Argument

Chinese Firms Can’t Avoid Being Party Tools

The sale of British Steel is a dangerous foothold for Chinese Communist Party power in the U.K.

Workers line up to sing communist "red" songs at an instant noodle factory run by Nanjie village in China's central Henan province.
Workers line up to sing communist "red" songs at an instant noodle factory run by Nanjie village in China's central Henan province on Sept. 29, 2017. Greg Baker/AFP via Getty Images

British Steel has often served as a window onto the prevailing political landscape in Britain as a commodity that once forged the empire became a symbol of national decline. As part of attempts at revival in 1988, the Conservatives turned the British Steel Corporation—originally the product of an ambitious nationalization scheme in 1967—into British Steel PLC as part of the great push toward privatization that still reverberates through the U.K.’s industries and infrastructure. On Monday morning it was announced that the Chinese conglomerate Jingye would rescue the stricken steelmaker, saving thousands of jobs—mainly in northern England. Underpinning this development is another seismic shift in British society—albeit one less noticed.

There’s no doubt the deal is good for British Steel’s workers in the depressed town of Scunthorpe, who have labored under uncertainty and, until recently, the flawed leadership of a private equity group. There is still caution and perhaps even a degree of skepticism about the promised 1.2 billion-pound investment, about $1.5 billion, but the future looks far brighter than it did only days earlier.

Yet stepping back, this development constitutes a slide toward greater dependence on the Chinese party-state and forms another tie in the knots binding together Britain’s boisterous parliamentary democracy with an illiberal Leninist vanguard party, the Chinese Communist Party (CCP). The questions of Chinese party-state ownership are not the same as those of foreign ownership in general, nor the often-discussed drawbacks of transnational capital. Today, as Brexit approaches and Britain embarks on a desperately indulgent farewell tour of a golden age that never existed, the U.K. is coming perilously close to rendering itself dependent on Chinese capital—with unsettling implications.

To be sure, acquisition of British Steel is not nearly as spectacular as the Chinese intervention into the U.K.’s civil nuclear sector. In that case, a deal on financing for the Hinkley Point C nuclear power station came with assurances from the British side that the China General Nuclear Power Group would be able to take the operational lead on a new nuclear power station in Bradwell. This spectacularly reckless promise marked the zenith of the “money men” and their power over security officials during the leadership of former U.K. Prime Minister David Cameron and enthusiastic backer of Chinese investment Chancellor George Osborne. Yet steel may still be considered a key component of Britain’s security, and a more confident government might have thought twice before allowing it to be handed over to an increasingly adversarial foreign power.

Proponents of Chinese investment usually claim that these firms are private. But the landscape in which nominally private firms such as the Jingye Group sit in China is far different from the divisions the West is used to. In China, the power of the CCP is an underlying reality in every sector—not a goal for the party so much as an assumption about the state of the world. The CCP simply must lead and thus, all measures that defend and further entrench the position of the party are permissible.

That has produced a state of affairs where no organization is beyond the orbit of the CCP. I have previously dubbed this a “latent network.” Because China is a “rule by law” country rather than “rule of law,” the law itself becomes simply another tool to preserve CCP power. There are no instances of Chinese firms using the law to resist the demands of the CCP in the way that, for instance, Apple defied the FBI in 2015 over encryption; the very idea would be absurd. This distinction is vital to engagement with China. Discard the misguided cultural and historical justifications such as calls to Confucianism or supposed Asian values. At the core of the state there is power, and that power’s name is the party. All sit under that power, including the state itself. This is the party-state

Under Chinese President Xi Jinping, the extent of party control has become more readily apparent—thanks to the placement of party watchdogs directly within nominally private firms, or the humiliating pledges to serve the party that business leaders have been forced to make in public. But much still takes place out of sight, in the realm of purges, threats, and power. A casual glance at a very partial list of billionaires and company leaders who have been arrested, disappeared, or died by suicide over the last few years reveals how fragile even the richest people in China are.

Ultimately, every organization is dependent on the continued patronage of the CCP for its existence. This does not mean that companies are micromanaged by the CCP, but it does lead to second-guessing of CCP desires and, if the situation is serious enough, CCP appropriation of the organizations in question. These unwritten rules apply to organizations and institutions of any meaningful size.

Consider what any country would look like if the higher echelons of a single, tightly organized political party controlled the judiciary, the media, the police force, the armed forces, education, all unions, major companies, and major religious groups. These groups proceed according to their own desires and aims—but recognize their own dependence on the CCP and thus not only bend toward what they believe leaders want but are also pliant when direct demands are made of them. The CCP does not control them directly—but they must do as they are told when told by the party.

Take the Sanlu milk scandal, in which at least half a dozen babies died as a result of tainted formula, and tens of thousands became sick. The company’s board belatedly decided to issue a full product recall in the face of overwhelming evidence that its product was damaging infants. The board was supposedly legally autonomous, but its decision was overruled by the Shijiazhuang city government as political considerations took precedence over public health. Baidu, China’s internet giant, was reportedly part of the cover-up that followed, all while catastrophic damage to Chinese infants occurred. The scandal only came to light because of actors entirely outside China. Sanlu’s New Zealander partners at the dairy multinational Fonterra, after extensive deliberation, eventually reported concerns themselves to the central government via their country’s ambassador in Beijing.

Individual deals are not part of some sinister master plan on behalf of the CCP. The authorities have sometimes been hostile to them where they consider the deals potentially detrimental to the party, for example where they might be perceived as attempts to move private wealth out of China itself. But each of them represents a potential asset, one that, as with any organization in China, can be mobilized on behalf of party aims. Consider the degree to which even U.S. firms have been willing to censor themselves—whether in Hollywood or the NBA‚ merely to reach Chinese markets; how much greater are the pressures when the company’s very existence, not to mention the lives or freedom of its executives, are at stake?

What marks out the British Steel acquisition is not the pyrotechnics but the mundanity of the deal. Each time a CCP entity acquires a company in this way, the U.K. becomes slightly more entangled in the party-state’s networks. Such entrenchment makes pushback harder should a reckoning ever come. Other countries, such as Australia, are holding a national conversation about their involvement with the Chinese party-state. The U.K., distracted and divided by Brexit, is in no position to do so.

Martin Thorley is a PhD candidate at the School of Politics and International Relations at the University of Nottingham specializing in international interactions with the Chinese party-state.

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