FEER Issue of March 8, 2001 CHINA Both Party Man And Businessman The Chinese Communist Party is debating whether to drop its ban on private-enterprise owners being allowed to join its ranks. Hardliners worry the party would lose the ideological basis for its rule. Yet some pioneers are already mixing party and company business By Susan V. Lawrence/BEIJING Issue cover-dated March 8, 2001 PEOPLE LIKE Hu Gang aren't meant to exist in China. Hu, an engaging 43-year-old software engineer, is CEO and chairman of the board of the privately owned Xin Dalu Jituan, or Newland Group, based in Fujian province. It has more than 1 billion renminbi ($120 million) in assets, of which Hu owns 40%. But what makes him particularly noteworthy at this moment in China's long and winding transition toward a market-based economy is that Hu is also a Communist Party member and head of his company's party branch, which he set up when he founded the hi-tech firm in 1994. Hu sees no contradiction in being a head of a private enterprise and a party-branch leader. His relationship to the party, like that of most private-enterprise heads, is pragmatic and ad hoc. But plenty of people in the party find the dual position of people like Hu disturbing. Party doctrine holds that the heads of private companies are, by definition, "exploiters," and that their employees, no matter how well paid, are being exploited. With the party still styling itself as the "vanguard of the working class," party rules formulated in 1989 specifically bar private-enterprise bosses from joining the party. For those already in the party, there are strict demands, including "voluntary acceptance of supervision from party organizations," and agreeing to put the "vast majority" of after-tax profits into a fund for further developing the business and for public welfare. Violators are not allowed to stay in the party. Hu sees no need to apologize for being either a party member or head of his party branch. "If the party is to grow strong and more advanced, and not slide backwards," he says, "it needs to mobilize the best talent to join this organization." He counts himself in that category. "Whether this organization has strength," he says, "depends not on whether it is in power, but on whether it has the best people, and whether it can earn the support of the people." While socialism may demand the ultimate abolition of private enterprise, Hu says confidently that China is committed to something else: socialism with Chinese characteristics. That, Hu says, means "whatever is good for the development of society and for raising people's standard of living." He argues that "the point of 'Chinese characteristics' is not to set in stone what China has to become in order to be socialist." The awkward reality that people like Hu do exist--driven home to Party General Secretary Jiang Zemin on a tour last year of the booming southern coastal province of Guangdong--is now forcing the party to re-examine its policies. Conservatives are leaping into the debate to argue forcefully for upholding the ban on private-enterprise heads joining the party. Recent issues of unofficial Marxist journals such as Zhenli de Zhuiqiu, or The Search For Truth, which describes its mission as "critiquing bourgeois liberal thought and anti-Marxist thought," are filled with articles justifying why the ban should be upheld. In contrast, liberals, including prominent thinkers at China's Central Party School, have used more elliptical language to suggest that the party should consider relaxing the ban. At the core of the debate is the question of what the party's relationship with private business should be. Some analysts argue that the issue is as significant as China's 1999 decision to make sweeping market-access concessions in order to join the World Trade Organization. Although China's WTO membership is still pending, those concessions clearly signalled Beijing's embrace of the notion of integration with the global economy. A POWERFUL SIGNAL A decision to allow private-enterprise heads to join could send a similarly powerful signal that the Communist Party has come to terms with private business, and would almost certainly spur the sector's development. It would also, however, involve jettisoning much of the ideological basis for party rule and would perhaps, as hardliners fear, ultimately threaten its very hold on power. Hong Kong-based Goldman Sachs Managing Director Fred Hu sees the party's decision to revisit the issue of the ban as part of "a paradigm shift in official thinking toward the role of the private sector" in the past two years, highlighted most dramatically by Jiang unveiling his "Three Represents" theory in February last year. As it repositions itself for the future, the party, Jiang declared, should first represent "the development needs of the most advanced forces of production." Although just what Jiang meant by that is hotly contested, Fred Hu believes it was Jiang's way of seeking to make the party's vision of itself "compatible with market reform, private ownership, integration with the global economy" through WTO membership, and the introduction of the latest technology.The party, Fred Hu asserts, is working hard "to adapt itself to the new social and economic reality in China, which is an economy increasingly dominated by the private sector, with a lot of active entrepreneurs. The party is trying to embrace this emerging entrepreneur class." The private sector has grown in fits and starts since Deng Xiaoping began to move China away from a planned economy in 1979. The party's policy toward private business for many years was, "don't publicize, don't encourage, don't ban," Wang Zhiguo, vice-chairman of the semi-official All-China Federation of Industry and Commerce, told reporters in late February. "The most important part was the last bit--don't ban," Wang said. "It's why we have today's new world for private enterprises." Indeed, in parts of the country, particularly on the thriving east coast, the private economy now threatens the dominance of the state-owned economy. For example, Zhejiang province's party secretary has reported that in 1998 private businesses there accounted for 45% of industrial output. Yet the party's ever-evolving attitude toward the owners of such private businesses has remained contradictory. In an article last year in the journal Party Building Studies, Zhejiang Party Secretary Zhang Dejiang observed that private businesses "are beneficial to developing the social forces of production and raising people's living standards." The party, he noted, had rightly moved to a policy of "protecting the legal rights of private businesses," and "encouraging and supporting" their development. BLURRING THE PARTY'S NATURE Zhang, however, went on to argue strongly against allowing private-enterprise owners to join the party. Using Marxist terminology, he held that they "privately control the means of production" and employ workers. Allowing them into the party would "blur the party's nature," and alienate