Western commentators continue to have a fairly parochial view of the governance frameworks that must be understood for the construction of satisfactory governance regimes for sovereign wealth funds (SWFs) and state owned enterprises (SOEs) that seek to operate outside the national territory of their public owners. The Santiago Principles as well as the OECD Principles (Guidelines on Governance of State Owned Enterprises) as well as the assume that there is a simple and direct relationship between the state owned enterprise (SWFs or SOEs) and the “state” and its governmental apparatus. But most analysis failed to take into account the more complex constitutional and operational relationships between state apparatus and communist party in modern Marxist Leninist States.
The usual assumption, that the communist party is either a political constituent of the state apparatus or otherwise irrelevant to the actual operation of enterprises controlled by “the state”, fundamentally misunderstands the role of Communist Party and state apparatus in such states. See, Larry Catá Backer, The Party as Polity, the Communist Party, and the Chinese Constitutional State: A Theory of State-Party Constitutionalism, Journal of Chinese and Comparative Law, Vol. 16, No. 1, 2009; Penn State Legal Studies Research Paper No. 05-2009. Instead, in states adhering to a “Party-state” model, the role of the Communist Party within not only the state but also within SWFs and SOEs, substantially affects their corporate governance structure and also the ways in which it is necessary to understand the convergence of public and private interests in state projections of economic power through SWFs and SOEs.
I have suggested the central role of the Chinese Communist Party in the organization and operation of the Chinese Sovereign Wealth Fund, China Investment Corporation (CIC) and its complex network of controlled state owned enterprises. Larry Catá Backer, Sovereign Investing in Times of Crisis: Global Regulation of Sovereign Wealth Funds, State Owned Enterprises and the Chinese Experience, Transnational Law & Contemporary Problems, Vol. 19(1), 2009.
SASAC itself has noted that “On the principle of separating government administration from enterprise management and separating ownership from management power, SASAC performs the responsibility as the investor on behalf of the state; supervises and manages the state-owned assets of enterprises according to law; guides and pushes forward the reform and restructuring of SOEs. SASAC appoints and removes top executives of the enterprises under the supervision of the Central Government, evaluates their performances, and grants them rewards or inflicts punishments. SASAC also directs and supervises the management work of local state-owned assets.” State Owned Assets Supervision and Administration Commission of the State Council (SASAC), The People’s Republic of China, Welcome to the Website of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) (accessed July 19, 2009). But SWFs and SOEs are bound to follow the CCP line with respect to its objectives and operations, to the same extent as another other state operations. Thus SASAC also notes that “Guided by the important thought of Three Represents, our website will direct the reform of SOEs and promote the development of the state economy by providing policies, laws and regulations related to the supervision and management on state-owned assets and to the reform and development of SOEs.” Id. On the “Three Represents”, see Larry Catá Backer, The Rule of Law, The Chinese Communist Party, and Ideological Campaigns: Sange Daibiao (the “Three Represents”), Socialist Rule of Law, and Modern Chinese Constitutionalism, 16(1) TRANSNATIONAL LAW & CONTEMPORARY PROBLEMS 29 (2006). Other SOEs follow the same path, for example, gearing business analysis to conformity with the current CCP party line of scientific development. Thus, for example, the Industrial and Commercial Bank of China, indirectly owned by CIC, was careful to note that it “stuck to the concept of scientific development for obtaining new driving force for growth, striving to ameliorate its operational structure, and strengthening the internal management and promoting innovative development, and hence it maintained a sound development under the rigorous and complicated circumstance and realized a relatively high profit growth.” Industrial and Commercial Bank of China, About Us, Introduction of Industrial and Commercial Bank of China Limited in 2008, available http://www.icbc.com.cn/ICBC/About%20Us/Brief%20Introduction/. For a discussion of scientific development in Chinese political theory, see, e.g., Larry Catá Backer, Scientific Development (科学发展观) and Deepening CCP Governance at the Local Level--The Challenge Law at the End of the Day, Dec. 6, 2008.
The result is an organizational matrix substantially different from that encountered in the West, one that complicates the simplistic analysis of the Santiago Principles, which is itself grounded in the notion that public entities can be treated as substantially private with respect to their economic activities as long as there is a wall of separation between the sovereign operation of states and the operation of the economic enterprises they control. Jason Buhi, Negocio de China: Building Upon the Santiago Principles to Form an International Regime for Sovereign Wealth Fund Regulation (2008). The West understands a simple binary involving relationships between enterprises and the state, and a separation of public and private spheres. But Chinese political organization adds a layer above enterprises and the state apparatus. Sitting above both, and with authority to direct both equally, is the Chinese Communist Party. For CCP theorists at least, the CCP, as Party in power, guides economic and political organs in equal measure. Thus, even where the state apparatus is effectively separated from the operation of economic enterprises (and even state enterprises), the CCP continues to direct both the regulatory organs of state power and the enterprises, public and private, through which the economic activity is realized.
Indeed, the ideological requirements of democratic centralism makes separation between SWFs and SOEs, on the one hand, and the Communist Party, on the other, difficult at best as a conceptual matter. Democratic centralism refers to a key element of Marxist Leninist constitutionalism which requires Party members to adhere to Party policies until they are changed. Article 3 of the Chinese Constitution incorporates this principle as a central element of Chinese constitutionalism. It provides, in part, “The state organs of the People's Republic of China apply the principle of democratic centralism.” Constitution of the People’s Republic of China of 1982, as amended 2004, art. 3. Thus, irrespective of state involvement in public enterprises, the Communist Party necessarily remains the Party in Power over such enterprises in whatever form organized. The Party thus serves to guide policy of both state and state owned enterprises from a position above both. It is this relationship, and its implications, that remains opaque to Western theorists.
