Rogue Party

In China, the Party’s push for influence inside foreign firms stirs fears
By Michael Martina

BEIJING -- Late last month, executives from more than a dozen top European companies in China met in Beijing to discuss their concerns about the growing role of the ruling Communist Party in the local operations of foreign firms, according to three people with knowledge of the discussions.
Xi Jinping's efforts to strengthen the party's role throughout Chinese society have reached the China operations of foreign companies, and executives at some of those entities don't like the resulting demands they are facing.
The presence of party units has long been a fact of doing business in China, where party organizations exist in nearly 70 percent of some 1.86 million privately owned companies, the official China Daily reported last month.
Companies in China, including foreign firms, are required by law to establish a party organization, a rule that had long been regarded by many executives as more symbolic than anything to worry about.
One senior executive whose company was represented at the meeting told Reuters some companies were under "political pressure" to revise the terms of their joint ventures with state-owned partners to allow the party final say over business operations and investment decisions.
He said the company's joint venture partner was pushing to amend their agreement to include language mandating party personnel be "brought into the business management organization", that "party organization overhead expenses shall be included in the company budget", and that posts of board chairman and party secretary be held by the same person.

Changing joint venture agreement terms is the main concern, the executive said, noting that his company had thus far resisted.
"Once it is part of the governance, they have direct rights," he said.
The State Council Information Office (SCIO), which doubles as the party spokesman's office, told Reuters in a faxed statement that there is no interference by party organizations in the normal operating activity of joint venture or foreign-invested companies.
However, it added, "company party organizations generally carry out activities that revolve around operations management, can help companies promptly understand relevant national guiding principles and policies, coordinate all parties’ interests, resolve internal disputes, introduce and develop talent, guide the corporate culture, and build harmonious labor relations."
"They are 'widely' welcomed within companies," the SCIO said. 

Of the 13 executives, all from different foreign companies, Reuters interviewed for this story, 8 expressed concerns about increasing demands from the party or noted increased activity from party groups. 

They all spoke on the condition that they and their companies not be identified given the sensitivity of discussing relations with the party.
Just two of 20 major multinationals queried by Reuters -- Samsung Electronics Co Ltd and Nokia -- confirmed having party units in their China operations. 

Most did not respond to questions on the subject. 

Only German chemicals giant Bayer AG acknowledged participating in the meeting organized by the European Union Chamber of Commerce in China, but declined to comment on what was discussed.
Carl Hayward, general manager and director of communications at the European Chamber's Beijing chapter, acknowledged the meeting was held to "understand from our members if party structures are being formally introduced into the governance of joint ventures."
"We have not noted any formal change of policy that reflects this. This is as we would expect since such a change would act as a deterrent to foreign investment in China," he said.

"REAL MUSCLE"
Under Xi, the party has sought to address the "weakening, watering down, hollowing out and marginalisation" of party leadership at state enterprises, the party's official People's Daily wrote in June. 

The paper cited an official with state-owned oil giant Sinopec as saying the company had demanded all its foreign joint venture partners "specify the requirement for party-building work" in their articles of association.
While plans to expand party organizations in foreign companies have been a quiet concern for several decades, only under Xi has "some real muscle" been put behind the goal, said Jude Blanchette, who studies the party at The Conference Board's China Center for Economics and Business in Beijing.
A significant number of major foreign companies operate in China through joint ventures with state enterprises. 

Foreign business groups have complained that their members are forced to allow Chinese partners access to their technology or risk losing market access.
Many Chinese state enterprises listed on the Hong Kong stock exchange have this year altered their articles of association to give an explicit role to internal party committees.
One country head at a major European manufacturer with a southern China joint venture said that late last year it allowed a party unit to meet on company premises – after hours. 

The party unit asked for overtime pay to hold the meeting, which the company rebuffed. 

But then it also demanded the company hire more party members, and even tried to weigh in on investment decisions.
"That's when we said this is a no-go zone. We didn't anticipate that they would discuss investment decisions," the manager told Reuters.
A sales and marketing head in China for a major U.S. consumer goods firm said its party cell had recently become more active, and had pushed for locating a new facility in a district where the local government was promoting investment, a move the company made.
Still, several executives with foreign companies in China said that the role of party units was benign and could help to resolve issues with officials. 

Rogue Nation

China tech plan threat to foreign firms
By JOE MCDONALD

China is violating its free-trade pledges by pressing foreign makers of electric cars and other goods to share technology under an industry development plan that is likely to shrink access to its markets, a business group said Tuesday.
The report by the European Union Chamber of Commerce adds to mounting complaints Beijing improperly shields its fledgling developers of robotics, software and other technology from competition.
Technology is a growing flashpoint in trade tensions with Washington and Europe, which worry their competitive edge is eroding as Beijing buys or develops skills in semiconductors, renewable energy and other fields.
European companies express frustration Chinese enterprises have been permitted to acquire technology leaders such as German robot maker Kuka while most of China's assets are off-limits to foreign buyers. 

In December, Germany blocked the Chinese purchase of a chipmaker, Aixtron, after Washington objected on security grounds.
The European chamber warned tactics Beijing is using to carry out its "China Manufacturing 2025" initiative might inflame sentiments in Europe and the United States in favor of trade controls.
The plan calls for China to be able to supply its own high-tech components by 2020 and materials by 2025 in 10 industries from information technology and aerospace to pharmaceuticals. 

A broad outline was issued in 2015 and officials have been gradually releasing details.
Suppliers of electric cars and other goods are under pressure to hand over technology in violation of Beijing's World Trade Organization commitments, the European chamber said. 

It said that also contradicts the ruling Communist Party's repeated promises of equal treatment and to give market forces a bigger role in the state-dominated economy.
That strategy "is in fact a large-scale import substitution plan aimed at nationalizing key industries, or at least severely curtailing the position of foreign business in them," the chamber said.
In a possible response to such criticism, China's top economic official, Li Keqiang, promised in a speech Sunday foreign companies would receive "equal treatment" under the manufacturing plan. 

He gave no details.
Foreign suppliers of technology from X-ray scanners to wind turbines to bank security software complain they face growing official obstacles to making sales in China. 

Those range from controls based on national security concerns foreign suppliers say might be exaggerated to procurement rules that encourage hospitals and other customers to favor Chinese suppliers.
Beijing has clashed repeatedly with Washington and Europe since the 1990s over its efforts to induce foreign companies to hand over encryption and other technology.
In November, Chinese legislators approved a cybersecurity law business groups warned would hamper access to technology markets. 

They said a provision requiring security technology to be "secure and controllable" might require providers to disclose how products work, raising the risk trade secrets might be leaked.
In electric cars, where Beijing sees major opportunities, the manufacturing plan says two of the top 10 global brands by 2025 should be Chinese, the European chamber said. 

It said that rules out joint ventures created by foreign companies with Chinese partners.
The chamber appealed to Chinese leaders to discard quotas and other controls and focus instead on encouraging basic research and improving their manufacturing base.
"Perfecting the market would do far more to ensure that China reaches its full potential for economic development and innovation than more old-school, expensive industrial planning ever could," the chamber said.