Party-state Capitalism: China's way of dealing with political conflicts

In 2021, Xi Jinping announced that China has entered a new development stage known as “Common prosperity”. The old “growth over equity” developmental path could no longer secure social stability because growing inequality reduced the middle class´s social mobility. Common prosperity has manifested itself in regulatory crackdowns on different economic sectors such as technology, education and entertainment. The Chinese Communist Party(CPP) has for instance issued an anti-monopoly law, introduced caps on property loans, banned private tutoring and pressured companies to pay to charity. Initiatives aim to ensure economic redistribution to address spatial and social inequality in Chinese society.

The new regulations have also redefined the relationship between the Chinese state and the economic sector. Trey McArver, an analyst at Trivium China, argues that companies´ main job “is no longer to make money, but instead to contribute to societal goods.” Companies must adjust to a new political reality and redefine their own strategies to meet the demands of the CCP.

Top-down implementation of a new political and economic strategy may be easier said than done. Such a transition may be met with resistance because “growth over equity” is still the norm in Chinese political and economic thinking. As Sebastian Heilmann, expert on China's political system, observes, introducing a new development plan that is not export and growth-oriented may produce conflicts between the state and the companies. As a result, the CCP faces a situation where they have to turn their new norms into widely accepted norms. According to Antonio Gramsci, an Italian marxist, cultural hegemony describes a situation where the ruling class turns their own beliefs and norms into a hegemonic thought so these beliefs and norms become the accepted norm.

Hence, the CCP´s task is to turn their new framing, the Common Prosperity agenda, into accepted norms, so companies will implement new policies without prompting. Another difficulty is China's fragmented political system. Political bargaining takes place “at all [administrative] levels throughout the policy-making and implementation systems” and thus the policy arena is characterised by contestation, not consensus. Horizontal and vertical competition results in the creation of many different interest groups and interests on different administrative layers that aim to influence policies according to their own ends. Thus, conflicts can erupt between political and economic actors and between different administrative layers in this transition process.

In order to address the potential conflicts between state and business and to control the implementation process of the new norms, the central leadership has accompanied the new development stage with a new understanding of the relationship between the party and the economic sector known as party-state capitalism. This can be seen as a way to ensure stability and consensus among the state and business instead of conflict in a time where China redefines its economic and political objectives and to reduce the potential conflict of interests between the state and companies.

According to Jean Pierre Anastassopoulos, an expert on relations between the state and the business environment, conflicts can arise at two levels: A relational-economic level where corporate strategies conflict with public strategies, and at an organizational level, where the managers of companies fight with the state. Since conflicts may arise at a macro level and a micro-level, the new party-state capitalism has two main objectives. On a macro level, the CCP aims to build networks between the central government, SOE´s and private companies. These networks or “eco-systems”, aim to make companies more or less dependent on the CCP and reduce their autonomy vis-a-vis CCP. Since the CCP already has economic power over the state-owned companies, the focus has been to increase their economic control over the private sector. The CCP aims to set up state-owned capital investment companies that can invest in non-state and private owned companies. By buying stock equity, CCP acquires small stakes in private owned companies, which ensures that the CCP can maintain its relations with privately-owned companies and maintain networks between the CCP and privately owned companies. The main aim is to reduce the potential socio-economic conflict and align corporate strategies with public interests to make the transition towards common prosperity smoother.

On a micro level, party-state capitalism aims to expand the CCP´s institutional power over both state owned and private owned companies and increase the Party's influence over decisions within firms. Party cells are the most significant manifestation of the CCP´s control with the companies on a micro-level. As three scholars from Harvard note: “A basic indicator of the Chinese party-state´s institutional expansion is the resurgence of party cells inside enterprises, including the private businesses and even foreign firms”. State owned and private- owned companies are required to set up party cells whose main objective is to recruit party members amongst the employees, organising study sessions and shaping working style in the companies. Party cells are part of the corporate governance structure in companies and may contribute with proposals. While party cells are not a new phenomenon in China, party cells have been expanded to private owned companies and even foreign companies under the party-state capitalism narrative. According to the CPP, over 73 percent of non-state firms have a party cell. Besides party cells, government officials have set up offices within firms which report directly to the government. It is clear that both party cells and other kinds of party offices provide CCP with an oversight role within companies, where they can control whether the new economic paradigm is implemented within the firms.

Overall, the aim of party-state capitalism is to reduce conflicts between the state and companies on both a socio-economic level and on an organizational level as China redefines its political and economic goals. Party-state capitalism reduces the autonomy of companies, but will make it easier for CCP to control the situation until their “Common Prosperity” development goal has been accepted by Chinese society and the economic sector. So, even though party-state capitalism increases the politicization of the economy, the CCP sees it as necessary to reduce the conflict and foster consensus among different political and economic actors as well as to encourage unity in a fragmented political system.