China: The Com­mun­ist Party moves into private com­pan­ies

Huawei. Alibaba. Tencent. TikTok.

Some of the world’s most successful companies come from China. In the West we often assume that there is a clear distinction between state-owned and private companies in the Chinese business community, however, in reality, the Chinese Communist Party has over the past decade increased its organisational presence in private companies to an extent that many outside China are unaware of. 

Today, the party is present everywhere, from tech giants to family-owned businesses and biotech companies and has in many cases become an established part of the organisational structure of the companies – also foreign companies with operations in China.

Researchers gained access to companies

This is the conclusion of a new study from CBS, which provides a rare insight into the Chinese business community. The researchers, Professor Kjeld Erik Brødsgaard and Postdoc Kasper Ingeman Beck, who both speak Chinese, conducted fieldwork in four private companies in the Guangdong Province in southern China. They also analysed key policy documents issued by the Communist Party.

“The growing presence of party cells in private companies has received limited attention because the Chinese authorities do not want to draw attention to it. They are well aware that the West is critical of this blending of political and commercial interests,” says Kjeld Erik Brødsgaard and points to the United States' restrictions on TikTok as an example, where concerns about the company's links to the Communist Party have played a central role.

Since the 1980s, Chinese state-owned enterprises have otherwise adopted governance structures inspired by Western models, with independent boards of directors and executive management. This happened alongside the country's economic reforms, while the private sector expanded rapidly.

“But after the financial crisis in 2008, it was as if the Chinese leadership concluded that the Western model also had significant weaknesses. At the same time, they did not want to follow the Russian path of privatising everything after the collapse of the Soviet Union,” Kjeld Erik Brødsgaard explains.

Party members take positions in companies

During the 13 years that Xi Jinping has served as party leader and president, the Communist Party has strengthened its ties with companies to ensure that they support the party's political goals.

One of the key tools has been the establishment of so-called party cells within companies.

A party cell is a local branch of the Communist Party that operates within a company. Its responsibilities include communicating party policy, organising training for party 
members and maintaining links between the company and the authorities. In some companies, party representatives work closely with the day-to-day management. In others, they primarily serve as a link between the company and the political authorities.

“The influence of party cells in private companies is not as formalised as it is in state-owned companies. For example, they do not have to be consulted before matters are brought before the board of directors; nor is there a requirement, as there is in state-owned companies, for the party secretary and the chair of the board to be the same person. They are often placed in functions such as HR, communications or employee development,” says Kjeld Erik Brødsgaard.

Dramatic increase

The expansion has happened at remarkable speed. According to the researchers, around 6% of China's private companies had a party cell in 2003.

By 2017, that share had risen to 73%, meaning that the Communist Party had an organisational presence in nearly three out of four private companies. By 2020, almost all of China's 500 largest private companies (92%) had established a party cell.

However, the influence of these party cells varies significantly from one company to another. According to Kjeld Erik Brødsgaard, it remains difficult to assess how much power they actually have.

“Do they contribute to companies' success or do they limit it? From a Western perspective, this is an unfamiliar system that blends political power with commercial interests. Yet China has clearly succeeded in building globally competitive companies in technology, digitalisation and the green transition. If we want to understand the reasons behind that success, we also need to understand how the relationship between the party and companies works,” he says.

China's progress challenges Europe's self-perception

In recent years, many Western observers have described the Chinese economy as being under pressure, not least because of problems in the property sector. Kjeld Erik Brødsgaard believes this assessment is somewhat superficial.

“China has been successful in fostering innovation. The country invests heavily in selected sectors and deprioritises others deliberately. The property sector is one of those areas,” he says and adds:

“The economy is still growing by around 5% a year. Given the size of China's economy, that is roughly equivalent to adding an economy the size of Turkey’s every year.” 

This growth also raises an uncomfortable question for Europe: What can we learn from China?

Much more than a copycat

According to the CBS researcher, one important lesson is the value of a shared and active industrial policy that makes strategic choices about where to invest and where not to invest, including targeted forms of state support.

We also need to recognise that China has become a highly successful innovator on its own terms.

Kjeld Erik Brødsgaard points to a remark made by Danish Prime Minister Mette Frederiksen in her New Year's speech on 1 January last year, when she said: “The United States innovates, the EU regulates and China copies.”

“Her point that the United States innovates while the EU is falling behind was valid. But the idea that China merely copies is simply wrong. China is highly successful in innovation and is the only genuine economic rival to the United States on the global stage. The country has also made remarkable progress in science and technology. Chinese researchers publish more articles in leading engineering and natural science journals than any other country.  So no, it is no longer China that is learning from us.”