Fears over China’s push to extend Communist Party’s reach inside foreign firms
Some companies under more pressure to rewrite rules to make party officials involved in business operations, executive says
Late last month, executives from more than a dozen top European companies in China met in Beijing to discuss their concerns about the growing role of the ruling Communist Party in the local operations of foreign firms, according to three people with knowledge of the discussions.
President Xi Jinping’s efforts to strengthen the party’s role throughout Chinese society have reached the China operations of foreign companies, and executives at some of those entities don’t like the resulting demands they are facing.
The presence of party units has long been a fact of doing business in China, where party organisations exist in nearly 70 per cent of some 1.86 million privately owned companies, the official China Daily reported last month.
Companies in China, including foreign firms, are required by law to establish a party organisation, a rule that had long been regarded by many executives as more symbolic than anything to worry about.
One senior executive whose company was represented at the meeting said some companies were under “political pressure” to revise the terms of their joint ventures with state-owned partners to allow the party final say over business operations and investment decisions.
He said the company’s joint venture partner was pushing to amend their agreement to include language mandating party personnel be “brought into the business management organisation”, that “party organisation overhead expenses shall be included in the company budget”, and that the posts of board chairman and party secretary be held by the same person. Changing joint venture agreement terms was the main concern, the executive said, noting that his company had thus far resisted.
“Once it is part of the governance, they have direct rights,” he said.
The State Council Information Office, which doubles as the party spokesman’s office, said there was no interference by party organisations in the normal operating activity of joint venture or foreign-invested companies.
However, it added, “company party organisations generally carry out activities that revolve around operations management, can help companies promptly understand relevant national guiding principles and policies, coordinate all parties’ interests, resolve internal disputes, introduce and develop talent, guide the corporate culture, and build harmonious labour relations”.
“They are widely welcomed within companies,” the office said.
Of the 13 executives, all from different foreign companies, interviewed for this story, eight expressed concerns about increasing demands from the party or noted increased activity from party groups.
Just two of 20 major multinationals queried – Samsung Electronics and Nokia – confirmed having party units in their China operations. Most did not respond to questions on the subject. Only German chemicals giant Bayer acknowledged taking part in the meeting organised by the European Union Chamber of Commerce in China, but declined to comment on what was discussed.
Carl Hayward, general manager and director of communications at the European Chamber’s Beijing chapter, acknowledged the meeting was held to “understand from our members if party structures are being formally introduced into the governance of joint ventures”.
“We have not noted any formal change of policy that reflects this. This is as we would expect since such a change would act as a deterrent to foreign investment in China,” he said.
Under Xi, the party has sought to address the “weakening, watering down, hollowing out and marginalisation” of party leadership at state enterprises, party mouthpiece People’s Daily wrote in June. The newspaper cited an official with state-owned oil giant Sinopec as saying the company had demanded all its foreign joint venture partners “specify the requirement for party-building work” in their articles of association.
While plans to expand party organisations in foreign companies had been a quiet concern for several decades, only under Xi had “some real muscle” been put behind the goal, said Jude Blanchette, who studies the party at The Conference Board’s China Centre for Economics and Business in Beijing.
A significant number of major foreign companies operate in China through joint ventures with state enterprises. Foreign business groups have complained that their members are forced to allow Chinese partners access to their technology or risk losing market access.
Many Chinese state enterprises listed on the Hong Kong stock exchange have this year altered their articles of association to give an explicit role to internal party committees.
One country head at a major European manufacturer with a southern China joint venture said that late last year it allowed a party unit to meet on company premises – after hours.
The party unit asked for overtime pay to hold the meeting, which the company rebuffed. But then it also demanded the company hire more party members, and even tried to weigh in on investment decisions.
“That’s when we said this is a no-go zone. We didn’t anticipate that they would discuss investment decisions,” the manager said.
A sales and marketing head in China for a major US consumer goods firm said its party cell had recently become more active, and had pushed for locating a new facility in a district where the local government was promoting investment, a move the company made.
Still, several executives with foreign companies in China said that the role of party units was benign and could help to resolve issues with officials. A party member at a US-based Fortune 500 company in Shanghai said her firm’s unit was not involved in business matters and instead engaged in activities such as planting trees and sponsoring children.
“They will give you some tickets to see movies together. When the State Council has a meeting and there’s some news they will send bullet points by email,” she said.