Sunday, July 07, 2013

On the Role of the Chinese Communist Party in Overseas Chinese Companies--A Preliminary Examination

With my research assistant Shan Gao (SJD Candidate Penn State) I have been exploring the role of the Chinese Communist Party within private and public companies in China. The object is to try to understand the way in which the separation of powers within the Chinese constitutional framework--administrative power in state organs and political authority in the CCP--may be contributing to a distinct evolution of relationships between traditionally constituted private and public power. 

 (From 驻坦桑尼亚使馆举办庆“七一”暨海外中资机构党建工作专题研讨会。(On Party building work overseas in Tanzania) June 29, 2012 (与会人员普遍反映,使馆组织的这次庆祝“七一”系列活动,形式多样,内容丰富,通过交流与学习,深刻认识到了海外党建工作的重要性,消除了党组织在国外可 有可无的模糊认识。吕大使的讲话,既有详实的数据和实例,又有理性分析,既提出了在坦中资机构的责任和使命,又指出了海外党建工作的要求和重点,使大家充 分理解了重视和加强海外党建工作的重要性和紧迫性,也使在海外工作的每一位党员清醒地意识到自己肩负的历史使命和重任。大家表示,一定会立足岗位、创先争 优,在不断提高生产效率的同时,加强和改进海外党的建设工作,树立良好的企业形象。))

This post considers the effect of this relationship between CCP and economic enterprises in Chinese companies operating outside of China.  This post includes a report by Shan Gao,  that proposes some preliminary ideas about the connection between state, Party and business in the operation of Chinese companies abroad.

Part IV Party Organization and Chinese Oversea Business Branches
Shan Gao

Key Points:

· Party organization can’t operate in countries where communist is considered as illegal.
· Private companies generally not interest in having Party activities in their foreign operation, regardless the existence of Party organization in their China operation.
· In cases of multi-ownership structure that affiliated with SOEs, issues on the establishment of Party organization should be settled by mutual agreements.
· In countries where Party organization could operate, the Party organization is under dual leadership of SOEs and host country’s Chinese embassy.
· Temporary Party organization is the most common form of Party organization for some oversea- construction projects or maritime shipments company.
· Party organization’s main responsibility in oversea branch are four aspects:
o Education: Party line and ideology, patriotic education, confidentiality and safety education
o Safety and confidentiality: Provide training, design contingency plan to protect state and business secrete; protect person and property safety
o Supervising: Whether company’s operation violate Party line and Chinese law. Auditing spending, Anti-corruption.
o Foreign Communication: Organize charitable events to promote Chinese companies’ reputation, celebration event when Chinese leader visit host country, or organize evacuation plan with local Chinese embassy.

1. Difficulties of Party operation in Chinese oversea business

The Chinese Communist Party has very strong control over China’s SOEs’ operation. It not only controlling SOEs’ corporate decision making processes but also controlling the career path of the person who participate in such process. [1] Party’s capacity of micro-managing China’s economy and SOEs are supported by SOEs special corporate structure design and the authorization of China’s corporate law.[2] It is further commensurate to China’s five year economy plan and Party-State system’s macro-managing environment. However, such capacity is much weakened when these state champion SOEs “Go out” to the globe market, where different political system, culture value and economy environment is ruling. China’s authority apparently noticed such differences and addressed these issues internally. According to MOFCOM Party Branch Committee and Organization Department of CPC Central Committee’s joint survey and investigation over Chinese south Asia Businesses’ Party activity, there were many real difficulties for the operation of Party committee in Chinese oversea business. [3]The first issue is the limitations from local political and legal system. According to this report, some countries has specific law requiring the operation of political activity, such as Party committee, register at local agency. Some countries, such as Malaysia, a constitutional monarchy with a parliamentary democracy state legally prohibited Communist Party’s activities. United States for example, has some immigration rules that prohibit the admission of communist Party members under immigration visa[4]. The second issue is that Party’s activity is not oversea business’s core interest.[5] Oversea business need to compromise their time on Party operation in order to compete with other businesses. Third issue, as other scholar suggested, most Chinese oversea businesses are Construction projects, which means employees are scattered over distanced regions with high employee turnover rate. These projects usually locate in isolated or even high crime rate areas, which make daily “Party activity” became unaffordable. Even in regions where these issues are not presented, there are other difficulties for Party to project its control over the SOE operation. For example, All-China Federation Trade Union and Communist Youth League are subordinated to the authority of CPC. In foreign countries, Trade Union must register under host country’s legal system without the reach of CPC. Also, the existence of high level foreign employees in oversea business, especially in BOD, diluted the power of Party members in BOD. Such dilution directly weakened CPC’s control over oversea business operation. [6] 

