Gilles Guiheux. Social Research. Volume 73, Issue 1, Spring 2006.

In 1978, during the third plenum op the eleventh national party congress, Deng Xiaoping initiated a new economic policy that was to have dramatic economic and social effects. Turning his back on Mao Zedong egalitarianism (pingjun zhuyi), Deng claimed “poverty is not socialism. Socialism means eliminating poverty.” From then on, people would be allowed to pursue material wealth and endeavor to improve their well-being, even if that meant that some might become richer than others. The new slogan was “Let certain regions, certain enterprises, certain people become rich first” (yibufen diqu, yibufen qiye, yibufen ten xianfuyu qilai). More than a quarter of a century later, rapid economic growth has dramatically improved the material well-being of the Chinese people, but it has also widened the gap between rich and poor—to such a level that it gives rise to spirited debates.

Among those who have greatly benefited from economic growth and the transition from a planned to a market economy are private entrepreneurs. Almost nonexistent in Maoist China, private entrepreneurs form today a significant part of the Chinese society. Some observers have gone so far as to suggest that China is moving from an “economy of employees” (dagongxingjingji) to an “economy of bosses” (laobanxing jingi). Though private entrepreneurs are still a tiny minority (according to one scholar, they represented 5 percent of the population in 1999), they have accumulated significant economic power. In rural China, they sometimes provide jobs and means of subsistence to villagers, a position that gives them clear influence over local affairs. In Chinese cities, because of their high level of income, they can afford to live in gated communities that are producing new forms of urban residential segregation.

Of course, situations vary. Individuals owning a private business (that is registered as such) can run a small restaurant at the corner of the street or operate several factories all over the country; they can have zero to hundreds or thousands of employees; they can sell their product or service to clients from the neighborhood or export to world markets. Variety aside, this article aims to analyze the means of political influence that private entrepreneurs have accumulated over the years. The issue came to the frontline of Chinese and foreign media when the former president and general secretary of the Chinese Communist Party, Jiang Zemin, formulated his “Three Represents” theory in a speech on the eightieth anniversary of the party on July 1, 2001. The theory has been widely touted as a call for private entrepreneurs to join the Communist Party. For the party state, which wishes to maintain (or even strengthen) its monopoly on political activities, the challenge is clearly to adjust to the fast-changing shape of Chinese society. The question being addressed is therefore how, in a still authoritarian regime, the emergence of a new social group or stratum, economically and socially influential, affects the political realm.

In the first section, this article reviews the conditions of the reemergence of private entrepreneurship in Communist China, which should be credited both to initiatives coming from society and the setting up of a new legal framework, and how this development led to the Three Represents theory. In the second, it looks at the various ways entrepreneurs take part in the political arena. Finally, the third section tries to assess the consequences of this participation.

The Return of Private Entrepreneurs

Over the last 27 years of reforms and opening up (gaigeyu kaifang), entrepreneurs have moved from the fringe to the center of the economic and political arenas. People engaging themselves in independent economic endeavors were being blamed and socially marginalized in the late 1970s. More than a quarter of century later, they are being praised for their contribution to the well-being of the whole Chinese society. It is not only that the structure of the Chinese economy has changed and that the private sector is playing a key economic role; it is also that the party and the state have acknowledged this fact and have revised their attitudes toward the individuals who embody that evolution. Private entrepreneurs who were persecuted during the 1950s are now being praised and have been courted by the Chinese Communist Party (CCP) since the 1990s.

In this section, I will review the growth of the private sector and its contribution to the Chinese economy. This growth was indeed made possible by the evolution of the legal framework. In a final part, I will review the debates that took place within the Chinese Communist Party and led to the formulation of the Three Represents theory by Jiang Zemin in 2000-2001. The theory is a logical end to the propaganda apparatus of the party’s efforts to celebrate the private sector’s contribution to the modernization of the country.

The Growing Private Sector

The 1990s witnessed the reemergence of private enterprises in China, not simply the small individual household enterprises, but firms of considerable scale. Until the mid-1990s, the organization at the heart of China’s economic dynamism was the collective enterprise. This entity was the property of local governments, which were in fact the first to benefit from the reform process. These reforms did not involve the privatization of the economy but rather the devolution of power to provincial, municipal, and village authorities. Against this background the private sector appeared shaky due to the vagaries of the economic policy of the time, and was weakened by the untimely taxes imposed by the bureaucracy.

Today, compared to the state and collective sectors, the private sector represents the most dynamic part of the Chinese economy. During the 1990s, private companies constituted the most dynamic part of the Chinese economy in terms of their growing number. Over the 1992-2002 decade, the yearly average growth of the number of private enterprises was 33 percent—compared with -2.73 percent for state enterprises and -7.6 percent for collective enterprises. In 2002 and in absolute terms, there were more private firms (2.43 million) than state (1.17 million) or collective (1.88 million) firms. Other indicators confirm this reading based on demographics. During the 1992-2002 decade, the average yearly growth of total registered capital of private enterprises was 60 percent compared with 10 percent for state firms and 2 percent for foreign firms. Private enterprises are thus not only more numerous, they are also growing in size. Consequently, they also employ a growing part of the workforce (by mid-2004, they employed more than 47.14 million people) (China Daily, Feb. 4, 2005: 1).

Because of lack of consistency in Chinese statistics, it is hard to give a quantitative figure on what the private economy might represent out of the total production. Estimates of the nonpublic sector’s contribution to gross domestic product vary from 20 percent to 50 percent. The nonpublic sector may represent as much as 80 percent of the total of industrial production, compared with almost none a quarter of century ago. Fragile and threatened by the political instability of the 1980s, the private economy is now a core part of the Chinese economy.

The Gradual Establishment of a Legal Framework

The development of private enterprises since the end of the 1970s can be divided into two stages. The first decade (1978-1988) is an informal entry stage during which entrepreneurs invaded the state to gain entry into the market in spite of the lack of a legal framework. The second stage starts in 1988 when the state legitimized private enterprises and permitted them to hire up to eight employees. Since then, the passage of new laws and successive revisions of the People’s Republic constitution have contributed significantly to the development of a private sector.

With the launching of the policy of opening up the economy, private enterprises developed first of all in the form of individual businesses that sprang up in the countryside. In July 1981, the State Council issued a text making legal reference to such economic activities then on identified by the term “individual enterprises” (getihu). This text stipulated that enterprises could have no more than seven employees and that their activities could be only complementary (buchong) to those of state-run and collective enterprises. New statutory texts dealing with fiscal matters and the control of these economic activities were published in 1983. Beijing did not formally sanction the reemergence of the individually owned economy until the 1982 constitution. Article 11 of the 1982 constitution states: “the individual economy of urban and rural working people, operating within the limits prescribed by law, is a complement to the socialist public economy. The state protects the lawful rights and interests of the individual economy. The state guides, assists and supervises the individual economy by administrative control.” However, the mere existence of formal legislation governing the private sector did not insulate it from broader shifts in the political environment. During the 1980s, the periodic political campaigns against spiritual pollution (1983-1984), bourgeois liberalization (1987), tax evasion, and corruption challenged the legitimacy of private enterprise to varying degrees.

The first time that the expression siying qiye—literally, “privately managed’—appeared in a party document was in January 1987 in a Central Committee paper bringing together “decisions about the widening of the reform process in the countryside.” In October 1987, the report to the thirteenth party congress recognized the need to encourage the development of the “privately managed” (siying jingji) economy. This political notion was quickly translated into legislation. In April 1988, the National People’s Congress modified article 11 of the constitution, which henceforth stipulated “the private economy (siying jingji) is authorized to exist and develop within the framework as provided by law. The private economy thus completes (buchong) the economic system of public ownership under socialism. The state guarantees the rights and interests of the private economy in conformity with the law.” In June 1988, the State Council adopted three new sets of regulations on what were now designated as private enterprises. These “Provisional Regulations on Private Enterprises” constituted the body of texts according to which the private enterprises were managed and stipulated their rights and obligations. This document defined a private enterprise as “a profit-making organization that is owned by individuals and employs at least eight people.”

The visit that Deng Xiaoping made to the south of the country in January 1992 set the reform process, stalled after the 1989, in motion again. The fourteenth party congress saw the consecration of the expression “socialist market economy” that then became the objective of the reforms. In fact, it was from this tour of the south by Deng that most of the Chinese private enterprises date (notably because many small and medium-sized enterprises previously registered as collective became private). A Company Law, adopted by the National People’s Congress in December 1993, defined the rights and obligations of two forms of enterprises: those with limited liability, and shareholder companies (whatever the mode of ownership of the enterprise, be it public, private, collective or foreign).