But this is not a set of relationships lost on the Chinese themselves. In a recent important commentary essay published prominently in the People’s Daily, the CCP made clear the nature of the relationship between SWF and SOEs and the Party. The Commentary, 坚持国企党组织的政治核心地位不动摇 [Unswervingly Upholding the Party's Core Political Status in State-owned Enterprises], People’s Daily Online, Aug. 27, 2009, was made available only in the Chinese version of the People’s Daily and does not appear for its English speaking audience. Because it is important for a fundamental understanding of the operational structure of SWFs and SOEs, my research assistant was kind enough to translate it as follows:
In the original it reads like this:
Clearly a Commentary is not law. Nor does it effect any formal changes in governance. It may not be directly enforced. But it does serve to indicate an important currents of understanding whose effects will be felt. For a commentary see, e.g., SOE Corporate Governance: the Party Comes First, China Stakes, Aug. 28, 2009 (“As more state-owned enterprises (SOEs) go abroad to acquire resources, assets, and other companies, and an increasing number of state-owned or state-held enterprises are listing in Hong Kong, New York, London, and Singapore, the corporate governance of these enterprises still remains distinctly a "Chinese characteristic," and the party dominates SOE corporate governance.”).
The implications could not be clearer. I note only some of the more important ones here:
1. The Western notion of corporate autonomy is not applicable to Chinese SWFs and SOEs in its relationship to the CCP, even if it is quite deeply built into the formal relationships between the state apparatus and the enterprise. But that relationship between CCP and enterprise ought not to be thought of as “private.” The CCP, as Party in Power, retains authority to provide overall guidance to all aspects of political and social life within the territory of the PRC. As such, one can consider the state apparatus and the SOE/SWF as occupying similar positions in their relationship to the CCP. Both are subject to the leadership of the CCP to the same extent. This ought ot change the form of analysis applied to an understanding of the nature and extent of the autonomy of Chinese SOEs and SWFs. This is not to suggest any bad motivation or bad faith on the part of the Chinese. They have been quite open about the form of the political organization of the state. Rather it suggests a blindness on the part of Western regulatory to the obvious.
2. The Western notions of corporate governance within enterprises is also not applicable to Chinese SOEs and SWFs. In this case, Chinese corporate governance must be understood in the same way as Chinese political governance is understood. While the state apparatus is based on the National People’s Congress system—the entire enterprise of the state is subject to the Guidance of the CCP. In this respect, the state apparatus (its government) is both autonomous but not supreme as to core political matters and fundamental political direction. The same relationship marks the internal corporate governance of SWFs and SOEs. While these enterprise are autonomous within their administrative spheres, the overall political direction of the enterprise is itself subject neither to the direction of the board of directors, or principally directed toward the wealth maximization of its shareholders. Instead, SWFs and SOEs necessarily operate to maximize the overall interests of the Chinese people (including the state) as directed by the CCP. “The unified decision-making power of the board of directors on major issues should be supported, while the views of the Party committee should also be respected and reflected. Thus, the participation of the Party in deciding vital issues integrates with the decision making of the board under law.” [坚持国企党组织的政治核心地位不动摇 本报评论员 《 人民日报 》（ 2009年8月27日 01 版.
3. The key focus of enterprise policy choices must be made in line with the overall policies of the CCP, policies that are as applicable by the state apparatus within the ambit of its authority in the public sector as it must be for SWFs and SOEs within the ambit of their particular authority within the private sector. That obligation extends to SWF and SOE activity both within the national territory and perhaps especially outside the national territory of the PRC. Like the state, SWFs and SOEs are extensions of the power of Chinese society, all directed to the attainment of the same set of objectives, each in its own way. In this sense, the separation between public and private, between regulatory and participatory activity and between political and economic activity is understood from a fundamentally distinct framework. “As a fundamental means to play the core political role, the Party shall ensure the implementation of principles and policies from the Party and state.” Id. Those principles serve as the core of the substantive provisions of the ordering of society and are as incumbent on economic as they are on political organs. In this sense, the CCP, and its governance frameworks, is meant to serve as source of political and economic values and objectives which are equally applicable by state and economic enterprise—whatever the formal or informal connection between state and economic enterprise.
4. The notion of value within this framework also takes on a distinctly non-Western meaning. The obligation of the enterprise is to maximize welfare (or wealth/value). This is understood not merely in terms of the production of money, but in the production of an increase in the strength of the CCP and its societal wealth maximizing policies. The CCP in SWFs and SOEs turns “the Party's ideological, political, and mass work advantage into the core competitiveness of SOEs, which can consolidate the core political status of the Party, make Party-building work a key part in the enterprise value chain, and make the Party committee an integral part in the modern state-owned enterprise system with Chinese characteristics.” Id. Thus, notions of competitiveness, value adding operations and efficiencies now turn on a values structure quite distinct from that understood as “standard” in the West. Because value production is measured differently, Western regulatory frameworks based on a different set of values maximizing frameworks would not transpose easily to this system. No better understanding of the great differences between this conception of values maximization and stakeholder model of corporate governance and that of the West, than to consider the recent “Report of the Task Force of the ABA Section of the Business Law Corporate Governance Committee on Delineation of Governance Roles& Responsibilities,” Aug. 1, 2009 . For the ABA Committee, economic activity in corporate form continues ot be grounded on the management of relationship among shareholders, managers and directors bent to the purpose of aggregating economic power—capital raising and capital deployment. To Chinese corporate governance, that appears only part of the equation. The value of the enterprise to the state is also measured on the ability of these enterprises to advance the political work of the CCP.
