Last year, Chinese authorities requested “comprehensive Party building” in the private sector, including within foreign companies operating in China. Requiring private companies to set up Party branches or Party cells is not a new practice. Since early 2000, private enterprises with three Communist Party members had to establish a Party cell. A Party cell has managerial or governance function and is a way to co-opt the private sector. Recently, the government has begun a new push to set up Party cells in private companies and even in foreign firms and joint ventures, at a time when the political power in China has become more centralized than ever.
By 2016, the ratio of the nonstate enterprises that had Party cells had risen to almost 70 percent, a significant increase from just one year prior. Foreign companies in China feel the pinch as well, with an equivalent 70 percent of foreign companies hosting Party cells. Groups like the German Chambers of Industry and Commerce in China have warned their members of Communist Party attempts to strengthen its influence on wholly foreign-owned companies operating in China.
The impact of adding a Party cell goes far beyond an increase in the cost of doing business. It also impacts the corporate structure and management decisions as they grow more opaque with the blurring of lines between the state’s role and private ownership. In so doing, this policy threatens to reverse China’s four decades old reform agenda of opening up to private enterprise as an engine of growth.