In September 1997, the fifteenth party congress recognized private enterprises as an “important element” (zhongyao bufen) of the Chinese economy. A year and a half later, on March 15, 1999, the National People’s Congress introduced a new modification to the constitution: “the individual economy, the private economy and the other forms of the non-state economy are important components (zhongyao zuzhi bufen) of the socialist market economy.” From being “complementary” to the state economy, the nonstate economy of which private and individual companies are a part (together with foreign firms and other mixed-status firms) became an “important” element of the socialist market economy. Unlike in the initial stage, the state then no longer restrained party cadres from entering into private business.

Because of the continuing flourishing of the private sector in different business forms and structures, there was a need to accord constitutional protection to these new forms of the private economy, hence the insertion of the phrase “the lawful private property of citizens is inviolable” (article 13) in the constitution in 2004 (until the 2004 revision, only “public property is declared sacred and inviolable” under article 12). In addition to providing protection, the revision adds that the state will provide encouragement and support to the development of the nonpublic economy (article 11). By doing so, the private sector finally achieves equal status with its public counterpart in most economic activities.

In the 1980s, it was still difficult to draw a clear line between the state and the nonstate economy. But during the 1990s, the numerous laws and regulations passed by the National People’s Congress and the administrations concerned laid the foundations for a gradual crystallization of the private sector (Guiheux, 2002). It is still incomplete, however, since many privately registered firms are state owned, and since there is still a high degree of porosity between the public and the nonpublic sectors.

The Debate Leading to the Three Represents Theory

The legal framework evolved as an active debate was taking place inside the party itself. At the turn of the century, the debate led up to the Three Represents theory, first put forward by President Jiang Zemin in February 2000.

Before the reforms, the CCP denied the legitimacy of private interest altogether, insisting that individual citizens reject it and dedicate themselves wholly to the public good as defined by party ideology. Mao developed a critique not just of capitalism, private property, and inequality, but also of material interest itself. The process of economic reform, with the accompanying rise of private business, called into question previously accepted meanings of public and private and the boundary between them.

In the 1980s there were three answers to the question of what should be the role of the entrepreneurs (Parris, 1999). Hard-liners argued that the official justification of the private sector did not conform to economic and political realities. According to the moderates, the private sector role should remain marginal and transitional, the private sector being a “necessary supplement” to the public economy. For the reformers, the private sector was becoming a key part of the overall economy. Private entrepreneurs and the new rich should be presented as patriotic and hardworking innovators who enrich not only themselves but also whole communities. Reformers argued for a more flexible understanding of socialism and the public interest. Not unlike reformers in the late Qing dynasty, they made the claim that the private was not inimical to the public but was a necessary part of it. The latter gained the upper hand during the 1997 party congress.

Jiang Zemin’s longest and most important exposition of his Three Represents theory can be found in his speech of July 1, 2001, on the eightieth anniversary of the founding of the CCP. In that speech Jiang made his controversial call for qualified members of the various social strata that have emerged over the reform period—including private entrepreneurs—to be admitted to the CCP. According to that theory, the party represents the development requirements of China’s advanced social productive forces, the progressive course of China’s advanced culture, and the fundamental interests of the majority of the Chinese people. The Three Represents theory was later enshrined in the Chinese Communist Party constitution at the sixteenth party congress in the fall of 2002 and in the preamble to the constitution in March 2004.

Official agencies have carried out regular surveys on the private sector throughout the 1990s, helping the state to build new analytical concepts to better understand the evolution of the economy and the society. A first national survey on the private economy was carried out in 1993, jointly organized by the department of the United Front of the Party, the Federation of Industry and Commerce, and a number of researchers from the Chinese Academy of Social Sciences. The survey has since been renewed four times. It provides information not only on the economic situations of private firms, but also on the sociological features of private businessmen. These researches have contributed to legitimizing the development of a private Chinese economy. For instance, they have popularized expressions such as “the economy that does not depend on public property” (feigongyou jingdi, also translated as “nonstate” or “nonpublic economy”) or the concept of “people’s rotted economy” (mingben jingji), which both signify individual and private companies and cast China’s private economy in a morally positive light.

