life. Xi has stressed that it is incumbent upon China’s biggest state-owned enterprises to answer every call from the party.

The SASAC, a state asset watchdog created in 2003 to directly supervise the country’s biggest industrial players, has the tricky job of marrying a modern accountable corporate governance system to a Leninist political system inside 102 companies to enhance profitability and loyalty.

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However, many question whether China’s efforts to enhance centralised control of its state enterprises goes against its promise to spearhead market-oriented reform of the state sector.

While the 102 enterprises are big – a band of titans with assets of 50 trillion yuan (HK$57.11 trillion) that includes state oil companies, telecom operators, power generators and weapons manufacturers – , their profitability is weak. Sinosteel Corp, for instance, failed to repay its bondholders on time since 2014, while China Cosco Holdings, the listed vehicle of Cosco, racked up losses of about 10 billion yuan last year.

But Xiao said political loyalty is the priority for state enterprises.

State firms, the SASC director wrote, should become “the most trustworthy” entities upon which the party and the country rely and an important force for China’s ambitious trade and infrastructure strategy, known as the Belt and Road initiative. According to Xiao, the 102 big conglomerates under his watch contributed 60 per cent of China’s outbound investments by the end of 2016.

Xiao called the idea of the “privatisation of state assets” wrong-heading thinking.

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China’s state sector is also a key area of Xi’s anti-graft campaign. Chang Xiaobing, the former chairman of China Telecom, was sentenced to six years in jail for corruption on May 31, while Song Lin, the former chairman of China Resources, another company under SASAC, was jailed for 14 years a few weeks ago. In fact, Jiang Jiemin, a former chairman of SASAC and the chief of China National Petroleum Corp, received a 16-year jail sentence for corruption.

The crackdown on big salary packages, lavish dinners and luxurious games of golf at state-owned enterprises has been so harsh that many state company executives prefer to stay idle in office, a former official with the state asset regulator told the South China Morning Post. He declined to be named, saying he was not authorised to talk to the media.

But Xiao said Xi has provided the right “new concepts, new thoughts and new strategies” to revitalise the state sector.