5. The relation of CCP to SWFs and SOEs is not exceptional in China. Article 19 of the Chinese Company Law requires every corporation to permit the establishment of an organization of the CCP in a company to carry out Party activities in the Company. The provision reads roughly as follows in English: “The organizations of the Communist Party of China may be established in companies and carry out their activities in accordance with the Constitution of the Communist Party of China. Companies shall provide the organizations of the Communist Party of China with conditions necessary for carrying out their activities.” (my thanks to my research assistant Siyu Zai for this translation). She notes that "Although no judicial interpretation addresses article 19, people both inside and outside the Party believe that it is an important amendment to the company law of China. It provide legal basis for the Party to inset its organizations into private enterprises, even though it had been doing the same before the 2005 amendment of the company law. The article also reflects the Party’s perception and characterization of the non-public sector of the economy of China, which is also evident from the evolution of characterization of the non-public sector economy in the Constitution of China." Id. "First, there exists no remedy or penalty for violating Article 19 in the company law. In Article 19 itself, nor remedy follows. Even a judge refer to Chapter 12 of the company law, which provides legal liabilities following the statutes, she cannot order any penalty for no following Article 19. In other words, violation of Article 19 incurs no liability. Id. But the nature of the extent of such activities is made clearer by the Commentary. It suggests both the mandatory character of the obligaiton of Article 19 and its scope—it extends to involvement in matters of “employment standards, recommending candidates, as well as improving evaluation systems, strengthening supervision and management, and training back-up human resources and so on. . . . The Party committee shall evaluate and recommends candidates, while the enterprise hires following the market rules.” [坚持国企党组织的政治核心地位不动摇 本报评论员 《 人民日报 》（ 2009年8月27日 01 版）]. But harmonized with the needs of enterprises to succeed on their own terms, “following the market rules.” Some have argued that “the constitutionality of Article 19 is questionable from the perspective of legal positivism. In essence, there might be no constitutional basis for granting such a privileged position to the CCP.” Wang Jiangyu, Company Law in China, 33 (2008). But it is clear that such notions are not shared by influential elements within the CCP. The Commentary “Unsweringly Upholding the Party’s Core Political Status, [坚持国企党组织的政治核心地位不动摇 本报评论员 《 人民日报 》（ 2009年8月27日 01 版）] is clear evidence of that.
But there is more to Article 19 than its focused effects on corporate governance. Moreover, under a reading of the Chinese Constitution that gives broad effect to the constitutional identification of the CCP as the Party in Power, it is possible to suggest a constitutional order in which both state and economic enterprise are in the same and parallel relationship to the CCP. If that is the case, then it might be necessary to understand the principles of separation of enterprise form state written into instruments like the Santiago Principles as requiring, as well, separation between enterprise and Party. From the perspective of the West, that separation would be as necessary as that between state organs and enterprises, if only to produce a global equivalence between enterprises. Because the CCP leads both state and enterprise, CCP lead enterprises might well function like state organs. But from the Chinese perspective, such a separation would be difficult to imagine. They might make a distinction between the governance functions of state organs and the political work of the CCP as something superior and distinct from the operation of the state, a stakeholder that is not the state but exists beyond the state apparatus.
6. This bring me to the last point, the Commentary suggests a conceptual frameworks for corporate democracy that is consonant with Chinese society but inimical to Western social and political organization frameworks. In the West, corporate governance is meant to parallel ideological understanding of the organization of society and the political order. In states grounded in modern notions of mass democracy that are to be given effect through organs of representative government, the role of shareholders (as polity) and directors and officers (as governmental organs), assumes a central role. The issues turn on the effectiveness of democracy—shareholder rights to election, managerial and directorial obligations to maximize shareholder value. But China is not a Western style democracy, and its version of mass democracy proceeds through the institution of the Party. See, Larry Catá Backer, The Party as Polity, the Communist Party, and the Chinese Constitutional State: A Theory of State-Party Constitutionalism, Journal of Chinese and Comparative Law, Vol. 16, No. 1, 2009; Penn State Legal Studies Research Paper No. 05-2009. Shareholders are an important constituency within Chinese corporations, but the fundamental democratic element within Chinese corporations, like the rest of Chinese society, is the CCP. If Chinese corporations are to parallel the ideological understanding of the organization of society and the political order, then the CCP will necessary assume an important, if not decisive place in corporate governance. This suggests an incorporation of corporate democracy in much the same way that shareholder rights are meant to serve the same effect in Western corporations. Party members come from different groups of the society. So the interest of the Party tends to diverse. In this circumstance, CCP interests in SOEs, SWFs and “private” economic entities represents a sort of popular or societal stakeholder in corporate governance. The difficult part for Western political culture, of course, is that this stakeholder also asserts an identical power over the organs of state simultaneously.