After the July 1 speech, party commentary defended Jiang Zemin’s call in practical terms. Party leaders agreed that it was necessary to admit the most dynamic social forces in China or face the same fate as the Communist parties of the former Soviet Union and the socialist countries of Eastern Europe. Party commentary has repeatedly emphasized the rapid growth of the private economy and the party’s poor representation in that segment of society. Without representation in that dynamic segment of the economy, the CCP is bound to end up in the dustbin of history. Jiang’s vision was clearly elitist: he recognized that technology, the domestic economy, and globalization were changing very quickly, and he wanted to incorporate those forces into the CCP. Party theoreticians have argued that what matters is not the class origins of the members, but their ideology.

As a matter of fact, the inclusion of private entrepreneurs by the CCP is not a new phenomenon. Beginning the mid-1980s, entrepreneurs were co-opted into the party in large numbers, but fearing “bourgeois” influences were spreading into the party, the CCP banned the new recruitment of private entrepreneurs after the imposition of martial law in 1989. According to a survey conducted in 1993, 13 percent of private businesspeople were members of the party (Zhang Houyi and Liu Wenpu, 1995: 408). This percentage jumped to 18.1 percent in 1997, 19.9 percent in 2000, and 30.2 percent in 2002 (Zhang Houyi, Ming Zhili, and Liang Zhuanyun, 2003: 31). However, these entrepreneurs were not necessarily directly recruited. Over the reform period, a significant number of party members had become private entrepreneurs (in 2002, 80 percent of the entrepreneurs surveyed had become members of the party before starting a business).

The new legitimacy of the private economy and private entrepreneurs in a still-communist China has been won thanks to a redefinition of public good. Economic and social issues have moved to the center of the agenda of the Communist Party, which has adjusted its political discourse. Economic reform and the rise of the private economy have resulted in a struggle to redefine private interests as part of, rather than in opposition to, the public good. Since today the expansion of the private economy seems inevitable, the public good is no longer identified with revolutionary public spirit or the Communist vision but rather with a more instrumental notion of material well-being and national power. The latest version of this new conception of public good is the aim of building a “moderately well-off society” (xiaokang shehui) that includes quadrupling the 2000 GDP (around $900 per capita) by the year 2020. (The slogan reveals the need to sustain rapid economic growth and, at the same time, to pay more attention to the problems of inequality that have been part of the reform process. Private entrepreneurialism, which is contributing not only to produce goods and services, but also to creating job opportunities and to helping solve the unemployment issue, is seen as an important force in the realization of these goals.

The Various Ways of Participating

Entrepreneurs participate in politics in various ways. Some are members of the CCP, whether they joined before or after going into business; some serve as delegates in local (or national) People’s Congresses or Political Consultative Congresses; some have won elections at the grassroots level to the posts of village chief or village committee members; and most are members of business associations, designed to be an institutional link between the state and the private sector. This section reviews this two-pronged strategy: the co-optation of selected individuals into formal political institutions on one side, and the corporatist inclusion of entrepreneurs through organizations on the other side (Dickson, 2000-01; 2003).

The Co-optation of Individuals

Besides being a member of the CCP, there are at least three other different ways for “rich individuals to take part into politics” (furen congzheng). First, to be a member of a People’s Congress or a Political Consultative Congress (PCC), either at the local or national level. At the national level, in March 2004, there were 200 representatives of the nonpublic economy among the 2,900 members of the tenth National People’s Congress, compared with fewer then 50 in 1998 (“Minying qiyejia,” 2004: 10). Coming from the rich and developed provinces of Zhejiang, Jiangsu, and Guangdong, there were more than 10 private entrepreneurs. According to a survey, 35 percent of private entrepreneurs were members of a PCC and 17 percent were members of a People’s Congress in 2002 (membership is mostly at the local level: 95 percent are members of a congress that is below the provincial level) (Zhang Houyi, Ming Zhili, and Liang Zhuanyun, 2003: 46). PCC’s are the privileged arena for greeting private entrepreneurs since the institution’s mission, under the supervision of the CCP’s United Front department, is to promote cooperation between party and party nonmembers, such as members of the eight democratic parties, members of mass organizations, members of Taiwan, Hong Kong and Macao compatriots, returned overseas Chinese, and especially invited people.

Second, at the grassroots level, one way to participate in politics is to take part in village elections that have been carried out in China since the late 1980s. For example, in the prosperous Yiwu and Ningbo counties of Zhejiang province, 60 percent of the members of elected village committees own over 1 million yuan of property (Xinwen zhoukan, March 1, 2004: 34-35). They represent 80 percent of the positions of village party secretary and chief of village.

