Analysis

The manner in which the Party leads is no mystery. It has been the case for the past 90 years that whenever three or more Party members are present among the membership of any organisation, they have been encouraged to form a Party group (also called a Party branch or cell) within it.

Among other relevant articles, Article 46 of the Party Charter says "The group plays the role of the core of leadership. Its main tasks [include]: to see to it that the Party's line, principles and policies are implemented".

The nomenklatura

The Party controls appointments to all positions of influence in China through a system known as the 'nomenklatura', whereby the heads of major organisations are appointed or confirmed by a Party organ, the Organisation Department:

• The Party and the state are separate institutions, each with their organisational structures, but their memberships overlap; senior state officials almost always hold senior Party posts concurrently.
• The Organisation Department also appoints the heads of civil institutions that perform public functions, such as universities and media groups.

Party groups are therefore a permanent feature of any powerful organisation in China (see CHINA: Party-state system hides where power lies - September 19, 2013).

The Party has controlled state institutions this way ever since it came to power. Until the 1990s, however, it was relatively unimportant for the Party to guide private sector organisations. Few of them were of any national significance. Almost every powerful association -- civic or commercial -- was a state organ of some sort.

Arrival of the entrepreneurs

From 1997 until about 2007, the government implemented wide-ranging reforms that managed a partial withdrawal of the state from the market. At the same time, foreign enterprises swept into the country. This forced the Party to consider engagement with private companies.

Twenty years ago, a key question for the Party was not how to engage with private enterprise, but whether to do so. A longstanding debate about whether the Communist Party was a party for workers or a party that embraced the 'advanced productive forces' of business was only finally settled by then-President Jiang Zemin in 2000 with the inclusion of his 'Three Represents' theory in the Party canon. Before China joined the WTO in 2001, only 3% of private firms had any Party organisation.

'Big Party, Small State, Great Society'

The role of state institutions in the market has receded since the 1990s (and continues to recede), but the Party has expanded to fill the space. By 2012, the number of private firms with party groups had risen more than fourfold since 2001.

This trend is especially evident at newly registered enterprises, technology enterprises and foreign-connected enterprises:

• Of the 3.6 million new private enterprises established in 2015, slightly more than half had already set up Party groups.
• Some 23% of the staff of the private sector internet firm Tencent are Party members; the company claims that 60% of them occupy key roles.
• In 2002, there were Party groups in 17% of foreign-funded enterprises. Today, 70% of foreign-funded firms in China (some 750,000 enterprises) have set up Party groups.

Since the 18th Party Congress in 2013, the Party has described this shift as 'Big Party, Small State, Great Society'.

Vanguard for the market

Last year, the Party restated the way it saw its role as a 'vanguard' for the market. In October the Party Central Committee and the State Council issued a joint statement about entrepreneurship. It urges closer Party guidance of entrepreneurs and demands that entrepreneurs be 'patriotic' -- the same quality that it demands of candidates for the position of chief executive of Hong Kong, for example.

Hundreds of stock market-listed state-owned enterprises amended their articles of association in 2017, vowing to consult Party committees on major decisions (see CHINA: SOE reforms tighten Party control of economy - August 24, 2017).

For example, China Railway Group's governing document now reads: "when the board of directors decides on material issues, it shall first listen to the opinions of the party committee of the company".

The critical question is what sort of decisions this means. Party groups play different roles in different companies. Their role in the operational decision-making of foreign enterprises remains limited.

However, this week, the US hotel group Marriott International issued an apology after it listed Taiwan, Hong Kong, Macau and Tibet as separate countries in a customer survey.

Marriott message

The Cyberspace Administration said Marriott "seriously violated national laws and hurt the feelings of the Chinese people" and shut Marriott's internet presence in China for a week. The Cyberspace Administration is a state body, not a Party body, but the incident may indicate a view that even foreign businesspeople now have to be 'patriotic'.

Some foreign businesses have begun to question the costs and benefits of Party engagement. The Association of German Chambers of Industry and Commerce said last November that "we do not believe that foreign-invested companies generally should be required to promote the development of any political party within company structures... Should these attempts to influence foreign-invested companies continue... German companies might retreat from the Chinese market or reconsider investment strategies".

There is no reason to think mass retreat is imminent. However, in future, more companies will face the choice of retreat or ending up in a similar position to Marriott.