David Schneiderman has noted that “Neo-liberalism and its institutional partner, the investment rules regime, aim to institutionalize model of constitutional government intended primarily to facilitate the free flow of goods, services, capital and persons unimpeded across the borders of national states.” David Schneiderman, Constitutionalizing Globalization: Investment Rules and Democracy’s Promise 2 (Cambridge: Cambridge University Press, 2008). This is to be accomplished through “an interlocking network of rules and rule making structures—an ‘investment rules regime’—that place substantive limits on state capacity in matters related to markets.” Id. But this notion, as advanced as it has become in its implementation, is grounded in a foundational premise—that all advanced states are constituted and operate in similar fashion. The archetype of that model is cast in the forms of the organization of the United States and the European Union. But that interlocking system of regulatory networks will fail in its ultimate object as long as it fails to take into account of important deviations from the archetypical models of governance form which it is constructed. Chinese governance systems do not sit comfortably within the presumptions from which these regulatory networks arise. China understands and operationalizes distinctions between public and private power, between state and economic sectors in ways that are not identical to those long embraced in the West. In its zeal to marginalize the place of the CCP within Chinese political organization (perhaps because of an insistence on conflating it with its Soviet predecessors) the West has sought to act as if the CCP did not exist. To some extent China has encouraged this. But the CCP exists. It remains muscular. It affects state and economic enterprises in equal measure. Until that current reality is confronted by architects of global governance it is likely that current efforts to globalize economic regulation will fail, or remain incomplete. And it will fail for incompleteness principally because of its failure to incorporate and domesticate within its systems the constitution of public and private power beyond that embraced by those who follow the model of United States and Europe.
The usual assumption, that the communist party is either a political constituent of the state apparatus or otherwise irrelevant to the actual operation of enterprises controlled by “the state”, fundamentally misunderstands the role of Communist Party and state apparatus in such states. See, Larry Catá Backer, The Party as Polity, the Communist Party, and the Chinese Constitutional State: A Theory of State-Party Constitutionalism, Journal of Chinese and Comparative Law, Vol. 16, No. 1, 2009; Penn State Legal Studies Research Paper No. 05-2009. Instead, in states adhering to a “Party-state” model, the role of the Communist Party within not only the state but also within SWFs and SOEs, substantially affects their corporate governance structure and also the ways in which it is necessary to understand the convergence of public and private interests in state projections of economic power through SWFs and SOEs.
I have suggested the central role of the Chinese Communist Party in the organization and operation of the Chinese Sovereign Wealth Fund, China Investment Corporation (CIC) and its complex network of controlled state owned enterprises. Larry Catá Backer, Sovereign Investing in Times of Crisis: Global Regulation of Sovereign Wealth Funds, State Owned Enterprises and the Chinese Experience, Transnational Law & Contemporary Problems, Vol. 19(1), 2009.
1. Role of the State Council and the Party related to CIC and its Subsidiaries. CIC, as positioned at the premium cabinet-level within the Chinese government, is responsible directly to the State Council through the State Owned Assets Supervision and Administration Commission of the State Council (SASAC). This is meant to effect the policy of separation of economic and political functions within the state apparatus. But that separation is effected only functionally. SOEs, like the political elements of state administration remain subject to the overall direction of the Chinese Communist Party and subject to the direction of state policy. Thus, for example, in 2003 the Chairman of SASAC, Li Rongrong, reemphasized the relationship between SOE oversight and the governing principles applicable generally to the state.
. . . . .
Integration with the state apparatus is not limited to oversight by the State Council. In line with the Chinese constitutional system that accords the Chinese Communist Party a preeminent place as “party in power,” the Chinese Communist Party is also represented within the organizational structure of CIC. CIC’s Party committee has six seats: the Chairman of the Board of Directors and Chief Executive Officer, Mr. Lou jiwei, serves as the secretary of the Party committee; The Vice Chairman of the Board of Directors, President and Chief Investment Officer, Mr. Gao Xiqing, is one of the two deputy secretaries; another deputy secretary might be the chairman of the Board of Supervisors, Mr. Jin Liqun. Mr. Zhang Hongli, one of the Executive Directors and the Executive Vice President and Chief Operating Officer is also among CIC’s Party Committee members. [中投公司人事名单 (2007), http://www.caijing.com.cn/2007-09-29/100031997.html]. In addition virtually all of the governing officers are members of the Chinese Communist Party. As cadres, they owe an overarching duty to implement the party line in accordance with the important political principle of democratic centralism. As a consequence there is a close and necessary connection between state, party and fund that exists beyond the formal limitations of fund objectives and which, in the interests of state and Party, may supersede technically narrow readings of such limitations. It would be difficult to understand the investment strategy of CIC in isolation, or otherwise apart from the activities of other state organs, whether political or economic. In this sense, the connection and coordination suggests a different conceptual basis for the organization of sovereign investing, one that is grounded in specialization and coordination. While the pieces may appear distinct, they do not operate independently of each other in a broader sense. Id.