A third form of political participation, especially at the local level, is to directly join the administration. In some cases, the local government is actively pushing wealthy members of the community to get involved in politics. For instance, in the Qinghe county in Hebei province, once one makes a certain amount of money and pays a certain amount of tax, it is possible that he will be offered a civil servant position (nashui dangguan) (Xinwen zhoukan, 2004: 34-35).

The co-optation of selected individuals into formal political institutions, either the party, the local government’s administration, or congresses, at the local as well as at the national level, exposes the political system to the risk of widespread clientelism. At the local level, the motives to become involved in politics are various. Some businesspeople intend to access to specific resources, either material (land or bank credits) or immaterial (information on regulations and new policies). They are entering local politics to better serve their own individual or private interests. Others see it as a reward and a way to improve their social status. There are also those pushed to the front by authorities, feel responsible to the local society, and want to participate in public affairs as a way to pay back to the community. As one official puts it, “the fact that rich people take part in the political arena is a normal consequence of social development. Once they have accumulated wealth, people have other ideas in mind. They feel responsible to the society, and have their own opinions on social problems” (Xinwen zhoukan, 2004). At the national level, much like at the local level, the issue is to be sure that members of congresses, for instance, stand up for the public good, and not for their own sector-based interests, especially since delegates are only part-time (members of the National People’s Congress only come to Beijing a few weeks a year every spring) and, in the case of entrepreneurs, still spend most of their time running their own companies. The risk involved is that personal relationships develop into a patron and client system in which favors and protection are exchanged for support and loyalty. Though the fight against corruption is officially a fight against corrupt individuals, co-optation of individual members into the political realm can still be assumed to be a structurally favorable action.

The Corporatist Answer

As early as the mid-1990s, scholars started to pay attention to the emergence of a corporatist state in China (see Unger, 1996; Nevitt, 1996; Pearson, 1997; Dickson, 2003). They found extensive evidence of a system of representation in which interests were vertically organized into associations to limit and institutionalize the participation of key groups in the policy process. Indeed, along with the reforms, the party state has reestablished mass organizations to represent interests and the government has increasingly channeled its relations with key social actors through the associations. For the nonpublic sector, the three main associations are the All China Federation of Industry and Commerce (quanguo gongshang lian), the self-employed laborers’ association (geti laodongzhe xiehui), and the private entrepreneurs’ association (siying qiye xiehui). According to a survey, 90 percent of private entrepreneurs were members of the federation and 40 percent were members of one of the two other associations in 1993. Ten years later, 83.4 percent of private entrepreneurs are members of the federation and 48 percent are members of the two other associations. Thus, the federation can be considered the main representative of private sector interests.

The Federation of Industry and Commerce, originally established in October 1953 and inactive during the Cultural Revolution, was revived in 1977. In 1991, a document clearly states that the mission of the federation, which is officially nongovernmental (minjian), is to help the government in “administering the nonpublic sector and furthering a healthy development of the nonpublic sector of the economy.” The federation, under the supervision of the United Front department, should be “a bridge between the party and the government on one side and the nonstate on the other side.”

The extent to which these mass associations truly represent the interests of their members is debatable. Membership, and therefore membership dues, is often compulsory. In many localities, any business that is registered with the local Industrial and Commercial Management Bureau—the state agency charged with regulating private enterprises-is automatically registered with the local self-employed laborers’ association and the private entrepreneurs’ association as well. However, some studies have found that the associations are increasingly serving as corporatist institutions that represent and protect the interests of their members (Pearson, 1997: 122-131). According to Jonathan Linger, the federation has been carving out a role of actively representing large private interests to the local and central governments. There are indications that at the municipal and district levels, the federation branches (especially the Chambers of Commerce that are offshoots of the federation) have become attuned more to the interests of their constituencies than they are to the interests of the state.

As a matter of fact, there is a wide variety of private entrepreneurs’ political behavior: if some actively aim at taking part in political institutions, some may just follow official policies for the sake of their own peace, while others may try to avoid party members or administration representatives, who are viewed as predatory. The most proactive businesspeople possibly hold positions in both the formal political realm and the professional associations. This is the case of Yin Mingshan, the head of the Lifan group (which manufactures motorcycles) in Chongqing. Yin Mingshan, one of China’s wealthiest private entrepreneurs, with more than 5,000 employees, became president of the Chongqing Federation of Industry and Commerce in April 2002 and vice chairman of the Chongqing Political Consultative Congress in January 2003. He was then the first private businessman in China to be awarded such a high position.

