I’ve argued for a while now that the Chinese economy has moved from the relative freedom of the post-Deng era to something that, under Xi, looks a lot like the harnessed capitalism found in fascist economic theory and, frequently, practice.
Sometimes the harness comes very clearly into view.
An analysis by Nikkei Asia has found that as of Friday, more than two-thirds of the mainland-listed companies whose shares can be traded by international investors in Hong Kong — 1,029 of 1,526 companies — have articles of association that formalize the role of in-house Communist Party cells. Most have been rewritten during the Xi era.
Nikkei Asia has also identified at least 153 of those 1,029 companies as having references to Xi in their articles of association, which in effect are a company’s constitution.
Such changes reflect the substantial pressure that the party and government have started to exert during Xi’s period as China’s leader to reinforce the role of the party cells, including by amending articles of association…
In China, all companies are obliged to set up party cells if there are at least three party members, according to the Communist Party Charter, which was amended on Oct. 22 at the close of the congress to legitimize Xi’s extended rule and articulate his political philosophies.
Chinese corporate law also states that companies “ought to provide necessary conditions for the activities of party association.”
However the requirements “for many years have been sort of ignored,” said Gavekal’s Batson. “What’s happened under Xi is that he strongly encouraged people to actually follow this requirement.”
I touched on the question of party cells within banks a few months back.
Nikkei Asia again:
Some have gone further to enshrine Xi in their companies’ constitutions. The shareholders of Guangzhou Restaurant Group, operator of a renowned Cantonese diner in Guangdong’s capital city, approved last month additional clauses authorizing the in-house party organization to lead the company “to be highly consistent with the party,” with “Comrade Xi Jinping as the core” in terms of political orientation. The amendment also designated the party cell to guide the company to “deeply study and thoroughly implement Xi Jinping thought on socialism with Chinese characteristics for a new era.”
Why Western investors would want to invest in Chinese companies at this point is beyond me.
But for any investors that take the “G” (governance) in ESG seriously, it ought to be an impossibility. ESG or China: Choose one (or better, neither).