More Chinese companies revising corporate charters to allow Communist Party ‘deeper management role’

A growing number of companies have granted the Chinese Communist Party an official role in management. Amendments are seen as a sign of President Xi Jinping’s tightening control

BE2C2 Report — Hundreds of Chinese companies have revised their corporate charters to allow a deeper management role for the Communist Party, a sign the ruling party is tightening its control over the private sector, report Nikkei Asian Review.

The report says at least 288 of the 3,314 companies listed on the Shanghai and Shenzhen stock exchanges at the end of July had changed their articles of association to ensure management policy that reflects the party’s will, disclosure forms show. The trend has accelerated sharply in recent months, with 197 companies reporting such amendments between April and July, says the report.

Changes include acknowledging a central role for the party and establishing internal party committees to be consulted on important decisions. Some stipulate that corporate chiefs also serve as the heads of in-house party organs.

Despite the Communist Party’s dominance over the Chinese state, it is unusual for publicly listed businesses to explicitly give the party a role in decision-making, much less write it into their charters.

Those following the trend include the nation’s big four banks as well as Baoshan Iron & Steel, China United Network Communications and Guangzhou Automobile Group. The carmaker, which operates joint ventures with Japan’s Toyota Motor and Honda Motor, changed its charter to state that it will set up a fully staffed party committee and guarantee its funding. Companies making changes also include Sinopec, the state oil company, report IR Magazine.

Leading asset managers BlackRock and Fidelity operating  in China also included the Communist Party into company law this year, according to disclosures revealed in the Financial Times.

The disclosures show that some of the world’s largest asset managers voted to rank the party above the boards of state-owned enterprises (SOEs).

More than 30 Hong Kong-listed SOEs (largest), representing more than $1 tn in market capitalization, have so far amended their articles of association to embed the party, rather than the Chinese state, at the heart of each group. The goal is to ensure that the party has ultimate sway over any corporate decisions. Any form of shareholder vote or say can now simply be overridden by the Communist Party, rather than the Chinese state.

Investors trading Hong Kong stocks may therefore find they now have a new business partner: the Chinese Communist party. It remains to be seen what Hong Kong regulators make of the issue. They are hard at work examining whether this amounts to market interference under Hong Kong’s listing rules, writes TheStreet.com.

China Railway Group,  one of China’s largest construction companies with huge operations overseas, also amended its corporate charter.

Its rules now state that “when the board of directors decides on material issues, it shall first listen to the opinions of the party committee of the company,” as this article in the Financial Times explains.

More are expected to do so as part of a push by Beijing to “improve productivity and transparency at SOEs”, which account for about a fifth of the country’s economic output, according to several reports.

The timing is odd, however, since China has generally been moving toward relaxing investment rules in various sectors, as well as making it easier for foreign investors to access domestic stocks listed in Shanghai and Shenzhen.

The rush to codify Communist Party influence in the private sector comes as Chinese President Xi Jinping looks to strengthen the party’s authority ahead of the twice-a-decade party congress and leadership shake-up this fall, wrote Nikkei Asian Review in its report.

Listed companies are no exception, it said, observing that, “particularly in cases where cozy ties with political heavyweights limit the party’s influence.” Xi has sought for some time to bring these businesses under his sway to eliminate potential challenges to his rule, the report commented.

“The sudden upswing in amendments to corporate charters can be seen as companies scrambling to express loyalty to a president working to solidify his position as the party’s sole authority.”

The report further says: The trend could spread further if Xi succeeds in consolidating power. This could cause problems for foreign companies if, for instance, the party’s influence keeps a local joint-venture partner from making prompt decisions about top-level appointments or new projects. Businesses will need to be more cautious than ever about investing in China.

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