China: CCP Crackdown Spooks Entrepreneurs – Analysis


By Gilles Guiheux

In China, one of the consequences of the economic reforms launched in the late 1970s was the re-emergence of private entrepreneurs. Gradually, capitalists were not only encouraged, but also portrayed as national heroes and incorporated into the system.

On the 80th anniversary of the founding of the Chinese Communist Party (CCP) in July 2001, former Chinese president Jiang Zemin called for qualified members of the various social strata that had emerged over the reform period, including private entrepreneurs, to be admitted to the CCP.

In today’s China, the private sector contributes more than 50 per cent of tax revenue and over 60 per cent of GDP every year. But the attitude of the party-state towards private entrepreneurs remains ambiguous. The regime regularly praises private entrepreneurs for their unique role in bringing prosperity to the Chinese nation. But at the same time, billionaires are regularly criticised and sometimes prosecuted and imprisoned.

High profile entrepreneurs in the tech industry have recently come under scrutiny like never before. Alibaba co-founder Jack Ma has kept an uncharacteristically low profile since October 2020, when the government began a regulatory crackdown on his companies. Many other individual entrepreneurs have been forced to leave the public stage in recent years.

Political observers have long questioned whether the capitalist class could be a force for democratic change. This debate is still open. But the question is all the more difficult in the Chinese context, since the private sector has not emerged in opposition to the state, as it did in the West, but rather as a result of state initiatives. The Chinese state itself encouraged its own bureaucrats to go into business.

Most analysts have argued that Chinese private entrepreneurs form a largely atomised group that is focussed on their individual interests and unable or unwilling to engage in collective action. Private entrepreneurs are dependent on the party-state for their prosperity and are often co-opted by the Party. Since the early 2000s, the CCP has been integrating emerging private business elites into the party-state through a variety of formal institutional arrangements, such as granting CCP memberships and allowing them to act as national or local-level legislators or in Party congresses.

Since the early 2000s, the CCP has also deployed a variety of measures to expand its control over the private sector. One major innovation was the establishment of party cells in private enterprises. In the early 2010s, at the province level, new agencies were created specifically to implement this. It also sent down ‘party-building instructors’ to enterprises, adopting a business-friendly approach and providing host firms with meaningful services and tangible benefits.

Party organisations within private firms are business-oriented and support production services and employees’ welfare rather than intervening in day-to-day management and strategic planning. The presence of the CCP within firms, from boardrooms to factory floors, has relied on various blueprints found in the organisation’s long history. The increasing representation of the Party’s interests in the private sector is one of the tools that has been used by Chinese President Xi Jinping to make China more socialist.

Xi Jinping is now calling for China to achieve ‘common prosperity’ (gongtong fuyu) by narrowing a yawning wealth gap that threatens the country’s economic ascent and the legitimacy of CCP rule. In 2021, Xi signalled a heightened commitment to delivering common prosperity, emphasising that it is not just an economic objective but core to the Party’s governing foundation.

To reach that goal, Xi explicitly encouraged high-income firms and individuals to contribute more to society via the so-called third distribution — charity and donations. Philanthropic action, understood within the framework of exchanges between capitalists and the party-state, is similar to a constrained redistribution of resources designed to reduce economic inequality.

Answering that call, several tech industry heavyweights, such as Alibaba and Tencent, announced charitable donations of more than US$40 million. This is the latest manifestation of a policy initiated more than 10 years ago, notably through the drafting of a charity law in 2016. The missions of private entrepreneurs’ foundations must align with the state’s core social welfare goals — disaster relief, poverty alleviation, assisting disadvantaged people and promoting education.

After Jiang Zemin proposed the ‘Three Represents’ in 2001, the CCP and entrepreneurs entered a honeymoon period of more than 10 years. When Xi Jinping came to power in 2012, he began to strengthen oversight on entrepreneurs and private organisations. Recently, the government has pursued the ‘common prosperity’ agenda with a series of striking reforms, amounting to a major crackdown on tech, the platform economy, private education, real estate and financial capital, which lead to a dramatic destruction of stock market wealth in 2022.

These new regulations are designed to increase the size of the Chinese middle class, raise the earnings of low-income groups and reduce excessive incomes. But there is significant risk that the crackdown is killing innovation, creativity and the entrepreneurial spirit of the Chinese private sector.

The position of big private companies in China today is less secure than it has been at any point since 1989. State intervention has resulted in entrepreneurs losing confidence in China’s future, with some choosing to move abroad temporarily or for good. At the same time, collaboration between the Party and private entrepreneurs over the last decade appears less exceptional if we acknowledge that red capitalists are a creation of the Party itself.

About the author: Gilles Guiheux is professor at Université Paris Cité, researcher at CESSMA, and senior member of the IUF.

Source: This article was published by the East Asia Forum

East Asia Forum

East Asia Forum is a platform for analysis and research on politics, economics, business, law, security, international relations and society relevant to public policy, centred on the Asia Pacific region. It consists of an online publication and a quarterly magazine, East Asia Forum Quarterly, which aim to provide clear and original analysis from the leading minds in the region and beyond.

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