China’s ‘red capitalists’ rattled by Party clampdown

A consequence of China’s 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 in 2001, former President Jiang Zemin further raised the bar.

He called for qualified members of the social strata that had emerged during the reform period, including private entrepreneurs, to be admitted to the CCP.

In today’s China, the private sector contributes more than 50% of tax revenue and more than 60% of GDP every year. But the attitude of the Party-state towards private entrepreneurs remains ambiguous. 

The regime regularly praises them for their unique role in bringing prosperity to the nation. But at the same time, billionaires are regularly criticized and sometimes prosecuted and imprisoned.

High-profile figures in the tech industry have come under scrutiny like never before. Alibaba co-founder Jack Ma has kept an uncharacteristically low profile since 2020 when the government began a regulatory crackdown on his companies. 

Public stage

Many other individuals 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 government initiatives. 

The Chinese Communist Party encouraged its own bureaucrats to go into business.

Most analysts have argued that private entrepreneurs form a largely atomized group that is focused on their individual interests and unable or unwilling to engage in collective action. 

They are dependent on the 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 a variety of formal institutional arrangements.

They have been granted CCP membership and allowed to act as national or local-level legislators or in Party congresses.

At the same time, the CCP has deployed a variety of measures to expand its control over the private sector. One major innovation was the establishment of Party cells inside these enterprises. 

In the early 2010s, new agencies at the province level were created specifically to implement this. It also sent “Party-building instructors” to enterprises, adopting a business-friendly approach and providing host firms with meaningful services and tangible benefits.

CCP organizations within private firms are business-oriented and support production services and employees’ welfare rather than intervening in the day-to-day management and strategic planning.

The presence of the Party within firms, from boardrooms to factory floors, has relied on various blueprints found in the organization’s long history.

Wealth gap 

The increasing representation of the CCP’s interests is one of the tools that has been used by Chinese President Xi Jinping to make China more socialist.

It is at the core of his “common prosperity” policy or gongtong fuyu, by narrowing a yawning wealth gap that threatens the country’s economic ascent and the legitimacy of CCP rule. 

In 2021, Xi signaled a heightened commitment to delivering that goal, emphasizing that it is not just an economic objective but core to the Party’s governing foundation.

To make this a reality, he has explicitly encouraged high-income firms and individuals to contribute more to society via the so-called “third distribution” through 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 through the drafting of the charity law in 2016. 

Private entrepreneurs must align their mission statements with the state’s core social welfare goals – disaster relief, poverty alleviation, assisting disadvantaged people, and promoting education.

After Jiang proposed the “Three Represents” in 2001, the CCP and entrepreneurs entered a honeymoon period of more than 10 years. When Xi came to power in 2012, he began to strengthen oversight of private organizations. 

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.

Last year, this led to a dramatic reduction in stock market wealth.

Excessive incomes

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 a significant risk that the crackdown is killing innovation, creativity, and the entrepreneurial spirit of the private sector.

The cracks are already starting to show as 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.

At the same time, a collaboration between the Party and private entrepreneurs during the last decade appears less exceptional if we acknowledge that red capitalists are a creation of the Party itself.

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

This article is republished from East Asia Forum under a Creative Commons license. Read the original article here.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.