The Chinese Communist Party’s influence over businesses

This study examines the Chinese Communist Party’s increasing influence over
businesses. First, it analyses how changes in Chinese laws, intra-Party regulations,
and policies have created new means for the Party to exercise influence. Secondly,
the study examines CCP influence in practice by analysing three dimensions: ownership,
party organisation presence, and political signalling. Over the past 15 years,
regulatory changes that initially targeted state-owned enterprises (SOEs) have also
increasingly affected private-owned enterprises (POEs). Key reforms emphasise
mixed ownership and reinforcing Party leadership in corporate governance, blurring
the lines between state and private ownership. State ownership in POEs has given
the CCP indirect influence, for example, through positions on company boards.
There is also research showing that Party organisation presence sometimes affects
corporate governance. Political signalling from the Party leadership, emphasising
the CCP’s leading role and the importance of loyalty to the CCP, pressures businesses
to align with Party interests. Available information on foreign-owned companies
(FOE), including interviews with Swedish company representatives, reveals
a mixed picture. Party influence is less obvious in FOEs than in Chinese companies.
Nevertheless, the consequences for foreign companies operating in China are
significant, as political control introduces unpredictability, eroding investor confidence.
For Chinese companies expanding internationally, the tension between CCP
influence and global business norms is even greater.

Executive summary

• This study examines the Chinese Communist Party’s (CCP) influence over
  businesses. First, it analyses how changes in Chinese laws, intra-Party regulations,
  and policies have created new means for the Party to exercise its influence.
  Secondly, the study examines CCP influence in practice by analysing three
  dimensions: ownership, party organisation presence, and political signalling.
•  The study is based on a review of relevant laws and regulations, existing research
  on relations between the CCP and businesses, and interviews with representatives
  of Swedish-owned companies operating in China.
•  Over the past 15 years, regulatory changes that initially focused on state-owned
  enterprises (SOEs) have also increasingly affected private-owned enterprises
  (POEs). Key reforms emphasise mixed ownership and reinforcing Party leadership
  in corporate governance, blurring the lines between state and private
  ownership.
• There are still important differences in Party influence between SOEs and
  POEs; for example, SOEs have embedded political governance, where the
  Party organisation is represented on the board, while no such rules exist for
  POEs. However, SOE policies often serve as models for regulating POEs.
•  Ownership: The mixed ownership reform has resulted in a large number of
  SOEs acquiring stakes in POEs. This indirectly gives the party more influence
  over POEs, also sometimes when it is a minority post. The most obvious cases
  are government “golden shares” in high-tech companies such as ByteDance,
  Weibo, and Tencent. Some of the interviewees also highlighted golden shares
  as one more direct aspect of the CCP’s influence over businesses.
• Party organisation presence: By law, all private companies with CCP members
  must establish party organisations. The extent to which this law has been implemented
  is not entirely clear, although most large private companies have party
  organisations. While many observers claim that Party organisation activities
  are limited to social activities and have little influence over corporate governance,
  there is also abundant research showing that Party organisation presence
  in POEs on an aggregate level affects corporate governance.
•  CCP membership among company managers is another possible way for the
  CCP to influence POEs. Many entrepreneurs actively seek to become party
  members in order to gain political influence that can help their businesses thrive.
  However, as the Party continuously tightens ideological and political control
  of Party members, they might become more incentivised to adapt companies’
  activities to be more in line with the intentions of the CCP.
• Political signalling: The overall influence that the Party exercises over POEs
  through political signalling is substantial. Chinese as well as foreign companies
  have to be constantly aware of changes in the political environment. Through
  new legislation and the publication of Party documents and speeches by leaders,
  the CCP leadership signals that private entrepreneurs must follow the
  leadership of the Party. This message has become ever more clear and strong
  during Xi Jinping’s reign.
• So far, there is no evidence that similar patterns of party organisation influence
  on corporate governance exist in foreign-owned enterprises (FOE). According
  to the Swedish company representatives interviewed in the study, Party organisation
  activities are strictly internal Party matters and have no impact whatsoever
  on the companies’ business activities.
• Swedish company representatives emphasised that the fact that the CCP completely
  dominates politics and society is something that is a starting point
  when doing business in China and was seldom raised as a problem. However,
  they acknowledged that the political changes in recent years, including political
  centralisation and increasing nationalism, were the political factors most
  affecting businesses.
• The consequences of political influence over Chinese companies are in some
  ways more dramatic for Chinese companies outside China than for those within
  China. As Chinese companies have expanded their presence far beyond China’s
  borders, the CCP’s obsession with political control increasingly clashes with
  Western ideals of businesses operating independently from political influence,
  at least of the CCP variety.

This report is co-authored by Oscar Almén (FOI) and Hanna Carlsson (NKK). Since
its inception, NKK has collaborated with FOI on various activities, but this marks
the first time our cooperation has resulted in a joint report.

About the authors