2. The Party Organization’s construction in oversea business branch

Despite those difficulties and issues challenged the operation of Party Committee, based on the SASSAC and CPC authority’s rules, Chinese SOEs’ oversea business branches all duplicate their domestic counterpart’s bureaucracy system and established Party Committees in countries where Party organization is permitted. For example, China Communications Construction Company (hereinafter CCCC) has oversea Party member employee 1574, established 170 various levels of Party organizations and hired 350 full-time Party workers. China Ocean Shipping (Group) Company (hereinafter COSCO) has almost 100 oversea institutions, there are 6 Party Committee under COSC’s direct leadership, 28 Committees of Party Branch and 19 Party groups. There are 312 Party members out of 384 oversea Chinese employees. China State Construction Engineering Corp (hereinafter CSCEC) established 9 Party Committees, 8 Committee of General Party Branch, 46 Committee of Party Branch and hired 1300 Party members. Most private companies, as MOFCOM and Department of Organization of Central CPC Committee’s report indicated, were not set up any Party organizations in their foreign business operation. [7]

Due to the limitations and difficulties in foreign environment, many companies adopted a more flexible Party system in countries where Party organization is permitted. For long term branch office or similar institutions, based on the geographic location, these companies would set up Party organization that duplicated their domestic Party organizations. For example, COEG has numerous foreign state construction projects in Africa and other continents. They divided their market into seven different regions. (North, West, East, Africa, and Middle Africa, Asia, Europe) Each region established a Party organization system, which solely responsible for all the party committees’ operation in their relative regions.[8] Company’s market managers in each region hold the chair to lead the Party organization in that region. For each individual construction project, COEG would establish a temporary Party organization. The level of Party organization is commensurate with the number of Party members involved. COSCO is one of the largest shipping and logistics services Supplier Companies in the world. Beside the corporate managerial system established Party organizations, each vessel has its temporary Party organization for each travel. According to COSCO’s corporate Party documents, in case where foreign vessel or foreign vessel crew involved, COSCO would send critical personnel such as, captain, chief engineer, as the leader who would responsible for setting up Party committee among the crew. [9] Such arrangement is reasonable in case when Party need to project certain level of control over the institution by sending high level managerial Party member employee among foreigners. Such practice also existed among International organization’s China branch. For example, United Nations Board of Auditors China Office is a branch of UN Board of Auditors, who responsible for particular area of audit works. Such audit teams work for UN China office are constituted by people with different backgrounds and assigned to different projects around the globe. For each project, each audit team would be assigned with a team leader, who would serve as Party secretary to establish a temporary Party branch committee within the audit team. This temporary committee of Party branch is subjected to the leadership of Party Committee of UN Board of Audit China Office[10]. Thus, under such arrangement, Party could still be informative on the issues involved.

