Multipolar World

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

Jorge Costa Oliveira

China’s openness and reform policy was initiated in 1979, but only in the late 1990s did it begin to privatize and significantly reduce its state-owned enterprises (SOE) sector. In the mid-2000s, China’s state capitalism focused mainly on the management of large SOEs and their contribution to economic growth, the state’s revenue, and its strategic and economic interests both domestic and abroad. This limited role of SOEs has allowed room for private companies to grow, a phenomenon captured in the Chinese expression, “the private sector moves forward, the state moves back”.

Indeed, private companies have grown and thrived. This growth has led to the creation of large conglomerates with a global reach – such as Tencent or Alibaba – and, for the first time, Chinese companies have become industry leaders in IT, payment processing, and the digital economy. But this accumulation of economic power has raised many eyebrows in the Communist Party of China (CPC), which historical materialism has deep roots in – if the economic infrastructure is dominated by large private corporations, sooner or later these corporations will determine the political superstructure… Nevertheless, the private sector has been allowed to develop, albeit with restrictions imposed on the basis of a need for greater social justice – dubbed “common prosperity”.

Some of the largest private groups that have formed in China in the last two decades have had easy access to credit, made available by state-owned banks. They used this credit not only for domestic growth, but also to internationalize in a wide array of sectors. In recent years, greed in several of these groups has led them to take bigger risks than in the past, defaulting on bank loan payments, which has led to state intervention in some of the country’s largest conglomerates, such as the insurance company Anbang and the HNA group.

The large private groups, until then seen as accelerated growth generators by virtue of significant investments, creators of significant employment, providers of best management practices, and benefiting from the scale of the gargantuan Chinese market, lost their aura of respectability and began to be seen as potential risks to the banking and financial systems’  stability and as entities that drained significant funds to invest abroad (in non-strategic sectors for the Chinese state) that otherwise could have been used in the development of the national economy.

Large private groups were no longer considered trustworthy and the CPC leadership began to create mechanisms to ensure closer alignment with the national interest as defined by the State-Party. One such move saw an increase in the number of party cells in private companies, especially in large corporations. How this will pan out remains to be seen.

The drive to co-mandate private enterprises probably exists in the party’s Organization Department. But China’s extraordinary growth – particularly in advanced technology sectors – has been increasingly driven by the private sector, and the leadership of the Chinese State-Party is well aware of this.

Categories Multipolar World Opinion