The Party: The Secret World of China's Communist Rulers

by Richard Mcgregor

  When the direct sales industry was reopened, the government ordered each local branch to operate out of a shop, to ensure their trade was done in the open, rather than out of sight in private homes. Sales people could only be compensated for their own sales and not earn commission from recruiting others. For any meetings of more than twenty-five to fifty people (the limit varies from district to district), approval was needed from the police two weeks to one month in advance. The conditions laid down were aimed squarely at preventing them from becoming political Trojan horses outside of state control. The initial fervour of the government crackdown had died down by 2008 and about two dozen foreign firms have been issued licences. Amway in particular has invested large sums of money in what it calls ‘government relations’ and built a successful business in China. But even now, the police still conduct a ‘strike hard’ campaign–a form of words used usually for crackdowns on criminal gangs–against illegal direct sales companies every year.

  The same fear of subversion that led to the crackdown on Amway and Avon propelled a parallel party initiative around the same time. The target this time was another giant of US capitalism, Wal-Mart, which was made an example of the Party’s campaign to unionize large foreign companies.

  The campaign first drew blood in early 2006, in Quanzhou, an old Ming Dynasty port and a modern-day centre for sports goods manufacturing. Chinese law allows employees to form a union but does not oblige the company to do so. At first Wal-Mart resisted the campaign, saying it had no objections to the union, while disingenuously expressing ignorance that any of its workers had any interest in forming one. Once the employees in Quanzhou had enough signatures in favour of a union, gathered during surreptitious late-night meetings away from the store, Wal-Mart was legally obliged to establish one.

  The US company needn’t have worried that the union would damage their business. When I visited Quanzhou soon after, Fu Furong, the local union boss, unveiled the key document in his office with a great sense of triumph–a single sheet of paper with thirty blood-red fingerprints on it, as if the signatories were making a founding pledge for a secret society. ‘We will never take simplistic measures like launching a strike,’ Fu told me. ‘With the union there will be a harmonious relationship between labour and capital.’ Before the meeting with Fu, his staff had amply, if unconsciously, reinforced the same message. The staff member who picked me up at the airport didn’t have a name card for her union position, so she gave me one for the side business she ran with her family, a rock-crushing operation in Henan province. My escort the next morning was also bereft of his union name card, but he had one for his second job, as a part-shareholder in a local sports sneaker factory. As pleased as they were about their political victory in forcing Wal-Mart to establish a union, neither of them tied the breakthrough to improved wages and conditions for company employees.

  Under communist rule, the job of China’s sole legal trade union body, the All-China Federation of Trade Unions, had always been to stop the emergence of an independent labour movement. Rather than representing workers inside state companies, the union worked for the Party. The rousing cheers from foreign unions that greeted the federation’s campaign against Wal-Mart, a scourge of organized labour around the world, missed this point altogether. When Beijing introduced a new labour law in 2006 in response to years of complaints about poor working conditions, the union led the government’s campaign. But this new-found activism was carefully aligned with the Party’s interests throughout. As Bruce Dickson, of the George Washington University, said: ‘The Party has allowed the All-China Federation of Trade Unions in recent years to advocate strongly the interest of labour in the policy and legislative process, but [it has] also imprisoned those who advocate the formation of independent trade unions.’

  The campaign against Wal-Mart had much in common with the political panic over the Avon lady–making sure that the Party had a presence in the foreign enterprises which had become a significant part of the new Chinese economy. In the words of two legal experts on China’s labour laws: ‘The fundamental objective [of the union campaign] is to reassert a lost control mechanism over the large number of employees that are now working in foreign firms, as opposed to state enterprises.’ Foreign enterprises employed about 28 million Chinese, or about 10 per cent of the urban workforce. By the end of its three-year campaign, the national union body had increased coverage of these workers, from about 30 per cent of foreign-invested enterprises in 2003, to 73 per cent in March 2008. The campaign had not only netted the union significant revenue from the mandatory dues. It had also given the Party a new set of eyes and ears within foreign firms. Later that year, one Wal-Mart store in the north-east of China quietly established a Communist Party committee. It was an astonishing moment for the ultra-capitalist icon in a way, but also a sign of how vacuous the Party’s official ideology had become.