3. The leadership of Party organization in multiple ownership structure

In mainland China, Party organizations in SOEs generally are subjected to the leadership of its own system. However, the leadership structure became more complicated when SOE has multiple ownership structures, or subsidiaries or oversea branches. For example, COSCO has multiple subsidiaries; the corporation itself cannot maintain the full charge of all its subsidiaries’ Party committee’ works. Under COSCO’s Party work managing system, all subsidiaries of COSC are divided as headquarter in Beijing or not. If subsidiaries’ headquarter in Beijing, the Party Committees in subsidiaries are under direct leadership of corporate main Party Committee. If subsidiaries’ headquarter not in Beijing, the Party committees will under dual leadership. The corporate Party Committee still preserve the right to appoint leadership position in subsidiaries’ party committee. However, the daily party work and operation will in charged by local municipality Party Committee. Some subsidiaries are under multi-ownership structure. In such joint ventures, the appointing right of leadership position in Party committee is decided by the parent corporation when it happened to be the majority shareholder of the joint venture. If Parent Corporation is not the majority shareholder, such right shall be negotiated and clarified by agreements.[11] When it comes to corporation’s foreign branches, under current rule, the operation of Party Committee usually under dual leadership. This means, the daily operation and appointment of Party cadres shall be charged by SOE itself. In case of emergency or important political or foreign relation issues, Party committee shall consult with local Chinese embassy. Party Committee at local Chinese embassy of the host country will be responsible for the certain fore policy related decisions of SOE’s foreign branch Party organizations.[12]

Under such arrangement, generally, under SOE and Non-SOE joint venture, SOE would enter into an agreement to settle the issue of creating Party organization. When the business partner in this joint venture had already set up Party organization, the leadership of the new party organization in joint venture is decided by the largest shareholder. If both parties are equal share, then such issue would resolve by agreements. When the business partner did not have a Party organization, then the new Party organization in JV is created and leaded by SOE. Such arrangement also applies to all Sino-Foreign JVs. Furthermore, under Constitution of CPC, foreigners are illegible to join the Party.[13]

Diagram showing examples of Party organization regulation structure in COSCO.

JVs will set up the Party organization by agreements between SOE and Non-SOE. The leadership of Party organization in JVs is subjected to the Party organization of the largest shareholder in JVs. Under Constitution of Communist Party of China, foreigner is illegible to join CPC.

To overcome those disadvantages and un-favorite foreign conditions for Party’s control of SOE oversea operation, Party organization designed some mechanism. Such mechanism actually functioned similar with domestic one. It assists Party controlling business decision process and person who participates such process. Most SOE foreign branch would assign some Party secretary (or deputy Party secretary) and party members for a leadership position in foreign branch. [14]When it comes to certain corporate affairs, Party members in BOD formed as coterie with clannish opinions on corporate affairs. In such way, it maintained a consistency between Party and Board of directors over critical corporate decisions regardless of foreigners’ involvement by making Party Committee members in charge of corporate high level managerial positions.[15]

4. The responsibility of Party Organization in SOEs’ oversea Branches

Party Organizations’ oversea operation could be summarized as four aspects: First, education; Second, Protection; Third, Supervision; and four, Foreign relation. These four aspects correlated with each other and corroborate Party’s control and function on these four aspects.


There are three areas of educations, which are Party line and Party ideology, Patriotic education and Safety education. Safety education included the state and business secretes confidentiality education. Party organization usually designed confidential rules and regulations regarding the state and business secretes. Employees of oversea branch will have advance training on these rules as well as more training after they are working at foreign branches. [16] Patriotic education mainly designed to warn oversea employees be precautious on their behaviors’ consequence on State interest. It also inform oversea employees be precautious to foreign religious and political groups. Ideology and Party line education mere introduce the latest Party line or policy to the oversea Party branch.

Protection and security:

Security included property safety and person safety. Because many Chinese oversea businesses’ operated in political unstable Africa regions, providing security guidance is also Party organizations’ proprieties, Party organization not only provide property and security training but also establish security instructions and guidelines and contingency plans to safeguard the property and personnel safety from local crime or turmoil. Party organizations in foreign branch also keep close communication with local embassy whenever necessary.


Supervision mainly means Party organization’s supervising on whether the foreign branch’s operation is consisted wit Party policy and Party line. Moreover, it also monitor whether the foreign branch’s operation consisted with Chinese law. Generally, it included auditing project budget and spending activity, evaluating employee’s eligibility for promotion or punishment, and promptly reporting to Chinese embassy for problems related to local community.