The Impact of Political Participation

Leaving aside the question of how the inclusion of entrepreneurs in the political system might be a cause of structural corruption, this last section looks at other effects of entrepreneurs’ political participation. First, it puts this participation back into the specific context of the Chinese reform process. Then it looks at the issue of policymaking. Finally, it reveals the informal pact that the Communist Party seems to have made with the business community.

Business-Government Relations: A History of Cooperation, Not Confrontation

Are these new corporatist links simply tools of the state or can they represent views of their members? In China, this dichotomy seems to be a false choice since most individuals and groups do not seek autonomy but rather closer embeddedness with the state. In the Chinese context, autonomy is akin to powerlessness. Those who want to best pursue their interests and maximize their leverage look for ways of being connected to the state. Government-business relations in China, as in much of East Asia, and in sharp contrast to many Western countries, are more cooperative than antagonistic. Indeed, private entrepreneurs have been among the primary beneficiaries of economic reform in China and have little reason to challenge the regime’s policy priorities. Margaret Pearson describes the dichotomy of the “Janus face” of business associations as simultaneously representing the state and the businesspeople themselves (Pearson, 1997: 44-64). And this is the consequence of a double heritage comprised of the recent socialist history and the pre-revolutionary period. The desire to be within the system is stronger than the desire for autonomy, where autonomy from the state has major disadvantages. As is the case elsewhere in Asia, entrepreneurs are partners with the state, not adversaries.

The social origin of private businesspeople proves that symbiotic relationships, since they do not come outside of the system, are part of it (Guiheux, 2003). Taking the level of education as an indicator, in 1993, 46 percent of private businesspeople had, at the maximum, junior secondary education. By 2002, the figure had dropped to 19 percent, whereas the percentage of individuals graduated from university had increased from 17 percent to 38.4 percent. Undoubtedly, private businesspeople are increasingly qualified. The same survey reveals that, in 2002, a majority of those who were running a private business had been cadres (either in public enterprises or administrations) before starting a business (Zhang Houyi, Ming Zhili, and Liang Zhuanyun, 2003: 34). As a matter of fact, for most of the first individuals to engage in private economic activities in the late 1970s and early 1980s, launching a business was more a question of survival than a deliberate career path; they had no education, no political connections, and no affiliation to any working unit. But with time, a growing percentage have had earlier careers in the administration of the party state or in public sector firms. Whereas the party let (or sometimes encouraged) people to get into the private sector, individuals from within existing structures led economic change. The fact that its members have had former careers or a strong education background highlights the centrality of the party state. This may be explained by the fact that entrepreneurialism, in the Chinese economic context of the 1990s, has been more characterized by its organizational capacities than its technical innovations. As Barbara Krug puts it, if “the Western concept of entrepreneurship is focused on the ability of the individual to identify profitable opportunities,” in China, the key factor in successful entrepreneurship is “the ability to form an alliance” with those who control the financial, physical or human resources needed for brokering market entry (Krug, 2004: 60).

Yin Mingshan, mentioned earlier, comments in the following terms on his appointment as vice chairman of the Chongqing Political Consultative Congress: “Many Western media have considered [that] the nonpublic sector is choosing its spokesperson so that its voice will be better heard in the political arena. I don’t share this point of view. It means that the private sector is developing against the government…. But the private sector in China didn’t develop in [the same types of] conditions as [the] Western market economies. From the very first day, we developed with the support of the government” (Zhongguo qiye jia, 2003). Sun Xiaohua, vice chairman of the All China Federation of Industry and Commerce, shares the same perspective: “if enterprises are too far from the authorities, they don’t get its support, and that’s not possible. A firm that wants to develop, either public or private, it cannot move away from the government. This is a specific feature of China” (21st Century Economic Herald, 2003: 1, 2). For these two members of the Chinese business elite, business-government relations are made through cooperation.

Entrepreneurs and Policymaking

The ultimate test of the political role of businessmen (and business associations) is their influence on policy making. Is the political participation of entrepreneurs conducive to “good” economic policies of market adjustment, bank reform, enterprise restructuring, transparency, and other deepening reforms?