  The Party’s efforts to infiltrate and control foreign companies was only one small part of a much larger strategy. The ultimate aim was to have a permanent party presence in every large private company in the country. For a display of the Party’s manic desire to be everywhere, there is no better illustration than the campaign it launched in 2007, to infiltrate private companies in Wenzhou. For the Party, Wal-Mart would seem like a pushover by comparison.

  Nestled on the coast behind a mountain range an hour by plane south of Shanghai, Wenzhou is legendary as the crucible of raw Chinese capitalism. Once difficult to access by road, short of farmland and dangerously close to Taiwan, Wenzhou had been forced to fend for itself after 1949. With the state investing little in the city, small, mainly household, firms stepped into the breach. Specializing in items like buttons, cigarette lighters, plastic ID card holders and shoes, Wenzhou firms first conquered local markets with their hard-to-get basic consumer goods. They then recycled their profits into a host of other investments, at home and abroad. Wenzhou companies, at different times, had up to 80 per cent of the global market for lighters, and nearly one-third for locks.

  Wenzhou entrepreneurs led waves of property speculation in cities like Shanghai when the real-estate market began opening up. They were the first private Chinese investors in Shanxi coal mines, just ahead of the boom in prices in 2002. The Wenzhou clans also dominated offshore Chinese business associations and labour hire firms that sprang up in Europe in the nineties. The commercial acumen of Wenzhou traders has near-mythological status in China. The business section of any Chinese bookstore is full of titles about the city, such as God Let the Wenzhou People Make a Fortune, The Scary Wenzhou People, The Rich Sisters of Wenzhou and The Business Book of the Wenzhou People, the Chinese Jews..

  On visits to private Chinese companies in Wenzhou and elsewhere, I always made a point of asking them if they had a party committee and what it did. Some executives, nearly always off the record, dismissed them as politically correct window-dressing. ‘It’s a formality; a kind of political show,’ said a senior executive of a private Shanghai company awarded a prize that year (2001) for having one of the top ten grassroots party organizations. Liu Yonghao, one of a band of brothers from rural Sichuan who made a fortune in the nineties from selling pig feed to farmers, was one of the few executives who was openly dismissive of the Party’s influence inside his Hope group of companies, both times I met him–in 1996 and then again a decade later. ‘I think it is good for party members [inside the company] to organize some study sessions or activities,’ he said. ‘But the secretary of the party committee is not in the leading class of our company.’

  Otherwise, the answers were surprisingly consistent. In the same way that government officials all learn by heart the speeches of their leaders, even if they ignore them in practice, so too have entrepreneurs memorized the script justifying the Party’s presence in their companies. The party committee was there to mediate the grievances of employees, much like a trade union, they said, and provide ‘ethical’ and ‘spiritual’ guidance. ‘It’s quite important in terms of company morality,
’ said Li Rucheng, who headed Youngor, one of the country’s biggest private clothing manufacturers housed on a sprawling site in Ningbo. ‘You have to have a spiritual core. Otherwise, you will be empty.’ Li adopted the kind of sombre, reverential tone that so many people use when discussing the Party with outsiders, a sure giveaway that he was parroting the official line rather than voicing an independent opinion.

  Left unstated by all the entrepreneurs was the fundamental reason for the Party’s interest in the private sector. The Party’s presence, straight out of the Leninist playbook, was more than just a monitoring device. It was a kind of political insurance policy, a sleeper cell to be activated in a crisis. The Party’s aim was to have an activist and advocate inside every significant institution in the whole country. The Party itself is quite explicit about this role. ‘In times of breaking events, like Falun Gong [the banned spiritual sect], we can [use the committees to] mobilize all channels to contain the crisis,’ said Zhang Dahong, a vice-director in charge of the Shanghai party committee’s grassroots division.