Foreign Communication

New admitted Party member pledged under the Party Flag in the Embassy of the P.R.C in the United Republic of Tanzania[17]

Party organization is foreign branches usually designed various charitable events to promote the reputation of Chinese companies. It also works closely with Chinese embassy to organize various celebrating events when Chinese leader visit host country or organize evacuation plan when such event occurred.


[1] Based on the Party internal document and SASSAC’s rules, there is a common practice among China’s SOEs that “any critical and important corporate decision matter shall discussed internally between Party Committee before handling to the BOD.” Details of how Party controlling BOD’s decision making process and scope of critical matters can be found at the previous part of the report.

[2] Art. 19 Company Law of P.R.C. 2004 [China] Analysis on corporation have to provide convenient for party activity can be found at previous part of the report.

[3] Promoting Party activity “Go out” investigation report on Chinese oversea businesses’ party committee operation in three South Asia Countries.2013. 1.

[4] INA 212(a)(3)(D). Immigrant visa applicants who are or have been members of, or are affiliated with the Communist party or proscribed domestic or foreign organizations, are inadmissible unless the membership or affiliation terminated either two years before the date of visa application, or five years before the date of visa application in the case of an alien whose membership or affiliation with a party controlling a totalitarian dictatorship; There are exceptions to this rule, which are:

· aliens whose association with a proscribed organization is or was non-meaningful

· membership or affiliation is or was involuntary, under the age of 16, by operation of law, or to provide

· the essentials of living; and The Department of Homeland Security (DHS) may waive ineligibility for

· immigrant visa applicants who have the requisite family relationship with a U.S. citizen or permanent resident alien for humanitarian purposes


[5] He yuwang, Haiwai Dangjian Sixiang Zhengzhi Gongzuo Xin Luzi yu Tanxin, 2011 Zhongguo Keji Bolan: Vol 3: 183.

[6] Xu shusen, China Nonferrous Metal Mining Corp’s experience on oversea Party organization construction, Speech at Conference on constructing Party organizations at oversea business branches.

[7] Promoting Party activity “Go out” investigation report on Chinese oversea businesses’ party committee operation in three South Asia Countries.

[8] Youxian Zeren Gongsi Dangwei—Tansuo Xingcheng Haiwai Qiye Dangjian Gongfa. 2011.

[9] China Ocean Shipping(Group) Company, Notification on circulating Opinions on promoting and encouraging Party construction work in COSCO. 2006. Jan.

[10] United Nations Board of Auditors China Office, Guidelines on promoting primary Party organization constructions among United Nations Board of Auditors China Office, 2010, July.

[11] China Ocean Shipping(Group) Company, Notification on circulating Opinions on promoting and encouraging Party construction work in COSCO. 2006. Jan.

[12] Also see Xu shusen, China Nonferrous Metal Mining Corp’s experience on oversea Party organization construction, Speech at Conference on constructing Party organizations at oversea business branches.

[13] Art. 1 Con. CPC. [China] 2007. Any Chinese worker, farmer, member of the armed forces, intellectual or any advanced element of other social strata who has reached the age of eighteen and who accepts the Party's program and Constitution and is willing to join and work actively in one of the Party organizations, carry out the Party's resolutions and pay membership dues regularly may apply for membership in the Communist Party of China.

[14] See China National Building Materials Group Corporation. Bulletin of SOE Chuangyou Zhengxian, Vol 146.. 2012. Also see People’s Daily. Zhongguo Haiwai Gongcheng Youxian Zeren Gongsi Dangwei—Tansuo Xingcheng Haiwai Qiye Dangjian Gongfa. 2011.

[15] See China Railway Engineering Corporation. 2008. Innovation of Party construction and ideology education with Corporate characteristic In Collection of meeting materials at Central SOE Party Construction Conference.

[16] He yuwang, Haiwai Dangjian Sixiang Zhengzhi Gongzuo Xin Luzi yu Tanxin, 2011 Zhongguo Keji Bolan: Vol 3: 183.

[17] 2012/06/29 Chinese Embassy in Tanzania celebrated July 1st, and holding conference on Party organization Construction in oversea Chinese business branches.

No comments: