Xi JinPing ©Chuck Hagel/ Public domain/ Pixabay
Since the transition to a socialist market-state economy in 1992, after the 14th National Congress of the Chinese Communist Party, Chinese private business has become an essential for economic growth. The transformation of the market was a turning point, as it made the economic culture of the country transition from a State-Owned Enterprises oriented environment to a new opportunity for private initiatives. This reform aimed to stimulate the national economy by opening the country and allowing the population to easily develop their own businesses. In fact, private businesses represent 84% of corporate legal entities in China (Zhao, 2020) of which 135 companies were listed in Global 500 (Fortune, 2022). In order to understand the reason behind Chinese private business massive success, it’s necessary to individually analyze the economic, political, social, and legal environment. The following article focuses on the political factor, more specifically on the leadership style of the Chinese Communist Party since Xi Jinping came to power, as well as the strategies to improve Chinese private business performance.
Restructuring the CCP under Xi Jinping
Historically, since Deng Xiaoping, every president of the Chinese Communist Party has tried to follow the national motto of “stability for economic growth”. This leadership and policymaking philosophy relies on social stability as the top principle to achieve economic growth (He, 2020). In other words, Chinese Presidents have always tried to ensure that the CCP is a robust and balanced political body that rules the country through macro-socialist policies and keeps social unrest under control. Whenever political powers are confronted by society in periods of revolts, the country usually suffers from either inner or outer wars that devastate the foundations of its socio-political system. To avoid conflict, stability as a top principle settles the ground to build and develop a prosperous economic system.
Then, in order to achieve economic growth, the CCP needs to succeed in designing and implementing economic reforms depending on their ambitions. It’s essential to highlight the fact that the relation between stability and economic growth is interdependent, it’s said wrong economic decision-making can lead to instability and vice versa. This interdependency has its origin in “the symptom of high-growth reliance”, which affirms that as long as the economy works, other kinds of conflicts would not appear. In policymaking, the stability-economic growth symbiosis is related to a concept known as Balance in Economic Reform (He, 2020). In simple terms, the constant dilemma of either prioritizing short-term growth to achieve a rapid but volatile boost of the economy and maintaining social stability or long-term growth to achieve a slow but solid boost of the economy and possibly risk social stability. This dichotomy is always present whenever the CCP tries to design the economic measures of every new Five-Year Plan.
Risk in policymaking is not well-received in Chinese society, as it shows an individual and selfish perspective of the country that can jeopardize the legitimacy of the CCP. Of course, perfect economic reforms that have zero risk and no negative impact in the country are a utopia, as every action always has different reactions that the CCP cannot control. However, in order to reduce risk and improve the chance of success in designing and implementing an economic reform, Xi Jinping decided to look at the actual structure of the CCP rather than policies themselves (He, 2020). The Chinese private sector needed to be stabilized to keep on contributing to economic growth in the long term. In consequence, Xi Jinping felt the duty of implementing a solid political reform that aligns Chinese businesses with the CCP macroeconomic interests.
New CCP Structure
In a nutshell, the Chinese Communist Party has always been led by the President in combination with the State Council, the Politburo Standing Committee and Central Leading Groups (Albert, Maizland, & Xu, 2021). However, as the last group has always held an advisory role, it’s said their recommendations are valuable and usually followed, but not compulsory, decision-making process relies on the State Council and the Politburo Standing Committee. This structure has not been modified until 2018, after the Chinese Communist Party Constitutional Reform. Xi Jinping identified a power concentration gap that has been harming the culture of the party at both national and local levels (corruption, low transparency, clientelism, etc.), as well as public-private relations.
Table 1. List of Commission Xi Jinping Heads (He, 2020).