SASAC itself has noted that “On the principle of separating government administration from enterprise management and separating ownership from management power, SASAC performs the responsibility as the investor on behalf of the state; supervises and manages the state-owned assets of enterprises according to law; guides and pushes forward the reform and restructuring of SOEs. SASAC appoints and removes top executives of the enterprises under the supervision of the Central Government, evaluates their performances, and grants them rewards or inflicts punishments. SASAC also directs and supervises the management work of local state-owned assets.” State Owned Assets Supervision and Administration Commission of the State Council (SASAC), The People’s Republic of China, Welcome to the Website of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) (accessed July 19, 2009). But SWFs and SOEs are bound to follow the CCP line with respect to its objectives and operations, to the same extent as another other state operations. Thus SASAC also notes that “Guided by the important thought of Three Represents, our website will direct the reform of SOEs and promote the development of the state economy by providing policies, laws and regulations related to the supervision and management on state-owned assets and to the reform and development of SOEs.” Id. On the “Three Represents”, see Larry Catá Backer, The Rule of Law, The Chinese Communist Party, and Ideological Campaigns: Sange Daibiao (the “Three Represents”), Socialist Rule of Law, and Modern Chinese Constitutionalism, 16(1) TRANSNATIONAL LAW & CONTEMPORARY PROBLEMS 29 (2006). Other SOEs follow the same path, for example, gearing business analysis to conformity with the current CCP party line of scientific development. Thus, for example, the Industrial and Commercial Bank of China, indirectly owned by CIC, was careful to note that it “stuck to the concept of scientific development for obtaining new driving force for growth, striving to ameliorate its operational structure, and strengthening the internal management and promoting innovative development, and hence it maintained a sound development under the rigorous and complicated circumstance and realized a relatively high profit growth.” Industrial and Commercial Bank of China, About Us, Introduction of Industrial and Commercial Bank of China Limited in 2008, available http://www.icbc.com.cn/ICBC/About%20Us/Brief%20Introduction/. For a discussion of scientific development in Chinese political theory, see, e.g., Larry Catá Backer, Scientific Development (科学发展观) and Deepening CCP Governance at the Local Level--The Challenge Law at the End of the Day, Dec. 6, 2008.
The result is an organizational matrix substantially different from that encountered in the West, one that complicates the simplistic analysis of the Santiago Principles, which is itself grounded in the notion that public entities can be treated as substantially private with respect to their economic activities as long as there is a wall of separation between the sovereign operation of states and the operation of the economic enterprises they control. Jason Buhi, Negocio de China: Building Upon the Santiago Principles to Form an International Regime for Sovereign Wealth Fund Regulation (2008). The West understands a simple binary involving relationships between enterprises and the state, and a separation of public and private spheres. But Chinese political organization adds a layer above enterprises and the state apparatus. Sitting above both, and with authority to direct both equally, is the Chinese Communist Party. For CCP theorists at least, the CCP, as Party in power, guides economic and political organs in equal measure. Thus, even where the state apparatus is effectively separated from the operation of economic enterprises (and even state enterprises), the CCP continues to direct both the regulatory organs of state power and the enterprises, public and private, through which the economic activity is realized.
Indeed, the ideological requirements of democratic centralism makes separation between SWFs and SOEs, on the one hand, and the Communist Party, on the other, difficult at best as a conceptual matter. Democratic centralism refers to a key element of Marxist Leninist constitutionalism which requires Party members to adhere to Party policies until they are changed. Article 3 of the Chinese Constitution incorporates this principle as a central element of Chinese constitutionalism. It provides, in part, “The state organs of the People's Republic of China apply the principle of democratic centralism.” Constitution of the People’s Republic of China of 1982, as amended 2004, art. 3. Thus, irrespective of state involvement in public enterprises, the Communist Party necessarily remains the Party in Power over such enterprises in whatever form organized. The Party thus serves to guide policy of both state and state owned enterprises from a position above both. It is this relationship, and its implications, that remains opaque to Western theorists.
But this is not a set of relationships lost on the Chinese themselves. In a recent important commentary essay published prominently in the People’s Daily, the CCP made clear the nature of the relationship between SWF and SOEs and the Party. The Commentary, 坚持国企党组织的政治核心地位不动摇 [Unswervingly Upholding the Party's Core Political Status in State-owned Enterprises], People’s Daily Online, Aug. 27, 2009, was made available only in the Chinese version of the People’s Daily and does not appear for its English speaking audience. Because it is important for a fundamental understanding of the operational structure of SWFs and SOEs, my research assistant was kind enough to translate it as follows:
To firmly establish the Party's core political status in corporate governance in SOEs is a valuable experience, drawing on the practice of reform and development over the past 30 years, and also an important principle which should be firmly grasped to strengthen and improve Party building work in SOEs, which reflects the distinctive characteristics and fundamental requirements of the modern state-owned enterprise system with Chinese characteristics.
As a basic means to play the core political role, the Party shall actively participate in deciding the enterprise’s vital issues. The Party committee in an enterprise should seriously study, discuss, and put forward opinions and suggestions for such issues as the overall development of the enterprise, important personnel appointments and removals, as well as the vital interests of workers and staff members. The unified decision-making power of the board of directors on major issues should be supported, while the views of the Party committee should also be respected and reflected. Thus, the participation of the Party in deciding vital issues integrates with the decision making of the board under law.
As a key means to play the core political role, the Party shall play a leading role in the talent selection and appointment. The leading role is reflected in determining employment standards, recommending candidates, as well as improving evaluation systems, strengthening supervision and management, and training back-up human resources and so on. [The Party shall] adhere to the combination of both principles that are the Party manages cadres and the board of directors selects operators and managers in accordance with law. Operators and managers of an enterprise should have the power and discretion in hiring employees according to law. The Party committee shall evaluate and recommends candidates, while the enterprise hires following the market rules. [The enterprises shall also] enforce reforms of personnel system to institutionalize, standardize and routinize the hiring process, to meet the dual requirements of corporations as legal persons and the guidance status of Party committees.
