CCP’s New Corporate Governance Rules Contradict Economic Goals: China Watchers

A paramilitary police officer stands guard during the flag-lowering ceremony at Tiananmen Square, in Beijing, China, on Nov. 13, 2012. (Feng Li/Getty Images)

The Chinese communist regime recently issued directives in a bid to boost domestic production and attract foreign investment and technology amid a stagnant economy. However, according to China observers, the directives seem contradictory and tighten the CCP’s control over businesses.

Speaking at a meeting of the Chinese Communist Party’s (CCP) Central Commission for Comprehensively Deepening Reforms on June 11, Chinese leader Xi Jinping stressed the importance of “strengthening the leadership” of the CCP over both state-owned enterprises (SOEs) and the private business sector, according to China’s state mouthpiece, Xinhua News Agency.

However, the CCP’s leadership is fundamentally at odds with the goal of boosting economic vitality, according to Yu Ping, a legal expert and commentator now residing in the United States.

The Chinese regime’s “deep involvement in corporate management significantly breaches the principles of a market economy,” Mr. Yu said in a recent interview with the Chinese language edition of The Epoch Times.

Tang Jingyuan, a commentator on China’s current affairs residing in the United States, said that the seemingly contradictory remarks by the Chinese leader are a form of deception used to appease CCP factions who support former leader Deng Xiaoping’s economic reform and opening-up policies. “In fact, the current communist administration has been backtracking to the old path of [CCP’s planned economy],” Mr. Tang said in a recent interview with The Epoch Times.

Mr. Yu believes that Xi’s recent speech is likely setting the tone for the upcoming third plenary session of the 20th National Congress of the CCP, specifically regarding the CCP replacing government functions in the business sector. The session is scheduled to convene in Beijing in July.

While talking about enhancing CCP’s leadership in enterprises, the Chinese leader also said that the regime’s regulatory functions should be separated from corporate governance.

His speech follows the poor performance of the SOEs and the draconian zero-COVID-19 lockdown measures during the pandemic, both of which contributed to the further decline of the Chinese economy.

‘Only a Disguise’

Echoing Mr. Yu, Wang Juntao, a scholar on politics and chair of the Democratic Party of China based in New York City, said that the separation of the government from businesses is only a disguise that the regime uses to tighten the CCP’s grip on Chinese businesses, especially the private sector.

The CCP’s seizure of private enterprises began on a massive scale in the early 1950s when the regime implemented a nationwide “socialist transformation” campaign, depriving private business owners of their wealth and property through the so-called “public-private partnership” initiative. From January 25 to April 1, 1952, 876 entrepreneurs reportedly committed suicide in Shanghai during the campaign.

In a return to the original strict control over businesses in China by the CCP, local governments’ ties with companies have been severed, and they no longer have the capacity to challenge Xi Jinping’s paramount authority as the top leader of the CCP, according to Mr. Wang in a recent interview with The Epoch Times.

“To paraphrase Xi’s words of strengthening the CCP’s leadership, he meant to say that the CCP is taking control of corporate finances away from local governments and placing it under the control of the CCP,” Mr. Wang said in the interview.

One of the methods the CCP uses to control the finances of big tech companies in China, such as Alibaba, Tencent, and TikTok owner ByteDance, is through a “golden share,” which is a 1 percent share of these groups’ key entities. The golden share holds special voting rights, giving its holder the ability to block other shareholders from acquiring more than a set amount of ordinary shares. This gives the CCP direct veto power over those companies’ management and operations.

Another way to control private companies is through setting up CCP units in the business entities. Alibaba, the Chinese tech giant, reportedly set up its CCP branch in 2000, according to the CCP’s Qiushi Journal.

In 2018, during Xi Jinping’s second tenure, the CCP issued regulations demanding that “all companies, rural entities, government departments, schools, scientific research institutions, communities, social organizations, PLA and armed police, and all other primary units, should establish a (Chinese Communist) Party branch” if there are three or more CCP members in that organization.

‘Going Global’

The CCP’s meeting also requested the establishment of “an open environment for science and technology innovation that is globally competitive” and that China should “go global” and “bring in” foreign investment and technology, according to the state-run Xinhua News Agency.

The CCP’s export of products and setting up businesses overseas are considered a matter of concern to the Western democracies, China experts have said.

Mr. Wang mentioned in the interview with The Epoch Times that both the United States and Europe are worried that China’s products are being dumped into the international market, impacting it negatively.

Europe, which has seen a flood of electric vehicles (EVs) from China, has imposed additional tariffs of up to 38.1 percent on EVs imported from China starting next month, in response to what the bloc called unfair subsidies by the communist regime.

In a statement, the President of the European Commission Ursula von der Leyen urged China to address “structural overcapacity” because the CCP “continues to massively support its manufacturing sector” at a time of weak domestic demand, and “the world cannot absorb China’s surplus production.”

The U.S. Treasury Secretary Janet Yellen also warned that China’s “overconcentrated supply chains” threaten U.S. jobs and the current administration’s enormous investments in the nation’s green energy industry. Ms. Yellen said on June 11 that Beijing’s trade policies “may interfere significantly with our efforts to build a healthy economic relationship.”

Mr. Yu said that the CCP’s efforts to attract foreign investment and enterprises have also been in vain. He said that they are leaving the Chinese market not because of a lack of consumer spending power, but rather the result of “excessive uncertainty within the business environment.”

Risks for foreign companies operating in China are getting higher, especially after the introduction of China’s anti-espionage law that became effective in July 2023. Two U.S. companies were impacted before the law was executed.

U.S. due diligence firm Mintz Group’s office in Beijing was raided by Chinese police in March 2023. Authorities detained five Chinese nationals working for the company.

Chinese police also visited Bain & Co.’s Shanghai office in April 2023, questioned its staff, and took away computers and phones, but they didn’t detain any staff.

“The opportunity for the CCP’s bringing in foreign investment and companies is getting slimmer,” Mr. Yu said.

Mr. Tang also believes that Xi Jinping’s call for “going global” does not genuinely mean integrating with the international community or aligning with it. Instead, it signifies the CCP’s ambition to expand its influence abroad and to replace the existing international order with its own so-called new order, according to Mr. Tang.

“The so-called ‘bringing in' refers to obtaining foreign intellectual property and technology through various illicit means. This practice is a primary reason why the international community, particularly those in high-tech sectors, has been increasingly wary of the CCP, leading to a gradual disengagement and cutting off of ties with the CCP,” Mr. Tang said.

Ning Haizhong, Luo Ya, Alex Wu, Dorothy Li, and Andrew Moran contributed to the report.