Senior Chinese Communist party officials have been sending an ominous message to private sector entrepreneurs in recent weeks.

In a series of policy announcements and meetings, they have emphasised that private companies have an important role to play in “United Front work” — a euphemism for efforts aimed at ensuring that non-party organisations and entities support the party’s top policy objectives as well as its iron grip on power.

The officials added that they wanted to assemble a “team of representatives” from the private sector. They would be recruited either as party members or to join formal advisory bodies, with a particular focus on younger entrepreneurs in strategically important technology sectors. In return, private enterprises were promised greater government support and more equal treatment relative to their state-owned competitors.

The party has made similar promises in the past when it was worried about the country’s economic outlook, which is now clouded by the coronavirus pandemic and US attempts to cripple important Chinese technology companies. But this is the first time it has spelt out such an explicit quid pro quo in terms of how private entrepreneurs will be expected to help the party in return.

“As private companies take on more important roles in the economy, we have higher expectations for them,” said Wang Jun at the China Center for International Economic Exchanges, a leading government think-tank. “The government is doing a lot but more effort is needed to provide fair and equal treatment for private companies compared to state-owned enterprises.”

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Some private entrepreneurs grumble that similar promises proved to be empty, and worry that Xi Jinping, China’s president, is intent on formally giving the party a greater say in operational decisions.

“The government has so many policies designed to help us, but none of them actually do,” said one sceptical private entrepreneur, who asked not to be named. “We just have to rely on ourselves.”

China’s private sector still accounts for 50 per cent of government tax revenues, 60 per cent of economic output and employs 80 per cent of all urban workers. This is despite years of systemic discrimination, such as limited access to bank loans compared with their state-owned peers.

Under the new guidelines, party committees that previously wielded little power at private companies are supposed to play a role in personnel appointments and other important decisions.

China’s economy has shown strong signs of recovery following the coronavirus pandemic but some analysts warn of a lingering ‘sense of vulnerability’ © Bloomberg

The committees represent the party at various companies — state-owned, private sector and foreign-invested — but managers wary of their potential influence have largely been able to contain them. At many companies, the party committees do little more than organise study sessions or social gatherings for party members.

Guo Shan and Feng Chucheng, analysts at Beijing-based consultancy Plenum, said that of the more than 800 listed private companies that they examined, only 12 per cent cited the importance of “party building” in their articles of association. Most of the party committees, they add, “barely affect the firms’ decision-making”.

Sheng Hong, former head of a think-tank that was forced to close for repeatedly criticising Mr Xi’s economic policies, said the only thing private companies should be forced to do is pay their taxes.

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“The best thing the government can do is leave private companies alone and not waste its time and energy on including them in United Front work,” he said, noting that many entrepreneurs have felt compelled to contribute to Mr Xi’s campaign to eradicate poverty ahead of the party’s centennial next summer. “Eradicating poverty is the job of government, which collects taxes, not companies.”

Analysts said that the pressure building on the private sector was not surprising given Mr Xi’s rhetoric. Speaking at the party’s 19th congress three years ago, he said “north, south, east, west and centre — the party is leader of all”.

“Ever since the 19th congress, Xi has made it clear that the party would be at the centre of everything, private businesses included,” said Steve Tsang, director of the Soas China Institute in London. “But [until now] he had not tried very hard to assert control over private business. The timing is probably due to a sense of vulnerability because of the impact of Covid-19 and new economic risks brought about by heightened tensions with the US.”

Whenever China and the US appeared to be on the precipice of an all-out trade war over recent years — such as when trade talks faltered in late 2018 and early 2019 — Mr Xi has responded by celebrating the party’s revolutionary roots while also trying to reassure the private sector.

In any conflict between party and private-sector interests, however, few people have any doubts about which side would prevail.

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“What Xi really wants is an increasing share of the economy controlled by state-owned enterprises,” said one government adviser.

“The party doesn’t know what to do with wealthy and powerful entrepreneurs, especially given Xi’s insistence that the party is still a Communist party and we must reduce social inequality. It’s a very hard problem for the party.”

Via Financial Times