November 27, 2022
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In Xi’s China, the Business of Business Is State-Controlled

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During his first decade as China’s leader, Xi Jinping regularly promoted the importance of opening up the economy even as he pushed the country sharply in the opposite direction. But as he laid out his ambitions at an important political meeting, he barely paid lip service to the notion.

Mr. Xi, who is expected to secure a groundbreaking third term when the Communist Party congress concludes this week, made just three references to markets in his nearly two-hour speech on Sunday and omitted more than a dozen others from a longer, written version. He instead focused on issues of national security and corruption, extolled state projects in spaceflight and supercomputers, and pledged to create a larger role for socialism and the public sector.

When he did talk about markets, the message was established rhetoric. He lauded “socialist market economic reform,” while also arguing that China’s economy should “give full play to the decisive role of the market in resource allocation.”

Under Mr. Xi’s leadership, China is returning to its roots: a state-controlled economy that demands businesses conform to the aims of the Chinese Communist Party.

Mr. Xi’s approach appeared to be reinforced on Monday when China said it would indefinitely delay the release of the latest report on gross domestic product, a move likely to exacerbate unease among Western analysts and others about the direction of the world’s second-largest economy. The data, which had been due out Tuesday, was expected to show that China’s growth was lagging the government’s target for the year, a potentially sensitive point during the important political meeting.

Many of Mr. Xi’s hallmark policies, favoring state prerogatives over pro-business, free-market changes, have had an arresting influence on the economy. Restrictive Covid policies have shaken the confidence of consumers and businesses. The housing market, a source of jobs and household wealth, is in crisis, and youth unemployment is at a record 20 percent after China cracked down on fast-growing industries under the auspices of more responsible development.

The shift in the business climate has been stark. Internet companies, once idolized as champions for China on the world stage, are now fenced in by government agencies. Billionaire tycoons, including Jack Ma, the founder of Alibaba, have been driven underground or imprisoned after criticizing the government.

Jörg Wuttke, president of the European Union Chamber of Commerce in China, said the Chinese economy was now more inward-looking, less accessible and deeply ingrained with Mr. Xi’s “ideological touch.”

“It’s not the China that I grew accustomed to for the last 30 years,” said Mr. Wuttke, who has lived in the country since 1993.

Three decades ago, China’s leader at the time, Deng Xiaoping, captured the nation’s attention with a tour of southeastern coastal cities to rally support for economic reforms. A wave of young people, inspired by Mr. Deng’s commitment to open China to the rest of the world, flooded into major cities to pursue business opportunities.

In 1994, Wen Kaifu quit his job as a middle 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 display manufacturer. Returning in 2004, he started his own company, Holitech Technology, to make liquid crystal displays, the screens used in billions of smartphones.

As Xiaomi and other Chinese handset manufacturers blossomed, so did Holitech. In 2014, the company went public, and Mr. Wen became one of China’s wealthiest people, with a net worth of $4.1 billion. That same year, China minted over 70 new billionaires.

Like many Chinese companies that followed the government’s directive to “go global,” Holitech grew bolder in its expansion plans. After its public offering, it acquired seven Chinese component makers. Holitech built facilities in California and Europe, and it pledged to open a factory in India, promising to deliver 6,000 jobs.

“We’re not aiming to be No. 1 in the region or No. 1 in China,” Mr. Wen said at an awards ceremony in 2017. “We’re gunning for No. 1 in the world.”

Then Mr. Xi’s priorities shifted. In 2018, Beijing initiated a nationwide push to curb excessive borrowing by private companies. Holitech had $1 billion in loans and few options for refinancing. The company’s share price plunged, along with Mr. Wen’s wealth. China’s securities watchdog investigated him for failing to pay his debts.


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State-owned enterprises — called “an important pillar and strength for our party” by Mr. Xi — were largely insulated from the debt crackdown.

Fujian Electronics and Information Group, a state-owned holding company of electronic component makers, stepped in to rescue Holitech. It paid roughly $450 million for 15 percent of Holitech and a controlling voting stake in 2018.

