“Under Mr. Xi’s leadership, China is returning to its roots: a state-controlled economy that demands businesses conform to the aims of the Chinese Communist Party.”
So says a recent article by Daisuke Wakabayashi, Chang Che, and
Gone are the days of Deng Xiaoping and “to get rich is glorious.” Xi has led an attack on China’s most successful businesses and intimidated its wealthiest businesspeople. Here’s how it worked in one example from the article:
In 1994, Wen Kaifu quit his job as a middle school teacher in the southeastern province of Jiangxi and moved to Shenzhen, one of the country’s first special economic zones, to work for a display manufacturer. Returning in 2004, he started his own company, Holitech Technology, to make liquid crystal displays, the screens used in billions of smartphones.
As Xiaomi and other Chinese handset manufacturers blossomed, so did Holitech. In 2014, the company went public, and Mr. Wen became one of China’s wealthiest people, with a net worth of $570 million.
Like many Chinese companies that followed the government’s directive to “go global,” Holitech grew bolder in its expansion plans. After its public offering, it acquired seven Chinese component makers. Holitech built facilities in California and Europe, and it pledged to open a factory in India, promising to deliver 6,000 jobs.
“We’re not aiming to be No. 1 in the region or No. 1 in China,” Mr. Wen said at an awards ceremony in 2017. “We’re gunning for No. 1 in the world.”
Then Mr. Xi’s priorities shifted. In 2018, Beijing initiated a nationwide push to curb excessive borrowing by private companies. Holitech had $1 billion in loans and few options for refinancing. The company’s share price plunged, along with Mr. Wen’s wealth. China’s securities watchdog investigated him for failing to pay his debts.
State-owned enterprises — called “an important pillar and strength for our party” by Mr. Xi — were largely insulated from the debt crackdown.
Fujian Electronics and Information Group, a state-owned holding company of electronic component makers, stepped in to rescue Holitech. It paid roughly $450 million for 15 percent of Holitech and a controlling voting stake in 2018.
“The logic of having strong state ownership has been around for a while, but it’s sped up under Xi,” said Chris Marquis, a business professor at Cambridge University and an author of “Mao and Markets: The Communist Roots of Chinese Enterprise.”
From 2019 to 2021, state-owned enterprises acquired more than 110 publicly traded Chinese companies, valued at more than $83 billion, according to PwC. Such acquisitions were rare before Mr. Xi took over in 2012; by then, state-owned enterprises’ share of the economy had been declining.
Xi then basically made Holitech part of the regime:
Holitech was enlisted in China’s nationwide mask production blitz. The company’s newly emboldened party committee led activities on party building and lessons on party history where employees experienced “a baptism of patriotic education.” In accordance with Mr. Xi’s plans to revitalize rural areas, Holitech, with the help of Fujian Electronics, invested over $1 billion in a new industrial park this summer.
When Mr. Wen officially stepped back from the company last year, he was replaced by Huang Aiwu, a member of Fujian Electronics’s party committee.
This takeover had to be intentionally carried out over many years by the party apparatus. It was not aimed at increasing efficiency or productivity at all. It was entirely a political power play by Xi.
He seems to have achieved that political goal. But one of the things that used to concern many in the West with respect to China’s competitiveness was that its companies would overtake global markets. There was once a time when Chinese companies wanted to do that and were encouraged to do so by the Chinese government, but that time seems to have passed.
PHOTOS: Chinese Communist Party Congress
China’s zero-Covid policies are scaring away foreign businesses. Its Belt and Road Initiative is creating a financial mess. It faces significant exposure to a brewing sovereign-debt crisis in the developing world. The cheap credit that financed so much of its growth in recent years will evaporate as interest rates rise around the world. Its semiconductor industrial policy isn’t working. And above all, its population profile was damaged irreparably by decades of the one-child policy.
Xi’s response to these economic challenges has been to consolidate power around himself and, in so doing, quash the major engines of economic growth that were first permitted to be built in the Deng era.
When the going gets tough, just stop reporting the GDP numbers. After the People’s Bank of China cut interest rates at a time when virtually every other central bank in the world was raising them, it set off alarm bells that China’s growth numbers would be weak. Rather than take its lumps, the Chinese statistics office has indefinitely delayed reporting its third-quarter GDP numbers. It’s hard to ignore the possible political motivation behind this decision: A bad reading could dampen spirits at the currently ongoing 20th National Congress of the Chinese Communist Party.
China is turning on the reforms and policies that enabled its rapid economic growth. The U.S. must keep that in mind when evaluating its policy options with respect to China. Competing with a stagnating or declining power is not the same as competing with a rising one. China’s communist regime has been able to reinvent itself before, and it could do so again. But for right now, Xi appears to be killing the goose that laid the golden egg.