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

by Richard McGregor

The smartest companies have become adept at having it both ways. The largest, and founding, shareholder of Lenovo, the computer firm which bought IBM’s PC business, is a state science think-tank, but the company is registered and listed overseas and largely privately managed. For a while, it was headquartered in the US. Yang Yuanqing, the head of the company, still squirms when his Communist Party membership is raised. ‘Let’s not talk politics, OK?’ he replied when asked after the IBM deal in late 2004 how he reconciled party membership with his business commitments.

Huawei, the telecommunications equipment manufacturer and perhaps China’s most globally successful company, is careful to say it is a collective rather than a private company, a definitional distinction that has been essential to the company’s receipt of state support at crucial points in its development. In 1996, Zhu Rongji, then vice-premier, visited Huawei with the heads of four large state banks in tow. On hearing the company needed funds to compete with foreign firms in the domestic telco equipment market, Zhu ordered the banks on the spot to support the company. ‘Buyer’s credit [for local customers] should be provided!’ Zhu declared.

The same murky structure characterizes Ping’an, the Shenzhen-based insurance company. Ping’an, one of China’s largest financial institutions, is classified as a private company, but the true ownership of large chunks of its shares remains unclear.

In late 2008, Wang summed up the rules he had learnt for doing business as an entrepreneur in China. From the moment he established his private business, he said, he had been careful to take on a government shareholder, to give his company a ‘red hat’. ‘You take too much, the state is unhappy, and you take too little, you get upset with yourself,’ he said. When this first state shareholder was replaced a few years later, he made sure his new partner was state-owned as well. The first rule, he said, was that you will not develop quickly without a ‘red hat’, or a state partner. And second, you had better be careful about making it big without one. He had no need to articulate the third rule, which he had learnt in the wake of 1989: to stay out of politics altogether.

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.

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.

‘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.

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.

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.

The Party makes sure the great famine is officially referred to as a ‘difficult period lasting three years’, as though politics had nothing to do with it. (In the eighties and earlier, the official term was the ‘three years of natural disaster’.) It admits that the Cultural Revolution, which followed soon after, in 1966, and lasted for ten years, contained disastrous mistakes, but then twists the debate to its advantage by asserting that the Party is the only organ that can prevent such instability in the future.

The Party treats history as an issue of political management, in which the preservation of the Party’s prestige and power is paramount.

You either support the decision wholeheartedly, or you are out. The Party’s verdict then, in theory, becomes the collective opinion of the entire country and its 1.3 billion people. Chinese who wish to agitate publicly for an alternative view do so at their own risk.

One of the propaganda department’s greatest recent battles in the history wars–how to manage the cataclysmic collapse of communism in the Soviet Union and eastern Europe in the late eighties and early nineties–is still being fought out today. As late as 2006, an eight-episode DVD series about the lessons from the Soviet Union’s demise, classified as ‘secret’, was distributed to central, provincial and city-level party bodies as compulsory viewing.

Rewriting the Party’s verdicts on history involves the same kind of mortal dangers to the system as allowing independent bodies to investigate corruption. Once you start, where do you stop? Or, more to the point, how do you stop? The Party wants to control not just the government and society of China. For sound political reasons, it needs to manage the narrative of China as well, because if this narrative unravelled, it could devour them all.

When interviewees start opening up and criticizing the Party, the journalist in you is thrilled. As an individual, however, there is a simultaneous creeping sense of fear, about what trouble interviewees might fall into afterwards.

‘The whole project [of modern China] is based on a series of lies, not just about Mao, but the collective leadership he has come to represent. It has profound ramifications–it means that China can’t grow up. It is a society that has forbidden itself from being able to grapple not only with the legacy of Mao, but with civil change.’

In the Party, telling the bald truth about history is about the most radical thing you can do. Yu argues that Mao’s brutality has poisoned not just China’s political culture but everyday language.

Yang was more proud of his dispatches for Xinhua’s secret internal news service, written exclusively for senior party officials.

An official once told me: ‘People need to fear the government in China, otherwise the country will fall apart.’ The

The last time I had spoken with Yang Jisheng about Tombstone, he had summed up China and the Party’s progress with words that stuck in my head. ‘The system is decaying and the system is evolving,’ he said. ‘It is decaying while it is evolving. It is not clear which side might come out on top in the end.’

It has always been easy to construct scenarios under which the Party loses power. A financial crisis was a favoured one for years. As it turned out, the great financial crisis of the early twenty-first century came to symbolize the eclipse of the west, and China’s rise, rather than the other way round.

Then there is corruption. Certainly, China is deeply corrupt, but corrupt regimes can last a long time. The Chinese officials who do get arrested for graft generally fall into two categories, or sometimes both. They are the losers in political power struggles, or their corruption has become so outrageous that it embarrasses the system, and thereby jeopardizes the game for everyone else. Corruption in China seems to operate more like a transaction tax that distributes ill-gotten gains among the ruling class. In that respect, it becomes the glue that keeps the system together.

For all the hullabaloo surrounding the perennial anti-graft campaigns, the risk of going to jail remains small even for officials caught with their hands in the till. Since 1982, about 80 per cent of the 130,000 to 190,000 officials disciplined annually for malfeasance by the Party received only a warning. Only 6 per cent were criminally prosecuted, and of them, only 3 per cent went to jail. ‘The odds of an average corrupt official going to jail are therefore at most 3 in 100,’ said Minxin Pei, of the Carnegie Endowment for International Peace, who calculated these figures, ‘making corruption a high-return, low-risk activity.’

The Leninist bureaucracy survives, but the Party has added a touch of McKinsey to ensure it performs.

Otherwise worldly and intelligent officials and friendly citizens become red with rage when topics such as Tibet and the Dalai Lama, Japan’s wartime record, the Xinjiang riots and Taiwan enter the conversation. In democracies like the USA, debates evolve and governments change. In all my time in China, it was very difficult to have even a civil exchange of views on these topics with anyone in an official position. Differences of opinion on issues such as Tibet and the anti-Japanese war can be transformed in a flash into deep slights against the nation. In the words of Joseph Fewsmith, the US Sinologist, speaking about a different issue: ‘If one part of “civil society” is civility, China has not yet reached it.’

Entrepreneurship and the State, Cambridge University Press, 2008.

From a paper by Steven N. S. Cheung, ‘The Economic System of China’, delivered at ‘Forum on Thirty Years of Marketization’, 30–31 August 2008, in Beijing. Thanks to John Fitzgerald for this, who should also get the credit for the phrase about each company being a jurisdiction and vice versa.