When Xi Jinping arrived to power, expressed through the 12th Five-Year Plan that he wanted to keep and improve the socialist market economic reform while ensuring and perpetuating economic growth, even if this was not as high as previous years (APCO, 2010). The structure of the CCP by that moment was not practical enough for him to exert an effective control of both design and policy implementation. In consequence, he decided to turn Central Leading Groups into Commissions (Table 1). This substantial transformation made former Central Leading Groups be part of the state bureaucracy. Among the 9 new Commissions, the two most relevant from an economic perspective are the Central Comprehensively Deepening Reforms Commission (CDRC) and the Central Financial and Economic Affairs Commission (CFEAC). All of them are presided by Xi Jinping and the CFEAC is chaired by Liu He, one of the most capable and loyal Xi’s economic advisors. However, as the aim of Xi’s economic mandate was to successfully implement an economic reform to give the private business a specific role in the market, the CDRC is particularly relevant due to its composition. This Commission is a heterogeneous group of high leaders from different fields (military, foreign affairs, culture…), levels (national, provincial, local…) and organizations (Gore, 2021). Institutionally speaking, these new Commissions are intended to create a horizontal and coordinating dynamic within the Chinese Communist Party to increase their effectiveness. In addition, as Xi observed that decision-making was not well-distributed, he managed to reshuffle the state bureaucracy in a way that didn’t disturb population and party members (He, 2020).
It’s an exchange of power, rather than an erosion of power. Xi didn’t reduce or eliminate any function carried out by the State of Council or the Politburo Standing Committee. He actually turned existing party agencies, focused on very specific issues, into a body that could officially design, in this case, economic policies under the President and its closest advisor surveillance. This holistic approach and innovative reform helped the CCP identify private business needs, challenges and opportunities to quickly develop appropriate policies. For instance, the CFEAC plays a major role regarding the private sector, as it’s just focused on economic affairs (He, 2020). CCP high officials who work there are experiencing a new working and organizational culture. They have an advisory role to the State Council or the Politburo Standing Committee, but the capability of designing economic policies that would be successfully implemented.
New Leader, New Leadership
The political system usually determines the power of its leader. Often, presidents or prime ministers within presidential systems have a higher influence on national politics than those who share the mandate with a monarch. Regarding China's one-party political system, the General Secretary of the CCP, in this case Xi Jinping, holds more power due to the capability of reshaping the structure, as it has been previously referred to. In 2018, as part of the CCP Constitutional Reform, he abolished presidential term limits in order to position himself as a long-term leader who will try to make China a moderately prosperous society, considerably reducing inequality in 2021, for then transitioning to a modern socialist democratic and harmonic system by 2049 (Li, 2015). As a strong and CCP rooted leader, he wanted to achieve full control by improving party discipline.
In 2012, Xi Jinping announced the 8 Point Regulation (Xinhua, 2017) which aimed to bring the party closer to the people, make it more efficient and let him be aware of high CCP official’s performance. Nevertheless, Xi didn’t want to cause any kind of opposition movement within the party against him. Instead of aggressively monitoring the work, he based the new commissions on heterogeneous groups with key leaders (yibaoshu) to make everyone aware of the people placed in other branches of the party (He, 2020). Moreover, Xi established again a new cooperation strategy of sharing offices, so everybody would know the tasks of other CCP members. The main goal was indirect transparency to avoid secret information and corruption. As a new leader, he promoted a humble and honest leadership through cooperation, trust and hard-work. Xi managed to put himself at the front of every decisive office and harmonize the same philosophy of work in the CCP. In fact, having the CCP on track for the upcoming years and ready to efficiently work on behalf of China’s economic growth, was the only strategy for then bringing those ideals to the private sector. Xi wanted to have the private sector under control to improve its performance and better understand its dynamics. Therefore, he definitely needed to convince the members of the new CCP structure to work as a unit and teach this leadership style to private business owners.