As a fundamental means to play the core political role, the Party shall ensure the implementation of principles and policies from the Party and state. The Party committee in enterprises should focus not only on supervising human resources, finance and materials as well as responsible persons and key positions, but also on monitoring the implementation of the scientific concepts of development and national policies, to promote enterprises to play a leading role in carrying out political and social responsibility. At the same time it must also balance relationships between the state, the enterprise, and the workers, actively coordinate various conflicts of interest, earnestly safeguard the legitimate rights and interests of the state and workers, maintain the ideological stability of workers, and promote the harmonious development of enterprises.
To really implement the core political status of Party committee in the corporate governance of SOEs...Playing a central role by Party committee in enterprises is a unique advantage of SOEs. Only continuously improving the leadership and organizational management system in SOEs can well combine the two advantages and turn the Party's ideological, political, and mass work advantage into the core competitiveness of SOEs, which can consolidate the core political status of the Party, make Party-building work a key part in the enterprise value chain, and make the Party committee an integral part in the modern state-owned enterprise system with Chinese characteristics.
We believe that, as long as the Party committees in the SOEs keep an enthusiastic and diligent attitude, look for the truth and being practical, never allow laches, we will create a new situation of Party building work in SOEs. Id.
In the original it reads like this:
牢固确立国有企业党组织在公司治理结构中的政治核心地位，是国有企业经过30年改革发展实践得出的一条宝贵经验，也是在现代企业制度条件下，加强和改进国有企业党建工作必须牢牢把握的一条重要原则，它反映了中国特色现代国有企业制度的鲜明特征和本质要求。
发挥政治核心作用，基本途径是党组织积极参与企业重大问题的决策。企业党组织要议大事、谋全局、明方向，对涉及企业改革发展全局的重大决策、重要人事任 免，以及涉及职工群众切身利益的重大问题等，都应当认真研究讨论，提出意见建议。参与重大问题决策，需要加强制度建设，明确参与内容，规范参与程序，健全 参与机制，既维护和支持董事会对企业重大问题的统一决策权，又保证党组织的意见在企业重大问题决策中得到尊重和体现，真正把党组织参与重大问题决策与董事 会依法决策结合起来。
发挥政治核心作用，关键是党组织在企业选人用人中发挥主导作用。这一主导作用，既体现在党组织确定用人标准上，也 体现在研究推荐人选上，还包括完善评价体系、加强监督管理、培养后备人才等方面。坚持党管干部原则与董事会依法选择经营管理者以及经营管理者依法行使用人 权相结合，坚持组织考察推荐与市场化选聘经营管理者相结合，大力推进企业人事制度改革，使企业经营管理人员的选拔任用制度化、规范化、程序化，形成既能适 应公司法人治理结构的要求，又能保证党组织在企业选人用人中发挥主导作用的途径和办法。
发挥政治核心作用，根本要求是保证监督党和国家 的方针政策在企业贯彻执行。企业党组织不仅应当重视对人、财、物的监督，对企业主要负责人和关键岗位的监督，更应当加强对企业贯彻落实科学发展观和执行国 家方针政策的监督，推动企业在国民经济发展中发挥主导作用，带头履行政治责任和社会责任。同时还要注意统筹兼顾国家、企业、职工三者利益关系，积极协调各 种利益矛盾，切实维护国家利益和职工合法权益，保持企业职工思想稳定，促进企业和谐发展。
把国有企业党组织在公司治理结构中的政治核心 地位落到实处，离不开必要的体制机制支撑。必须适应现代企业制度的要求，构建能够确保党组织充分发挥政治核心作用的公司治理结构运行机制。实践表明，完善 的公司治理结构和健全的现代企业制度，具有明显的制度优势。企业党组织发挥政治核心作用，是国有企业独特的政治优势。只有从制度设计着手，不断完善国有企 业领导体制和组织管理制度，才能将两种优势有机结合起来，把党的思想政治优势、组织优势和群众工作优势转化为国有企业的核心竞争力，才能不断巩固党组织的 政治核心地位，使党建工作成为企业价值链上的重要环节，使党组织真正成为中国特色现代国有企业制度的有机组成部分。
我们坚信，只要广大国有企业党组织始终保持奋发有为的精神状态、求真务实的工作作风、永不懈怠的创新勇气，扎实工作，锐意进取，发挥好政治核心作用，就一定能够不断开创国有企业党建工作的新局面，谱写科学发展的新篇章！ [坚持国企党组织的政治核心地位不动摇 本报评论员 《 人民日报 》（ 2009年8月27日 01 版）
Clearly a Commentary is not law. Nor does it effect any formal changes in governance. It may not be directly enforced. But it does serve to indicate an important currents of understanding whose effects will be felt. For a commentary see, e.g., SOE Corporate Governance: the Party Comes First, China Stakes, Aug. 28, 2009 (“As more state-owned enterprises (SOEs) go abroad to acquire resources, assets, and other companies, and an increasing number of state-owned or state-held enterprises are listing in Hong Kong, New York, London, and Singapore, the corporate governance of these enterprises still remains distinctly a "Chinese characteristic," and the party dominates SOE corporate governance.”).