One hypothesis is that businesspeople intend to be close to the party system in order to gain advantages and preferential treatments. Party membership would give them easier access to loans and official protection from competition and would lead eventually to unfair policy implementation (the Chinese expression quanqian jiaoyi describes the “exchange of power against money”). The effect of this alliance is to reduce the efficiency and competitiveness of the market system by discouraging new entrants from joining the market, and to encourage rent-seeking among entrepreneurs and cadres. Entrepreneurs who already have connections are therefore not interested in further reforming the distorted economy. The party-businesspeople coalition reduces the incentives for structural change (see Eun Kyong Choi and Kate Xiao Zhou, 2001).

In 1997 and 1999, Bruce J. Dickson conducted a survey of the owners and operators of large and medium-scale private enterprises (those with reported annual sales of over 1 million renminbi) and the local party and government officials with whom they interact (Dickson, 2002). Eight counties were selected in Zhejiang, Shandong, Hebei, and Hunan. The vast majority of businesspeople surveyed believed that business associations do represent the interests of their members. A slight majority also believed the associations represent the government’s position. What appears to be discriminating is the local context. Those in the counties with prosperous economies and high levels of privatization were much more likely to agree that their business association represented the government’s viewpoint, but they also had lower expectations that business associations could influence policy implementation. In terms of ability to influence policy, the survey data suggest that businesspeople view business associations as able to represent their views, solve their problems and influence the local implementation of policy.

A concrete example of claims supported by business associations is the legal protection of private property. The All China Federation of Industry and Commerce made regular proposals to the National Political Consultative Congress in 1998, 2002, and 2003, but it was only in 2004 that the People’s Congress finally adopted the measure. Another clear example is the issue of credit access. For all of China’s embracing of the free market, private businesspeople continue to suffer discrimination, and getting a loan from a state-owned bank is still extremely hard; securing a listing on one of China’s two stock exchanges (almost the exclusive territory of state-controlled enterprises) is next to impossible. That’s why private entrepreneurs are now fighting for better access to credit. According to a survey carried out in 2000, the first three priorities of private businesspeople when it comes to reforms are: better access to bank credit, an end to corruption, and fiscal reform (Zhang Houyi, Ming Zhili, and Liang Zhuanyun, 2003: 109). Yin Minghsan is one private entrepreneur advocating policy changes that could make it easier for the private sector to develop, and especially for the private sector to be allowed to operate banks. This, he argues, would promote the development of institutions that could cater more effectively to the needs of small and medium-sized enterprises than can the big four state-owned giants or the similarly bad-debt-laden city commercial banks. Yin argues that, since China is going to allow foreign banks to expand in accordance with the pledges it made when it joined the World Trade Organization in 2001, it ought to give domestic nonstate investors the same privileges. “We often say that foreign investment is like a son-in-law: it’s no good acquiring one if it makes your son walk off in anger,” he says.

At the same time, Yin also promises that he “will never set himself against the party as a critic” (Far Eastern Economic Review, 2003: 28-31). With those who champion the transformation of the federation into an authentic syndicate and who think that it should abandon its United Front feature, Yin Mingshan disagrees. “Indeed, the nonpublic economy develops very rapidly and employs a growing part of the total workforce. But the actors of the nonpublic economy are not paying enough attention to the building of a socialist market economy, and to the choices made by the political leaders.” According to him, there is a need to strengthen the role of the federation in order to “lead and unite the forces of the nonpublic economy. The federation must remain under the leadership of the United Front department, must remain an auxiliary of the government agencies” (21st Century Economic Herald, 2004a: 9).

The Call for Corporate Social Responsibility

In return for policy changes that would make it easier for the private sector to develop, the party state is expecting the business sector to support, at least indirectly, its leadership. At a time when the government is shifting its priority from quantitative to qualitative growth, and underlining the need for a more equal distribution of wealth, there is a growing number of calls made to enterprises to be more socially responsible (shehui zeren) and to act in a civic manner (qiye gongmin).

Bao Yujun, vice chairman of the All China Federation of Industry and Commerce, points out the three main contributions of the private economy to the community as a whole: first, in providing jobs they help solve the unemployment issue; second, in paying taxes they enrich governments; and third, they can also make donations to charities (Nanfang zhoumo, 2004: 14). The latter means that he calls on entrepreneurs not only to pay their taxes according to regulations, but also to financially support organizations that build roads, schools, or hospitals since the state is subcontracting or transferring these responsibility to nonstate actors.

