In Xi’s China, the Business of Business Is State-Controlled
During his first decade as China’s leader, Xi Jinping frequently touted the importance of reform and opening up of the economy even as he pushed the country in the opposite direction. On Sunday, when he launched his ambition at an important political meeting, he barely paid for the idea.
Mr. Xi, who is expected to secure a groundbreaking third term when the Communist Party congress ends this week, made just three mentions of market reforms in his nearly two-hour speech. himself and omitted more than a dozen other content in a longer, written version. Instead, he focused on issues of national security and corruption, lauded state projects in space planes and supercomputers, and pledged to play a greater role for communism. society and the public sector.
When he talked about the market, the message was eloquently established. He praised the “socialist market economic reform”, and said that the Chinese economy should “give full play to the decisive role of the market in the allocation of resources”.
Under Xi’s leadership, China is returning to its roots: a state-controlled economy that requires businesses to conform to the goals of the Chinese Communist Party. Free-market, pro-business reforms that made the country the world’s second-largest economy were introduced in favor of state prerogatives.
Many of Xi’s prominent policies have had a great impact on the economy. Restrictive Covid policies have shaken consumer and business confidence. The housing market, a source of employment and household wealth, is in crisis and youth unemployment is at a record 20% after China cracked down on fast-growing industries under patronage of more responsible development.
And in a move that could raise concerns about the extent of the recession, China’s National Bureau of Statistics is indefinitely delaying the release of the country’s latest gross domestic product, scheduled for next month. Tuesday.
The change in the business environment has been very obvious. Internet companies, once seen as China’s champions on the world stage, are now being thwarted by many government agencies. Billionaires, including Jack Ma, founder of Alibaba, have been run underground or jailed after criticizing the government.
Joerg Wuttke, president of the European Union Chamber of Commerce in China, said China’s economy is now more inward-looking, less accessible and ingrained in Mr.
“It’s not the China I’ve been used to for the past 30 years,” said Mr. Wuttke, who has lived in the country since 1993.
Three decades ago, China’s then-leader, Deng Xiaoping, drew national attention with a tour of southeastern coastal cities to lobby in support of economic reforms. . A wave of young people, inspired by Mr. Deng’s pledge to open up China to the rest of the world, have flooded into major cities in pursuit of business opportunities.
In 1994, Wen Kaifu quit his job as a secondary school teacher in the southeastern province of Jiangxi and moved to Shenzhen, one of the country’s first special economic zones, to work for a manufacturer. screen. Back in 2004, he founded his own company, Holitech Technology, to produce liquid crystal displays, the type of screens used in billions of smartphones.
As Xiaomi and other Chinese handset makers flourished, so did Holitech. In 2014, the company went public and Mr. Wen became one of the richest people in China with a net worth of 4.1 billion dollars. That same year, China created more than 70 new billionaires.
Like many Chinese companies that follow the government’s “go global” directive, Holitech is getting bolder in its expansion plans. After a public offering, it acquired seven Chinese component manufacturers. Holitech has built facilities in California and Europe and is committed to Open a factory in Indiapromises to provide 6,000 jobs.
“We are not aiming to be number one in the region or number one in China,” Mr. Wen said at an awards ceremony in 2017. “We are looking for the number one spot in the world.”
afterward Xi’s priorities have changed. In 2018, Beijing initiated a nationwide effort to curb excessive borrowing by private companies. Holitech has a $1 billion loan and several options for refinancing. The company’s stock price plummeted, dragging Mr. Wen’s wealth. China’s securities watchdog investigated him for defaulting on his debt.
State-owned enterprises – called by Mr. Xi “an important pillar and strength of our party” – have largely been insulated from the debt crackdown.
Fujian Electronics and Information Corporation, a state-owned holding company of electronic component manufacturers, stepped in to rescue Holitech. It paid about $450 million for 15% Holitech and a controlling voting stake in 2018.
Chris Marquis, professor of business at Cambridge University and author of “Mao and the Market: The Communist Origins of Chinese Enterprises has been around for a long time, but it has been accelerated under Xi.”
Follow Price of Waterhouse Coopers. Such acquisitions were rare before Mr. Xi took over in 2012; then the share of state-owned enterprises in the economy has gradually decreased.
Following the investment in Fujian, Holitech has become an example of what Mr. Xi envisioned in his 2020 speech to “unify members of the private sector around the party”.
Holitech has enlisted nationwide in China blitz mask production. The company’s newly encouraged Party Committee led the activities on party building and lessons about Party History where employees experience “a baptism of patriotic education”. Under Xi’s plan to revitalize rural areas, Holitech, with the help of Fujian Electronics, invested more than $1 billion in a new industrial park this summer.
When Mr. Wen officially stepped down from the company last year, he was replaced by Huang Aiwu, a member of the Fujian Electronics party committee.
Holitech and Fujian Electronics did not respond to requests for comment.
In his prepared speech on Sunday, Mr. Xi stressed the importance of ensuring that “capital and state-owned enterprises get stronger, perform better and grow stronger”. He also declared – in the standard double address of the Communist Party – the importance of “high-level openness to the outside world.”
But for foreign businesses, China’s priorities are now clear: in the scramble for access to the Chinese market, state-owned enterprises take precedence.
In 2018, American Express received approval to become the first foreign credit card company to operate a payment network in China as part of the a joint venture with LianLian Digitech, a Chinese financial payments company. The approval comes six years after the WTO ruled that Beijing supported an “illegal monopoly” for the state-owned China Union Pay, which controls more than 90% of debit and credit card spending. credit in China.
From the start, American Express went against Xi’s agenda. Originally, American Express proposed a partnership with Tencent, a target in Beijing’s crackdown on big tech companies, but the country’s central bank encouraged the marriage to the little LianLian. much more, according to two people with knowledge of the negotiations told the condition. anonymous due to political sensitivities.
American Express agrees. When the venture opened in June 2020, Stephen J. Squeri, chief executive officer of American Express, hailed it as “an important step forward in our long-term growth strategy” and a “historical moment”.
Fritz Quinn, a spokesman for American Express, said the company considers LianLian “the best partner” because the two companies have a “long and productive history of working together.” He added that it was “proud of the progress” the venture was making.
Immediately, the Express Hangzhou Technology joint venture struggled to work with state-owned financial firms. It relies on state-owned banks to issue new cars, but some are restricting American Express card issuance so as not to disturb Union Pay, the people said.
At the same time, Union Pay has sought to leverage American Express’s ambitions in China to advance its own global strategy, discussing an agreement to accept each other’s cards on their respective networks. this person said. Mr. Quinn at American Express said this was “not true” but did not elaborate.
The blurred line between politics and business has forced some foreign companies to make difficult decisions about whether to follow China’s rules.
Internet companies operating in China must abide by increasingly strict rules about proactively censoring content. Overseas tech companies with Chinese customers must store user data in China. And any criticism of China’s policies towards Taiwan or Hong Kong or its human rights record is met with fierce criticism and online mobs.
It has forced companies to choose: split their global businesses in two or downsize their operations in China significantly.
Stellantis originally wanted to increase its stake in the Jeep manufacturing joint venture with the state-owned Guangzhou Automobile Group. But the Dutch company said Chinese officials had not approved the plan, which would mean fewer jobs for Chinese workers. In July, Stellantis decided to dissolve the partnership.
Carlos Tavares, Stellantis’ chief executive, said the Chinese automaker had breached its trust and that “political pressure” was influencing his former partner’s decision-making.
Mr. TOld Financial Times. “The political agenda has grown day by day.”
Christopher Buckley contributed reporting. Li You have contributed research.