The CCP and the Private Sector
Sometimes, it could be difficult to grasp the positive influence of the CCP's new structure and leadership on the private sector because it’s not a direct and quantifiable financial investment, but an economic reform that helps Chinese private businesses easily develop their activities. In order to align private business practices with CCP values, Xi Jinping put into practice a “Grand Party-Building Strategy” (Yan & Huang, 2017). Historically, the private sector has been a threat because China was originally and fully based on State-Owned Enterprises directly controlled by the CCP. In 1992, after the appearance of new private business due to the SOE’s reform, Jiang Zemin identified a high degree of freedom among the upcoming private sector. This scenario was perceived as a risk because it could provoke the private sector to play a counterproductive role for the Chinese economy, such as creating an unbalanced situation towards SOE’s. In consequence, as an initial effort to begin linking the private sector and political forces, the Central Organization Department of the Communist Party (2000) published the “Opinions on Strengthening Party Work in Individual Household Business and Private Enterprises”. However, as private business owners were not allowed to get into the CCP due to its capitalist perception, during the 16th National Congress, Jiang Zemin announced the “Three Represents”. This was a document in which private business owners were identified as advanced productive forces, and, in consequence, allowed to join the CCP, again, in an effort to bring the private sector under the CCP umbrella (Zemin, 2009). Finally, in March 2012, Xi Jinping reinforced this linkage when he announced “Opinion on Strengthening and Improving Party Building in Non-State Enterprises” to address the private sector as a whole. This document allowed private business with party members on their executive board to join a CCP branch, and brought CCP organizations to those without any members.
The “Grand Party Building Strategy” represents the idea of creating an organic and efficient link between the private sector and the CCP (Yan & Huang, 2017). In the past, the lack of transparency and focus of party-building strategy to boost the private sector caused high levels of corruption and clientelism between CCP members and private business owners (Yan & Huang, 2017). Basically, private business owners offered money or business participation in exchange for privileged information to help improve their company. Xi Jinping noticed this kind of activity when he arrived to power and decided to embed the CCP in Chinese private business through prestigious political meetings and service-oriented party organizations. The aim of such strategies was to first link private business owners with high CCP officials to make them more prestigious and boost their guanxi (Yan & Huang, 2017). Then, Xi Jinping also wanted private business to think as a CCP Economic Officials. In consequence, he decided to invest in providing business owners with organizations that help them take useful strategic decisions on sustainable development, protect their workers rights and give welfare assistance.
Xi Jinping came to power when economic growth in China was entering a slowdown period. During his mandate and following Deng Xiaoping’s path, the current president identified the private sector as an essential element to achieve a successful socialist market economic reform. Xi and its closest advisors developed a strategy that would first reshuffle the CCP structure in order to be able to influence the Chinese private sector. In 2018, he came up with a Constitutional Reform that turned Central Leading Groups into Commissions to distribute decision-making and make institutions more efficient. This CCP reorganization process allowed him to have every CCP Commission under control, as well as implement a new working culture of cooperation and transparency. Thanks to this strategy, he managed to establish a top-bottom leadership in which he empowers heterogeneous groups of people from different fields and levels of the hierarchy to develop the private economic sector. Once Xi proved the new CCP organization worked, he felt ready to send CCP Organizations as Service-Oriented groups to help business owners make their companies more sustainable and improve their impact on the market.
It’s necessary to understand this was a step-by-step reform in which Xi Jinping needed to overcome latent challenges within the CCP, such as improving the efficiency of the party to align CCP goals with private business objectives. This structural reform is intended to meet the needs of the private sector and understand the new dynamics of Chinese business and society. In this case, we have seen how Xi Jinping understood that the political environment was an essential factor for private business to contribute to slow but solid economic growth in China. As Mao Tse-Tung (1994) wrote in his book “A Single Spark Can Start a Prairie Fire”: When we look at a thing, we must examine its essence and treat its appearance merely as an usher at the threshold, and once we cross the threshold, we must grasp the essence of the thing; this is the only reliable and scientific method of analysis. This is what Xi and his closest advisors did, they examined the essence of the political environment and treated the appearance of the market as an opportunity to align CCP values with private business strategic decision-making in order to reach a balance between stability and economic grow.
Gustavo Álvarez is a graduate in International Relations and Global Communication. He's committed to narrowing the sociopolitical gap between the West and China by fostering mutual understanding. He loves music and having good conversations. Currently, he belongs to the Partnerships Team of European Guanxi. You can find him on LinkedIn.
The opinions expressed here are those of the writers and do not represent the views of European Guanxi.
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