  The Party’s preferred model for the penetration of foreign joint ventures, which is taught in party schools, is the tie-up between Japan’s Nissan and China’s Dongfeng, a state-owned car and truck maker. The joint venture was one of the largest ever between Japan and China and a transformative partnership for the struggling Dongfeng. But that did not stop the Chinese side from stringing out negotiations for a year over its demands for a role for the Party in the new company. Dongfeng wanted more than the establishment of a symbolic party committee in the joint venture. Dongfeng insisted the new company give the party’s chief representative a senior management post and pay his salary and office costs. Not only that, Dongfeng negotiated a specific agreement to have the party’s plaque hung outside the committee’s office. ‘In its co-operation with Nissan, Dongfeng’s bottom line is that the party organization in the enterprise should absolutely not be allowed to be turned into an underground body,’ according to the organization department’s study of the case.

  The organization department’s internal report in 2005 on its work inside non-state companies is full of down-in-the-mouth dispatches from the grassroots about the Party’s declining profile in private and joint venture workplaces. One party member is quoted: ‘We are effectively out of money and out of power. Even when we speak, we attract scorn.’ The Nissan–Dongfeng joint venture was a rare bright spot by comparison, as it included in writing an agreement for the Party’s representative to be placed at the heart of the decision-making process.

  Wenzhou has never pretended to toe Beijing’s line, which may explain why it took the Party until 2007 to try its hand at penetrating private enterprise there. On my trip to the city a few years earlier, the official hosting me at the ritual welcome banquet joked about the top-level campaign recently launched by Jiang Zemin, which went by the ungainly title of the ‘Three Represents’. ‘I can remember the first two [represents]. Can anybody remember what the third one is?’ he guffawed, between large mouthfuls of seafood. Few Chinese officials dare to mock the top leadership in front of foreigners, especially a few minutes after meeting them. The irony was that Jiang’s campaign was a device to bring entrepreneurs into the communist orbit, as he did soon after. While they were hazy about Jiang’s policy pronouncements, the Wenzhou officials at the dinner knew down to the last dollar the prices of luxury cars like BMWs and Mercedes-Benzs.

  On the surface, the Party’s putsch into Wenzhou seemed like a failure. Of 100,000 private companies in the city, only abut 4,100, or 4 per cent, had established cells. The initial report by the People’s Daily in early 2008 listing the cells’ good deeds, such as sending TV sets to poor families and visiting disabled people in their homes, made the Party sound more like social workers than the vanguard of Marxist-Leninism. The organizers professed to be relaxed about their progress. There were no quotas, no pressure and no politics involved. ‘We will help them set up a party body, if it is a private enterprise, a social group or an NGO, but we will not require or force them to do so,’ said Shao Depeng. ‘We will just play a leading role if they are qualified and apply.’

  Closer examination uncovered a different pattern. Only a handful of companies had signed up, but the ones that did were the city’s major private enterprises. A large organization itself, the Party preferred dealing with enterprises that had scale and clout, not the types Jiang Zemin had once dismissed as ‘self-employed peddlers’. The Party astutely judged that the big private companies, with their interests spread beyond the city to the rest of the country, had much more at stake in politics. ‘Setting up a party committee seems to be a symbol of normalization,’ a local academic, Ma Jinlong, said. ‘Only if they have party organizations will central government leaders visit them when they come to Wenzhou. If you ask what the function of the committees is, that is the biggest one.’

  Much as Washington law firms retain former politicians for government relations, Wenzhou’s large companies began competing with each other to hire the most senior retiring officials from the local propaganda department to head their party committees. When the Zhengtai Group, the city’s largest private company, an electronics equipment manufacturer, was looking for an official to run its party committee, it made sure he was ranked more highly than the cadre hired by a local rival, Delixi, in the same industrial sector. The officials themselves were thrilled to be recruited. ‘Both party secretaries retired ahead of time,’ Ma said. ‘They can get better pay by working at private companies.’

