Business is not usual in China as Xi turns screws

Jörg Wuttke, president of the European Union Chamber of Commerce in China, said the Chinese economy was now more inward-looking, less accessible and deeply ingrained with Xi’s “ideological touch.”

“It’s not the China that I grew accustomed to for the last 30 years,” said Wuttke, who has lived in the country since 1993.

Three decades ago, China’s leader at the time, Deng Xiaoping, captured the nation’s attention with a tour of southeastern coastal cities to rally support for economic reforms. A wave of young people, inspired by Deng’s commitment to open China to the rest of the world, flooded into major cities to pursue business opportunities.

In 1994, Wen Kaifu quit his job as a middle school teacher in the southeastern province of Jiangxi and moved to Shenzhen, one of the country’s first special economic zones, to work for a display manufacturer. Returning in 2004, he started his own company, Holitech Technology, to make liquid crystal displays, the screens used in billions of smartphones.

As Xiaomi and other Chinese handset manufacturers blossomed, so did Holitech. In 2014, the company went public, and Wen became one of China’s wealthiest people with a net worth of $US4.1 billion. That same year, China minted more than 70 new billionaires.

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Like many Chinese companies that followed the government’s directive to “go global,” Holitech grew bolder in its expansion plans. After its public offering, it acquired seven Chinese component makers. Holitech built facilities in California and Europe, and it pledged to open a factory in India, promising to deliver 6,000 jobs.

“We’re not aiming to be No. 1 in the region or No. 1 in China,” Wen said at an awards ceremony in 2017. “We’re gunning for No. 1 in the world.”

Then Xi’s priorities shifted. In 2018, Beijing initiated a nationwide push to curb excessive borrowing by private companies. Holitech had $US1 billion in loans and few options for refinancing. The company’s share price plunged, along with Wen’s wealth. China’s securities watchdog investigated him for failing to pay his debts.

State-owned enterprises — called “an important pillar and strength for our party” by Xi — were largely insulated from the debt crackdown.

Fujian Electronics and Information Group, a state-owned holding company of electronic component makers, stepped in to rescue Holitech. It paid roughly $US450 million for 15% of Holitech and a controlling voting stake in 2018.

“The logic of having strong state ownership has been around for a while but it’s sped up under Xi,” said Chris Marquis, a business professor at Cambridge University and an author of Mao and Markets: The Communist Roots of Chinese Enterprise.

From 2019 to 2021, state-owned enterprises acquired more than 110 publicly traded Chinese companies, valued at more than $US83 billion, according to PwC. Such acquisitions were rare before Xi took over in 2012; by then state-owned enterprises’ share of the economy had been declining.

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After the Fujian investment, Holitech became an example of what Xi envisioned in a 2020 speech to “unify members of the private sector around the party.”

Holitech was enlisted in China’s nationwide mask production blitz. The company’s newly emboldened party committee led activities on party building and lessons on party history where employees experienced “a baptism of patriotic education.” In accordance with Xi’s plans to revitalize rural areas, Holitech, with the help of Fujian Electronics, invested more than $US1 billion in a new industrial park this summer.

When Wen officially stepped back from the company last year, he was replaced by Huang Aiwu, a member of Fujian Electronics’ party committee.

Holitech and Fujian Electronics did not respond to a request for comment.

In his prepared remarks on Sunday, Xi emphasised the importance of ensuring that “state-owned capital and enterprises get stronger, do better and grow bigger.” He also declared — in standard Communist Party doublespeak — the importance of “high-level opening to the outside world.”

But for foreign firms, China’s preferences are now clear: In the scramble for access to the Chinese market, state-owned enterprises get priority.

The blurring lines between politics and business have forced some foreign firms into a difficult decision on whether to play by China’s rules.

“There is growing political interference in the way we do business as a Western company in China.”

Carlos Tavares, the CEOof Dutch car company Stellantis, which dissolved its partnership with state-owned Guangzhou Automobile Group.

Internet companies operating in China must adhere to increasingly stringent rules about proactively censoring content. Overseas technology companies with Chinese customers must house user data in China. And any criticism of China’s policies toward Taiwan or Hong Kong or its human rights record is met with a sharp rebuke and online mobs.

It has forced companies into a choice: separate their global businesses into two parts or scale down their Chinese operations significantly.

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Stellantis originally wanted to increase its stake in a joint venture to produce Jeeps with state-owned Guangzhou Automobile Group. But the Dutch company said Chinese officials had not approved the plan, which would have meant fewer jobs for Chinese workers. In July, Stellantis decided to dissolve the partnership.

Carlos Tavares, Stellantis’ CEO, said the Chinese automaker had breached its trust and that “political pressure” was affecting his former partner’s decision-making.

“There is growing political interference in the way we do business as a Western company in China,” he told the Financial Times.