The implications could not be clearer. I note only some of the more important ones here:
1. The Western notion of corporate autonomy is not applicable to Chinese SWFs and SOEs in its relationship to the CCP, even if it is quite deeply built into the formal relationships between the state apparatus and the enterprise. But that relationship between CCP and enterprise ought not to be thought of as “private.” The CCP, as Party in Power, retains authority to provide overall guidance to all aspects of political and social life within the territory of the PRC. As such, one can consider the state apparatus and the SOE/SWF as occupying similar positions in their relationship to the CCP. Both are subject to the leadership of the CCP to the same extent. This ought ot change the form of analysis applied to an understanding of the nature and extent of the autonomy of Chinese SOEs and SWFs. This is not to suggest any bad motivation or bad faith on the part of the Chinese. They have been quite open about the form of the political organization of the state. Rather it suggests a blindness on the part of Western regulatory to the obvious.
2. The Western notions of corporate governance within enterprises is also not applicable to Chinese SOEs and SWFs. In this case, Chinese corporate governance must be understood in the same way as Chinese political governance is understood. While the state apparatus is based on the National People’s Congress system—the entire enterprise of the state is subject to the Guidance of the CCP. In this respect, the state apparatus (its government) is both autonomous but not supreme as to core political matters and fundamental political direction. The same relationship marks the internal corporate governance of SWFs and SOEs. While these enterprise are autonomous within their administrative spheres, the overall political direction of the enterprise is itself subject neither to the direction of the board of directors, or principally directed toward the wealth maximization of its shareholders. Instead, SWFs and SOEs necessarily operate to maximize the overall interests of the Chinese people (including the state) as directed by the CCP. “The unified decision-making power of the board of directors on major issues should be supported, while the views of the Party committee should also be respected and reflected. Thus, the participation of the Party in deciding vital issues integrates with the decision making of the board under law.” [坚持国企党组织的政治核心地位不动摇 本报评论员 《 人民日报 》（ 2009年8月27日 01 版.
3. The key focus of enterprise policy choices must be made in line with the overall policies of the CCP, policies that are as applicable by the state apparatus within the ambit of its authority in the public sector as it must be for SWFs and SOEs within the ambit of their particular authority within the private sector. That obligation extends to SWF and SOE activity both within the national territory and perhaps especially outside the national territory of the PRC. Like the state, SWFs and SOEs are extensions of the power of Chinese society, all directed to the attainment of the same set of objectives, each in its own way. In this sense, the separation between public and private, between regulatory and participatory activity and between political and economic activity is understood from a fundamentally distinct framework. “As a fundamental means to play the core political role, the Party shall ensure the implementation of principles and policies from the Party and state.” Id. Those principles serve as the core of the substantive provisions of the ordering of society and are as incumbent on economic as they are on political organs. In this sense, the CCP, and its governance frameworks, is meant to serve as source of political and economic values and objectives which are equally applicable by state and economic enterprise—whatever the formal or informal connection between state and economic enterprise.
4. The notion of value within this framework also takes on a distinctly non-Western meaning. The obligation of the enterprise is to maximize welfare (or wealth/value). This is understood not merely in terms of the production of money, but in the production of an increase in the strength of the CCP and its societal wealth maximizing policies. The CCP in SWFs and SOEs turns “the Party's ideological, political, and mass work advantage into the core competitiveness of SOEs, which can consolidate the core political status of the Party, make Party-building work a key part in the enterprise value chain, and make the Party committee an integral part in the modern state-owned enterprise system with Chinese characteristics.” Id. Thus, notions of competitiveness, value adding operations and efficiencies now turn on a values structure quite distinct from that understood as “standard” in the West. Because value production is measured differently, Western regulatory frameworks based on a different set of values maximizing frameworks would not transpose easily to this system. No better understanding of the great differences between this conception of values maximization and stakeholder model of corporate governance and that of the West, than to consider the recent “Report of the Task Force of the ABA Section of the Business Law Corporate Governance Committee on Delineation of Governance Roles& Responsibilities,” Aug. 1, 2009 . For the ABA Committee, economic activity in corporate form continues ot be grounded on the management of relationship among shareholders, managers and directors bent to the purpose of aggregating economic power—capital raising and capital deployment. To Chinese corporate governance, that appears only part of the equation. The value of the enterprise to the state is also measured on the ability of these enterprises to advance the political work of the CCP.
