To many western investors, China under president Xi Jinping is a tough nut to crack. While Chinese leaders insist that they welcome foreign investment, the ruling party’s extension of control to companies, with crackdowns on domestic tech giants and more recently the “anti-spying” raids on consulting firms, including America’s blue chip Bain & Company, are puzzling to the outside world.
Chris Marquis, author and professor of Chinese management at the University of Cambridge, believes that part of the explanation lies in the ruling party’s ideology. He says one must “dig into the Maoist roots in Chinese institutions and political economy to try to understand ideas that Xi has”.
“In the west, it’s very hard for people to really understand the depth of control [of the Chinese Communist party]. The party sits above the government, sits above the economy and the military even.”
With a history and sociology background, Marquis, who last year published Mao and Markets: The Communist Roots of Chinese Enterprise, has studied entrepreneurs, listed companies and provincial and city officials in China, and found that Mao Zedong’s ideology, campaigns and institutions continue to have a deep influence on their thinking.
For decades after the former leader Deng Xiaoping’s “reform and opening” policies of the late 1970s, the west had hoped that China’s venture into open markets and private enterprise would spell the end of the state-controlled economy.
“There was this dominant theory that when you open economically, political liberalisation follows,” he says. “We in the west were blinded. Based on our own natural bias, [we think] we have this great system and China will want to be like us, but actually, not.”
While the west welcomed Deng’s reforms, it largely overlooked that his premise was his “four cardinal principles”, namely Mao Zedong Thought, Marxism-Leninism, “people’s democratic dictatorship” and Communist party leadership.
“Mao’s ideology and dictatorship of the proletariat comes first, reform and opening is second,” Marquis says. “This gives an indication that ‘reforming and opening’ is a means to an end.”
“There is a line from Mao to Xi, and ‘reform and opening’ [was] an aberration. Xi is working in the system that Mao created – campaign governance, the party being the centre of everything, nationalism, all these resonate with Mao.”
Shortly after Xi took power, he stressed the importance of the tech sector, but also earmarked cybersecurity a national priority. Xi personally chairs the Central Commission for Cybersecurity and Informatisation, which oversees the country’s digital networks.
The authorities’ recent anti-espionage crackdown on consulting firms is one outcome of such heightened concern about national security. State media reported this month that police had raided offices across China of the Shanghai- and US-headquartered business consulting firm Capvision and accused some companies of becoming “accomplices for overseas espionage, bribery, and extraction of national secrets and intelligence”. This followed an investigation into Bain & Company’s China office in April, and the detention in March of Chinese staff at the US firm Mintz Group. The firms concerned all deny the allegations.
The party has tightened its leash on the tech sector, with a number of industry leaders mysteriously stepping down. The best known among them, Alibaba’s co-founder Jack Ma, disappeared from public view for more than a year after Beijing blocked his online finance platform Ant Group’s planned £26bn stock market flotation in Hong Kong in 2020 – . The move came after Ma criticised government regulators. Earlier this year, Ant announced that Ma – who has re-emerged in China after reportedly living in self-imposed exile in Japan, would cede control.
In February, Bao Fan, the founder of China Renaissance Holdings – an investment bank favoured by the tech sector – vanished before his company announced that he was “co-operating in an investigation being carried out by certain authorities”. Others who stepped down include Zhang Yiming, the chair of TikTok’s owner, ByteDance, Huang Zheng, the founder of the e-commerce company Pinduoduo and Su Hua, chief executive of the short-video apps owner Kuaishou.
Apart from an existing requirement for companies to install party cells, the party is exerting even more influence by taking “golden shares” in some of the most influential tech firms. The authorities’ move to take stakes in the local operations of Alibaba and Tencent come with special rights over business decisions. These two companies have both pledged multibillion-pound sums to help achieve Xi’s “common prosperity” goal for the nation.
Marquis expects the party’s supervision and control in the tech sector will only step up in the coming years, noting that as of 2020, the authorities formally designated data as a “factor of production” in the Communist party’s neo-Marxist governance theory, in line with other traditional factors of production, such as land, labour, capital, and technology.
“While Chinese leaders talk about how they are open for business in public forums, their actions across sectors say they truly believe the opposite,” he says. “Overall, the trend is toward much stronger control of the economy.”
He believes that Xi’s “self-reliance” ambition to wean China off dependency on foreign supply for semiconductors is likely to fail, as design and innovation can thrive only in an open and free environment.
“It is creating a culture of fear which will stifle innovation, leading entrepreneurs to leave China … and those left behind are less likely to experiment,” he says.
China’s aggressive foreign policy in recent years has not helped. “Breaking Deng’s ‘bide your time’ dictum was hugely an error. To be a little more low-key while building up the expertise would have been a smarter strategy.
“Because now, around the world, people are fearing China. But in the new technology area, it’s not yet in a strong place. China will have a lot of challenges.”