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China’s Communists Rewrite the Rules for Foreign Businesses

April 16, 2018

HONG KONG — One hammer and sickle at a time, the Communist Party is making its way deeper into everyday Chinese life — and that includes the foreign companies doing business there.

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Honda, the Japanese automaker, changed its legal documents to give the party a say in how its Chinese factories are run. A Chinese state oil giant vowed to put the party front and center in its joint ventures with foreign partners.

And Cummins, the engine maker from Indiana, felt the party’s reach, too, when it tried to appoint a new manager for one of its China businesses. The party said no.

“In the past the American general manager did not understand why the party was involved in decision making,” said Hu Hongwei, the party’s representative to Cummins’s China joint venture, according to The People’s Daily, the party’s official newspaper.

But Cummins’s Chinese partner then rewrote the business’s articles of association to give the party more power, Ms. Hu said. The American manager “has begun to understand it,” she added.

The Communist Party’s rise in the Chinese offices and factories of foreign companies is yet another challenge for multinationals doing business in the country, which has the world’s second-largest economy, trailing only that of the United States. President Trump’s protectionism has put American companies in particular in the middle of a brewing fight between Beijing and Washington.

Foreign companies face growing pressure to share sensitive technology. The Chinese authorities have stepped up efforts to foster a new generation of homegrown competitors meant to someday replace foreign companies.

Should a trade dispute between China and the United States worsen, Beijing could be moved to intensify the party’s role in foreign business even further, creating yet another headache for businesses operating in China.

The party’s expanding presence in business is part of a broader push by Xi Jinping, China’s president and the party’s top leader, to make it stronger. He has reshaped education to include more Communist Party mythology and increased the party’s role in China’s military. Mr. Xi’s take on Communism — called “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” — has been unveiled with great fanfare across the country.

In the business realm, dozens of Chinese state-controlled companies have changed their articles of incorporation to give the party a greater role, including the publicly traded units of some of the world’s biggest companies, like Sinopec, ICBC and China Railway Group. The insurance giant China Pacific Insurance, for example, recently amended its articles of association to say that in key corporate decisions, “the board of directors shall first seek for the opinion of the leading party group of the company.”

“We’ve never seen the party so forcefully articulate its own goals,” said Jude Blanchette, a senior adviser and China head at Crumpton Group. “Companies are now trying to coordinate with the party in a way that doesn’t sacrifice their own shareholder interest.”

The Communist Party has long been part of doing business in China. While party committees are a fixture in many foreign-managed workplaces, they were seen by foreign executives for years as more like social clubs. They would meet to read party announcements, recruit new members, make sure dues were collected and generally keep an eye on operations.

But on at least three occasions in recent months, foreign executives have been approached by their Chinese joint venture partners demanding that they involve internal party committees in strategic decisions, say lawyers and business executives.

“Infiltration by party operatives into the executive circle of foreign-invested enterprises is not extensively apparent at this time but things are certainly going in that direction,” said James Zimmerman, a lawyer in Beijing whose clients include American multinational corporations.

He said several of his clients in joint ventures had received explicit requests to give their internal party organizations a greater say in the company’s operations. At some companies, the requested language requires a board of directors to consult with the committee before making business decisions.

Foreign business associations in China have spoken out. In November, the Delegation of German Industry and Commerce said it was concerned about “proactive calls on foreign-invested companies to promote the development of the Communist Party of China within companies.” The European Chamber of Commerce has called such incidents a “great concern” that would represent “a significant change from the legal framework under which joint ventures were negotiated and under which they have been operating successfully for decades.”

The creeping influence of the party in foreign offices and factories is a sensitive subject in a country where the party seems ready to punish anyone who questions its widening influence. Many companies are loath to discuss the issue.

Cummins, for example, declined to comment on the changes to its joint venture’s articles of incorporation that gave the party greater power. Cummins had not “experienced any challenges or impact due to the structure we have in place and the role of the Chinese Communist Party,” a spokesman said.

Cummins’s Chinese partner, Dongfeng Motor Group, has recently taken steps to intensify the party’s activities at its other joint ventures, according to an article last year from Xinhua, China’s official news agency. They include ventures with Peugeot Citroën, the French automaker; Honda, of Japan; and Dana, the American auto parts maker.

Dongfeng’s other partners, like Peugeot and Dana, did not respond to repeated requests for comment. A Honda spokesman declined to comment about its partnership with Dongfeng.

However, the Honda spokesman confirmed that the party claimed a more assertive role in another joint venture with a different Chinese company, GAC Group.

GAC, an automaker owned by Guangzhou Automobile Group, is pushing its joint ventures to change their articles of association to give the party a greater role, a spokeswoman said. In addition to Honda, it has joint ventures with Toyota and Mitsubishi, both of which declined to comment.

In November, at the most important Communist Party meeting, which takes place every five years, Mr. Xi called on officials to strengthen the party in “government, the military, society and schools, north, south, east and west.” The message was quick to reach party members lower down in the ranks.

Soon after Mr. Xi’s speech, party officials in the central province of Hunan issued a notice to members instructing them to write the party into legal documents for private and state-owned companies alike. The document was accidentally made public when a local state-owned newspaper published it, but it was quickly taken down.

Over the past year, the state-owned oil giant Sinopec has begun to ask its foreign joint venture partners to legally require “party-building work,” according to one executive with direct knowledge of the requests who was not authorized to speak publicly. Party building is an amorphous term that can mean general recruiting and educating but can also refer to more direct, specific activity. The foreign executive told Sinopec that putting the party in the joint venture’s legal documents would pose major problems for the head office overseas.

Sinopec did not respond to several requests for comment.

Dongfeng Motors, Cummins’s partner and one of China’s biggest carmakers, has long had strong Communist Party ties.

Instructors at Communist Party schools have used Dongfeng’s joint venture with Nissan as a model of how the party can be involved with business, according to the book “The Party” by Richard McGregor. When the partnership was negotiated, Dongfeng insisted that the new company give the chief party representative a senior management role, with a salary and compensation for expenses.

Today, Dongfeng’s Communist Party committees are working to expand their influence further. In other Dongfeng joint ventures, committees have tried to make the party more relevant for employees by holding social events.

In 2016, a group of employees from Dongfeng-Cummins traveled to the site of the Communist Party’s first base, according to Dongfeng’s website. On a rainy day, the group dressed in Red Army outfits, huddled together to hold a red flag with the hammer and sickle and smiled for the camera.


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