“The logic of having strong state ownership has been around for a while, but it’s sped up under Xi,” said Chris Marquis, a business professor at Cambridge University and an author of “Mao and Markets: The Communist Roots of Chinese Enterprise.”

From 2019 to 2021, state-owned enterprises acquired more than 110 publicly traded Chinese companies, valued at more than $83 billion, according to PwC. Such acquisitions were rare before Mr. Xi took over in 2012; by then, state-owned enterprises’ share of the economy had been declining.

After the Fujian investment, Holitech became an example of what Mr. Xi envisioned in a 2020 speech to “unify members of the private sector around the party.”

Holitech was enlisted in China’s nationwide mask production blitz. The company’s newly emboldened party committee led activities on party building and lessons on party history where employees experienced “a baptism of patriotic education.” In accordance with Mr. Xi’s plans to revitalize rural areas, Holitech, with the help of Fujian Electronics, invested over $1 billion in a new industrial park this summer.

When Mr. Wen officially stepped back from the company last year, he was replaced by Huang Aiwu, a member of Fujian Electronics’s party committee.

Holitech and Fujian Electronics did not respond to a request for comment.

In his prepared remarks on Sunday, Mr. Xi emphasized the importance of ensuring that “state-owned capital and enterprises get stronger, do better and grow bigger.” He also declared — in standard Communist Party doublespeak — the importance of “high-level opening to the outside world.”

But for foreign firms, China’s preferences are now clear: In the scramble for access to the Chinese market, state-owned enterprises get priority.

In 2018, American Express received approval to become the first foreign credit card firm to operate a payments network in China as part of a joint venture with LianLian Digitech, a Chinese financial payments firm. The approval came six years after the W.T.O. ruled that Beijing supported an “illicit monopoly” for state-owned China Union Pay, which controlled more than 90 percent of China’s debit and credit card spending.

From the outset, American Express ran up against Mr. Xi’s agenda. Initially, American Express had proposed teaming up with Tencent, a target in Beijing’s crackdown on powerful technology companies, but the country’s central bank encouraged a marriage with the much smaller LianLian, according to two people with knowledge of the talks, who spoke on the condition of anonymity given the political sensitivities.

American Express acquiesced. When the joint venture started operating in June 2020, Stephen J. Squeri, American Express’s chief executive, hailed it as “an important step forward in our long-term growth strategy” and a “historic moment.”

Fritz Quinn, a spokesman for American Express, said the company considered LianLian “the best partner” because the companies had “a long and productive history of working together.” He added that it was “proud of the progress” that the venture was making.

Immediately, the venture, Express Hangzhou Technology, struggled to work with state-owned financial firms. It relied on state-owned banks to issue new cards, but some institutions were limiting American Express cards in order to not upset 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 arrangement to accept each other’s cards on their respective networks, the people said. Mr. Quinn at American Express said this was “not true” but did not elaborate.

The blurring lines between politics and business have forced some foreign firms into a difficult decision on whether to play by China’s rules.

Internet companies operating in China must adhere to increasingly stringent rules about proactively censoring content. Overseas technology companies with Chinese customers must house user data in China. And any criticism of China’s policies toward Taiwan or Hong Kong or its human rights record is met with a sharp rebuke and online mobs.

It has forced companies into a choice: Separate their global businesses into two parts or scale down their Chinese operations significantly.

Stellantis originally wanted to increase its stake in a joint venture to produce Jeeps with state-owned Guangzhou Automobile Group. But the Dutch company said Chinese officials had not approved the plan, which would have meant fewer jobs for Chinese workers. In July, Stellantis decided to dissolve the partnership.

Carlos Tavares, Stellantis’s chief executive, said that the Chinese automaker had breached its trust and that “political pressure” was affecting his former partner’s decision-making.

“There is growing political interference in the way we do business as a Western company in China,” he told the Financial Times. “The political agenda has been increasing by the day.”

Christopher Buckley contributed reporting. Li You contributed research.



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