the party's base among the workers and farmers. He cautioned that it could also result in private-enterprise owners "using their economic power to manipulate grassroots elections and control grassroots organizations," with "serious political consequences." The language of the party ban, written after the Tiananmen Square bloodshed of 1989, is even blunter. "Between private-enterprise owners and workers there in fact exists the relationship between an exploiter and the exploited. Private-enterprise owners cannot be absorbed into the party," says Communist Party Central Committee Document No. 9, issued on August 28, 1989. Then-newly appointed party chief Jiang set the tone for that edict at a meeting a week earlier at which he mused: "Our party is the vanguard of the working class. If we let people who aren't willing to give up exploitation, and who depend on exploitation for their livelihood, to join the party, what kind of a party would we be building?" The party does not make public how many private-enterprise heads are also party members. Many, like Hu Gang, joined before entering the private sector. Others were recruited in the 1990s by local party committees eager to bring major economic actors into the fold. Hu Gang professes himself bewildered by all this fuss over the party's policy toward people like him. "I don't know about Beijing. I haven't spent much time in Beijing. It is a political and cultural centre, and things can be sensitive. But in the south, this issue just isn't an issue," he says on a visit to Beijing in late February, to attend the annual meeting of the China Association of Science and Technology Private Entrepreneurs. Hu Gang first applied to the party as a teenager assigned to work in the countryside at the tail-end of Mao Zedong's Cultural Revolution. He applied again at university in Fujian's capital, Fuzhou. "If you wanted to do something for China's people, or for this society, you had no other route open to you," he says. The party finally accepted him in 1987, when he was working for a research institute attached to the state-owned Fujian Computer Group. Fourteen years on, Hu Gang has his own company, with a subsidiary, Newland Computer, listed on the Shenzhen Stock Exchange. Newland Group's core business is information technology hardware and software--from bar-code scanners to billing and network-management software for mobile-telephone networks. He plans to list another subsidiary on China's second board when it opens later this year. It is a biotechnology firm that has invented a blood test that claims to be able to offer early diagnosis of a wide range of cancers. He admits to being "wealthy, very wealthy." Under his leadership, Hu Gang says, Newland's party branch has two main functions. One is to encourage party members--recruited by himself--to set an example for other employees by working particularly hard. The other is to organize classes in "patriotic education" for the workforce. On his orders, the branch invites historians to lecture on aspects of Chinese history in which Newland staff can take pride, and also on China's humiliations by foreign powers. "In our modern history, our society was crippled and bullied because the country wasn't strong," he says. He mentions the Eight-Power Allied Force that invaded Peking in 1900 to put down the anti-foreign Boxer Rebellion. "They fought their way in and stole our treasures," he says indignantly. His conclusion: "If your country is strong, no one will be able to bully you." He tells his workers that by helping to develop China's hi-tech industry, Newland is helping to make China strong. Newland's party branch does not, he emphasizes, organize political study sessions, in which party members would normally read party-run newspapers and study party documents. He dismisses such exercises as "formalism." While the branch is affiliated with the Party Committee of the Fujian Province Science Commission, he says his branch has limited dealings with it. The party wants private businesses to have party organizations. In Zhejiang province on the east coast, nearly a third of private businesses with more than 100 employees have one. The Zhejiang party secretary wrote last year that he hoped to raise that to 80% within three years. LINGERING SUSPICION But the party doesn't support having business owners run party organizations. On the contrary, the party's idea is that a prime function of party organizations should be to "supervise" the enterprise head. They are meant to ensure that he or she does not evade taxes, produce sub-standard goods, or otherwise break the law. Hu Gang gives no suggestion that his party branch has any role in "supervising" him. He and his managers, he stresses, make all the decisions in the company. Even if the debate ends with a ruling that strips him of his party membership, Hu Gang says he won't be greatly bothered. "Especially since the 1990s, I've felt that whether I'm a party member or not isn't that important," he says. "If you say I can be a party member, that's OK. If you say I can't be a party member, I don't feel anything in particular." He concedes, however, that allowing private-business heads into the party, and thus overturning the verdict that they are "exploiters," would improve the climate for businesses such as his. Discrimination against the private sector has eased in the last two years. Private companies can now get bank loans more easily. They can also list openly on China's stock exchanges. Newland Computer listed in August last year, soon after the policy changed to accommodate private businesses. But the party's lingering suspicion toward the private economy still keeps private businesses out of lucrative sectors that the party deems strategically sensitive. Hu Gang is outraged that as part of its WTO agreement with the United States, China agreed to allow foreign companies to invest in its telecoms companies, while it still prohibits Chinese private businesses from doing the same. The likely outcome of the debate is unclear. Chinese analysts say the fact that it is even under way means Jiang is at least open to the idea of adjusting policy before the party's all-important 16th congress--due to meet in late 2002. Like Fred Hu, Hu Gang sees in Jiang's Three Represents signs that the party chief has evolved toward a greater acceptance of private business. The third part of the formula describes the party as representing "the fundamental interests of the broad masses." "He doesn't say 'workers' or 'the proletariat,'" Hu Gang notes. Jiang's theory "is good for the development of the market economy," he says. "It gets us over the theoretical barriers." He pauses, and grins broadly. "I very rarely discuss these kind of political questions," he says candidly. "I usually worry about the economy, about things like the WTO and the state of the U.S. economy. The U.S. economy drives the whole global economy," he confides earnestly. "I really do hope that the U.S. economy picks up." ========================================
