When Xi Jinping took power in 2012, he extolled the importance of the state economy at every turn, while all around him watched as China’s high-speed economy was driven by private entrepreneurs. Since then, Xi has engineered an unmistakable shift in policy. At the time he took office, private firms were responsible for about 50% of all investment in China and about 75% of economic output. But as Nicholas Lardy, a US economist who has long studied the Chinese economy, concluded in a recent study, “Since 2012, private, market-driven growth has given way to a resurgence of the role of the state.” [...]
The relationship between the party and private sector companies is, up to a point, flexible – certainly more so than with state companies. The party doesn’t habitually micromanage their day-to-day operations. The firms are largely still in charge of their basic business decisions. But pressure from party committees to have a seat at the table when executives are making big calls on investment and the like means the “lines have been dangerously blurred”, in the words of one analyst. “Chinese domestic laws and administrative guidelines, as well as unspoken regulations and internal party committees, make it quite difficult to distinguish between what is private and what is state-owned.” [...]
In the early optimistic glow of Xi’s ascension to the leadership, a number of western commentators talked up his appreciation of markets. After all, from 1985 to 2007, Xi had served in two provinces, Fujian and Zhejiang, which were thriving bastions of private enterprise. Starting in the 1980s, Fujian was an important gateway for investors from nearby Taiwan, while Zhejiang was home to a number of China’s most famous private companies, such as Jack Ma’s Alibaba. The arc of Xi’s father’s career, from revolutionary to reformer, reinforced this optimism about China’s new leader. Lu Guanqiu, a businessman who owned and ran Wanxiang, a private car parts group, told Bloomberg: “When Xi becomes general secretary, he’ll be even more open and will pay even more attention to private enterprise and the people’s livelihood. It is because he was in Zhejiang for five years.” [...]
In some ways, codifying in public documents the party’s role in managing companies was both an instance of rare transparency and part of an increasing trend of the party openly displaying its power. In the past, Chinese state-owned listed companies had customarily filed misleading prospectuses ahead of their stock exchange listings, omitting the party’s pivotal role in the hiring and firing of senior executives. Similarly, company boards had long been legally and theoretically independent of the party, but not in practice. “The same individual who is chairing a party committee meeting on a Monday might well be chairing a board meeting later in the week,” notes a 2018 report on Chinese corporate governance.
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