5. The relation of CCP to SWFs and SOEs is not exceptional in China. Article 19 of the Chinese Company Law requires every corporation to permit the establishment of an organization of the CCP in a company to carry out Party activities in the Company. The provision reads roughly as follows in English: “The organizations of the Communist Party of China may be established in companies and carry out their activities in accordance with the Constitution of the Communist Party of China. Companies shall provide the organizations of the Communist Party of China with conditions necessary for carrying out their activities.” (my thanks to my research assistant Siyu Zai for this translation). She notes that "Although no judicial interpretation addresses article 19, people both inside and outside the Party believe that it is an important amendment to the company law of China. It provide legal basis for the Party to inset its organizations into private enterprises, even though it had been doing the same before the 2005 amendment of the company law. The article also reflects the Party’s perception and characterization of the non-public sector of the economy of China, which is also evident from the evolution of characterization of the non-public sector economy in the Constitution of China." Id. "First, there exists no remedy or penalty for violating Article 19 in the company law. In Article 19 itself, nor remedy follows. Even a judge refer to Chapter 12 of the company law, which provides legal liabilities following the statutes, she cannot order any penalty for no following Article 19. In other words, violation of Article 19 incurs no liability. Id. But the nature of the extent of such activities is made clearer by the Commentary. It suggests both the mandatory character of the obligaiton of Article 19 and its scope—it extends to involvement in matters of “employment standards, recommending candidates, as well as improving evaluation systems, strengthening supervision and management, and training back-up human resources and so on. . . . The Party committee shall evaluate and recommends candidates, while the enterprise hires following the market rules.” [坚持国企党组织的政治核心地位不动摇 本报评论员 《 人民日报 》（ 2009年8月27日 01 版）]. But harmonized with the needs of enterprises to succeed on their own terms, “following the market rules.” Some have argued that “the constitutionality of Article 19 is questionable from the perspective of legal positivism. In essence, there might be no constitutional basis for granting such a privileged position to the CCP.” Wang Jiangyu, Company Law in China, 33 (2008). But it is clear that such notions are not shared by influential elements within the CCP. The Commentary “Unsweringly Upholding the Party’s Core Political Status, [坚持国企党组织的政治核心地位不动摇 本报评论员 《 人民日报 》（ 2009年8月27日 01 版）] is clear evidence of that.
But there is more to Article 19 than its focused effects on corporate governance. Moreover, under a reading of the Chinese Constitution that gives broad effect to the constitutional identification of the CCP as the Party in Power, it is possible to suggest a constitutional order in which both state and economic enterprise are in the same and parallel relationship to the CCP. If that is the case, then it might be necessary to understand the principles of separation of enterprise form state written into instruments like the Santiago Principles as requiring, as well, separation between enterprise and Party. From the perspective of the West, that separation would be as necessary as that between state organs and enterprises, if only to produce a global equivalence between enterprises. Because the CCP leads both state and enterprise, CCP lead enterprises might well function like state organs. But from the Chinese perspective, such a separation would be difficult to imagine. They might make a distinction between the governance functions of state organs and the political work of the CCP as something superior and distinct from the operation of the state, a stakeholder that is not the state but exists beyond the state apparatus.
6. This bring me to the last point, the Commentary suggests a conceptual frameworks for corporate democracy that is consonant with Chinese society but inimical to Western social and political organization frameworks. In the West, corporate governance is meant to parallel ideological understanding of the organization of society and the political order. In states grounded in modern notions of mass democracy that are to be given effect through organs of representative government, the role of shareholders (as polity) and directors and officers (as governmental organs), assumes a central role. The issues turn on the effectiveness of democracy—shareholder rights to election, managerial and directorial obligations to maximize shareholder value. But China is not a Western style democracy, and its version of mass democracy proceeds through the institution of the Party. See, Larry Catá Backer, The Party as Polity, the Communist Party, and the Chinese Constitutional State: A Theory of State-Party Constitutionalism, Journal of Chinese and Comparative Law, Vol. 16, No. 1, 2009; Penn State Legal Studies Research Paper No. 05-2009. Shareholders are an important constituency within Chinese corporations, but the fundamental democratic element within Chinese corporations, like the rest of Chinese society, is the CCP. If Chinese corporations are to parallel the ideological understanding of the organization of society and the political order, then the CCP will necessary assume an important, if not decisive place in corporate governance. This suggests an incorporation of corporate democracy in much the same way that shareholder rights are meant to serve the same effect in Western corporations. Party members come from different groups of the society. So the interest of the Party tends to diverse. In this circumstance, CCP interests in SOEs, SWFs and “private” economic entities represents a sort of popular or societal stakeholder in corporate governance. The difficult part for Western political culture, of course, is that this stakeholder also asserts an identical power over the organs of state simultaneously.
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David Schneiderman has noted that “Neo-liberalism and its institutional partner, the investment rules regime, aim to institutionalize model of constitutional government intended primarily to facilitate the free flow of goods, services, capital and persons unimpeded across the borders of national states.” David Schneiderman, Constitutionalizing Globalization: Investment Rules and Democracy’s Promise 2 (Cambridge: Cambridge University Press, 2008). This is to be accomplished through “an interlocking network of rules and rule making structures—an ‘investment rules regime’—that place substantive limits on state capacity in matters related to markets.” Id. But this notion, as advanced as it has become in its implementation, is grounded in a foundational premise—that all advanced states are constituted and operate in similar fashion. The archetype of that model is cast in the forms of the organization of the United States and the European Union. But that interlocking system of regulatory networks will fail in its ultimate object as long as it fails to take into account of important deviations from the archetypical models of governance form which it is constructed. Chinese governance systems do not sit comfortably within the presumptions from which these regulatory networks arise. China understands and operationalizes distinctions between public and private power, between state and economic sectors in ways that are not identical to those long embraced in the West. In its zeal to marginalize the place of the CCP within Chinese political organization (perhaps because of an insistence on conflating it with its Soviet predecessors) the West has sought to act as if the CCP did not exist. To some extent China has encouraged this. But the CCP exists. It remains muscular. It affects state and economic enterprises in equal measure. Until that current reality is confronted by architects of global governance it is likely that current efforts to globalize economic regulation will fail, or remain incomplete. And it will fail for incompleteness principally because of its failure to incorporate and domesticate within its systems the constitution of public and private power beyond that embraced by those who follow the model of United States and Europe.
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