Multipolar World

‘State capitalism’, the private sector and the CPC in China (I)

Jorge Costa Oliveira

The economic system in China has been described as one of “state capitalism,” i.e. a market economy predicated on competition among state-owned enterprises. However, the system is a mixed one, with state-owned enterprises (SOEs) (central, provincial, and municipal) and a thriving private sector. Four decades ago, the private sector was incipient and SOEs practically dominated the entire Chinese economy.

Starting in 2003, the State Assets Supervision and Administration Commission (SASAC) implemented the “zhuada fangxiao” (grasping the large and letting the small go) policy and focused on restructuring SOEs, structured as modern, larger and more efficient corporations, and focused on strategic sectors in which government supervision is paramount. The state has pulled out of many sectors, having reduced the number of SOEs through privatizations, asset sell-offs, as well as mergers and acquisitions.

The central SOEs are huge companies, usually conglomerates. As such, they appear high on some indicators such as the Fortune Global 500 list, in which – in 2021 – there were 135 Chinese companies, 73% of which are SOEs.s

After the opening and reform policy launched in 1979 by Deng Xiaoping, China’s GDP grew at about 10% per year, and the importance of the private sector increased significantly. Over the last 15 years, the expression “guo jin min tui” (state[-owned enterprises] advance, the private sectors retreat) has been used to describe the recent economic trend in China. But the numbers do not reflect this.

A 2019 World Economic Forum working paper claimed that China’s private sector is “the main driver of China’s economic growth,” “contributing to 60% of China’s GDP, accounting for 70% of innovation, 80% of urban employment, and 90% of new jobs.” Moreover, “it also accounts for 70% of investment and 90% of exports,” as well as 50% of the market value of the largest listed companies.

However, private sector wealth accumulation in China has always had a “Chinese characteristic” – namely, that private companies can grow and thrive, but they cannot undermine the political leadership of the Communist Party of China (CPC) in the country. It was a step from there to creating party cells in many private companies – whether those enterprises are owned by locals or foreigners.

According to a private sector survey conducted in 2018 by the All-China Federation of Industry and Commerce, 48% of enterprises have a party cell, and there are fewer CPC cells in regions with higher economic activity and in commerce (wholesale and retail). In large private companies, the reach was nearly all-encompassing – more than 92% of the 500 largest private companies in China had party cells. The percentage has certainly increased, not least because since 2018, the existence of a CPC cell is mandatory for companies listed on stock markets.

As far as is known, these party cells [still] do not interfere with the management of private companies. Since 2020, the Chinese leadership has urged the private sector to align its business activity with the party’s objectives. It is still unclear what consequences this policy stance may have on China’s economic and social plans in the foreseeable future.

Categories Multipolar World Opinion