  For the Party, the tie-up gave them a presence in private companies and a career stream for retiring officials. For the entrepreneurs, the benefits were arguably even greater. More business leaders gained seats in the city’s people’s congress and the official advisory body that met alongside it. Ma himself felt the entrepreneurs’ power when he was nominated as part of an official campaign to name the thirty most influential people in Wenzhou. Soon after the campaign was launched, he said, he and all the other academics who had been nominated dropped out. ‘At the end of the day, all the candidates on the list were entrepreneurs. They were the only ones who could afford to participate,’ he said.

  The same trend is evident in the smaller business associations set up by the Party at grassroots level to liaise with and penetrate the private sector throughout the country. Increasingly, they have been captured by business and lobby on their behalf. According to surveys conducted by Bruce Dickson, Chinese officials who believed the primary responsibility of state-sanctioned business associations was to provide party leadership over private companies had fallen from 48 per cent in 1999 to 32 per cent in 2005. Officials who thought the first duty of the associations was to work for the businesses themselves had increased from 42 to 57 per cent over the same period. ‘Party building in the private sector has been more successful at promoting the firms’ interests than exerting party leadership,’ says Dickson.

  Wang Shi’s stress on the importance of having a ‘red hat’ Haier’s tussles with the Qingdao government; Huawei’s cosying up to the political establishment; and the cultivation of the Party by big firms in Wenzhou all have much in common. The bigger you get, the more important good ties with the Party are and the greater the benefits that flow from a good political relationship. The contrasting fortunes of two entrepreneurs who tried to crack open state-dominated industrial sectors in the early years of this century provide textbook examples of how to manage government relations to develop one’s business, and the steep price to be paid for failure.

  Nearly a decade after he launched a push into the aluminium sector, Liu Yongxing mused in an interview about the lessons he had learnt in trying to do business in an industry long monopolized by the state. Liu’s business proposition had been straightforward when he devised his investment plan in the late nineties. He reckoned that China’s industrial output and urban construction were on the cusp of a boom. Demand for aluminium, and the raw materials used to make it, would soar. With the domestic supply of
alumina in China under the control of a single state company, Liu saw a once-in-a-lifetime opportunity for his East Hope group to enter the market as a streamlined, low-cost player. Liu aimed to control the entire production process, from mining bauxite to refining alumina to smelting aluminium, so he would not be held hostage by his state competitors at any point along the way.

  Liu, who was already one of China’s richest entrepreneurs, got at least one part of the business equation right. The five years from 2002 were a golden era for Chinese heavy industry, an era of record expansion and profits. But managing the politics of entering the sector proved to be much more perilous. Asked in the 2008 interview what he had learnt, Liu replied that he had taken one lesson to heart: to make sure his company did not become the ‘next Tieben’. He said: ‘Tieben is a lesson for us all. It was a tragedy.’

  Jiangsu Tieben Iron & Steel is reduced these days to a footnote in the story of the Chinese economy, the tale of a crooked entrepreneur who overreached and got his come-uppance. Dai Guofang, Tieben’s owner, in fact had much the same business plan as Liu. In the early part of this century, Dai saw a similarly huge opportunity in steel. As a low-cost producer, he thought he could easily grab a profitable market share away from the relatively pampered state-owned giants like Baosteel, 150 kilometres away down the Yangtze, near Shanghai. All he needed was scale. The market bore him out in the years to come. Steel demand, and profits, surged in the five to six years to mid-2008.

  Only unlike Liu, Dai was not around to enjoy them. Liu’s business survived, only just, multiple attacks on it by the state sector. Dai, however, ended up behind bars in a blaze of publicity orchestrated by the central government. The different fate of the two businessmen was simple. Whereas Liu astutely managed the politics of battling a state monopoly, Dai was out of his depth when the political winds in Beijing reversed course, and started blowing against him.