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. 

How a Trump or Clinton presidency could hurt China's economy

By Holly Ellyatt

Whether Democrat presidential candidate Hillary Clinton or her Republican rival, Donald Trump, wins the U.S. election next month, the next inhabitant of the White House's approach to China is likely to take a more realistic view towards the world's second largest economy, analysts believe.
"Relative to Barack Obama, both Donald Trump and Hillary Clinton have a more practical view on a wide range of China issues," analysts Kevin Lai and Olivia Xia from Daiwa Capital Markets said in a note Thursday.
"Clinton is considered a China hawk, especially on a range of issues outside of trade," the analysts noted. 

"On U.S.-China trade, she is also more confrontational than Obama but comparatively more moderate than Trump."
With just over a month to go till American voters go to the polls, the race to the White House is too close to call.
Trump has a large and loyal following and his populist views have chimed among disaffected U.S. voters but he is seen as a renegade. 

Clinton, meanwhile, has suffered from a lack of personal popularity although she is seen as far more experienced and as having "sounder" government policies.

Daiwa's analysts said that either way, the U.S. government's attitude towards China was going to change.
"The U.S. government under Obama and Bush has tried to make things work with China… (but) we believe debate over currency manipulation, loss of American jobs, intellectual property rights theft and an uneven playing field will continue to attract intense discussion inside and outside Washington. Whoever wins the election will come under greater pressure to address these issues more convincingly."

But Daiwa's analysts said that whoever becomes president, the U.S.' attitude towards superpower China -- arguably its biggest economic and political rival – is likely to change, especially if import tariffs are raised. 

They warned that this could be to China's economic detriment, potentially causing a decline in the country's gross domestic product of up to 1.75 percent.
"Even if Clinton wins, we do not think it will be just another status-quo extension (of the current trade policy towards China). From a scale of 1 to 10, Obama being 1 and Trump 10, we would rate Clinton, and her views on U.S.-China trade policy as a 4."
Trump has pledged to impose a 45 percent tariff on imports from China if he wins the election, a move that Daiwa said would be "profound," although the analysts noted that even Clinton was likely to be tough when it comes to trade issues with China.
"The impact of a 45 percent tariff, as suggested by Trump, would be profound. China would likely retaliate by levying similar tariffs on the U.S. But U.S. exports to China are about a quarter of the size of China's exports to the U.S., while the U.S. economy is almost twice as large as China's. The damage on the U.S. would be far less," they noted, adding that Clinton was unlikely to pursue such a policy.
"We cannot rule out the possibility of similar countervailing measures under a Clinton presidency. But a 30-45 percent tariff is highly unlikely and a watered-down version would be more realistic, in our view, if Clinton toughens her stance on China."
Daiwa noted that even if import tariffs were raised to 15 percent from the current rate of 4.2 percent, the impact on China's economy "would be significant."
"We expect exports from China to the U.S. to decline by 31 percent (and) China's gross domestic product (GDP) could see an initial 0.95 percent decline and a 1.75 percent loss over time," Lai and Xia noted.