In an interview carried out in Beijing on the occasion of the first Chinese forum on civic firms firm and public good activities, the chairperson of the China Charity Association (Zhonghua cishan zonghui), Fang Baojun, declared that a successful firm must have a “civic conscience.” Attention should be paid not only to economic efficiency, but also to how a firm affects society and the environment. “Its influence must be positive,” he declared (21st Century Economic Herald, 2004b: 1, 2). Fang then gave examples of the activities in which a firm should be involved, such as taking part in the “hope project” (xiwanggongcheng) launched by the government to build schools in impoverished parts of the country. According to him, being a “civic enterprise” in China mostly means being involved in charities. He also acknowledged that firms do not fulfill their main duties (such as paying taxes and being respectful of the natural environment).

According to Gao Tianle, chairman of the board of the Tianzheng group in Wenzhou, the “social responsibility of private enterprise” means that the firm should be accountable to its employees, to consumers, and also to the environment (21st Century Economic Herald, 2004a: 10). To pay taxes according to the regulations is not enough. Though Gao acknowledges that the legal system needs to be improved, he claims that firms should obey the law, notably the labor and safety laws, and laws protecting the environment. Firms should not be evaluated only according to their economic results, but also according to their social responsibility.

On the occasion of the publication of a list of Chinese entrepreneurs that take into account their civic responsibility, the Nanfang zhoumou published an editorial that called on private entrepreneurs to be more accountable to the society (Nanfang zhoumou, 2004: 9). The first duty of a firm is to pay its taxes. But this is not enough: enterprises should also “give back to the society” and contribute to causes such as leveling income inequalities and respecting workers’ rights.

From these various quotations it is clear, though there is no unique definition of a firm’s social responsibility, that the authorities are worried that prosperity and economic development are increasingly being pursued at the expense of the interest of the whole community, and that may put their leadership at risk. Unable to enforce laws and regulations that already exist (regarding labor, safety or environmental issues, for instance), they are calling enterprises to be more responsible, which is a hazardous strategy. The reforms and opening up of China have undoubtedly led to the emergence of new types of economic actors such as foreign enterprises and Chinese private businesses. Although Chinese statistical categories do not equal those in the West, and although privately registered firms can be de facto owned by state agencies or state-related individuals, a legal framework has been gradually set up that makes part of the economy legally independent from the state apparatus.

Assessing the impact of the political participation of private entrepreneurs is much more difficult. The dramatic rise and expansion of the private sector have come with increased integration of the state and private sectors, symbolized by the large numbers of so-called red capitalists among private entrepreneurs. The state and private entrepreneurs do not conflict with each other, but rather cooperate. Rather than seeking autonomy to enhance their power and wield influence over the state, entrepreneurs seek to be more closely integrated into the political system as it exists. At the micro level, the closeness of individual entrepreneurs to state representatives (or their direct involvement into politics) may lead to unfairness and corruption. At the macro level, private businessmen have developed into a lobby that has an increasing ability to influence policymaking.

That does not mean that there are no points of disagreement between the two parts, or that the state may not resist reforms that business representatives are calling for (the legal protection of individual property took several years to be put into the constitution), but there is agreement on the goals yet to be achieved. Large private businesses are the product of the party’s reform policies and proof, ironically, of their success: the prosperity they enjoy was made possible by post-Mao reforms. Like state authorities, entrepreneurs favor and promote social stability as a necessary condition for their own prosperity. Besides, Leninist logic still prevails and the Communist Party would not tolerate any autonomous organizations. That is why entrepreneurs’ interests may lie more with the preservation of the authoritarian one-party state than with democratization.

In the long term, at best, businesspeople may contribute to the strengthening of the rule of law and more market liberalization, but not to democratization. In the short term, the issue at stake is that if entrepreneurs are emerging as a lobby able to shape state policies, there is hardly any equivalent that represents the interests of consumers, farmers, or laid-off workers. The Three Represents theory should be taken seriously; it reveals the concerns of the Communist Party and its attempts to adjust to contemporary challenges and to think about its future role. But as an attempt to claim contemporary relevance, it may not be enough to outline what future Chinese society would look like and how the relationship between state and society will change.