Publication: China Brief Volume: 2 Issue: 22

Whether private businessmen will get due recognition at the 16th Communist Party Congress has become a litmus test of the leadership’s commitment to both economic and political reform. Latest indications are that while President Jiang Zemin will formalize the rights of “red capitalists” to be enrolled as party members, the incomers may face an uphill battle to end Beijing’s decades-old discrimination against the nonstate sector.

In the run-up to the week-long Party Congress, which opens on November 8, nonstate entrepreneurs have been busy lobbying both cadres and influential media. What the businessmen are after is simple: legal guarantee of the inviolability of private capital and property, and the ability to compete with state-owned enterprises (SOEs) on an equal footing. According to well-known economist Dong Furen, lack of legal protection for private wealth is one major reason why so many red bosses have moved their assets and businesses abroad.

A new deal for the private sector will require revisions of the both the Communist Party and the state constitutions, which state that China is committed to the “socialist road.” Moreover, the government must live up to promises that private firms can get into sectors–such as foreign trade and telecommunications–open, with few exceptions, only to state firms.

In a rare move for the usually low-profile “exploiters of the people,” a large number of red capitalists have been extraordinarily outspoken while talking to mainland, Taiwan and Hong Kong journalists. Latest statistics from the official Xinhua News Agency showed there were 2 million registered private companies as of the end of 2001. They employed 27 million staff and had a capital of RMB1.8 trillion. Unofficial estimates said the private sector accounted for more than 40 percent of the economy. The ten largest nonstate corporations, led by computer giant Legend Group, had sales of over RMB91 billion last year.

Many private-sector behemoths, however, are still treated as second-class corporate citizens. For example, nonstate firms have found it much more difficult than state-owned concerns to get loans from banks. Only 15 percent of the loans that major state banks have extended have gone to private firms. To facilitate financing among private-sector companies, businessmen in Zhejiang Province and other coastal areas have opened quasi-private or “underground” banks many of which are still not recognized by the government.

One of Hebei Province’s most famous private entrepreneurs, Zhang Chunlai, has compared private companies to “wild chickens” laying eggs efficiently but largely unnoticed by society. Zhang said he hoped that after the 16th Congress, wild chickens could compete on a level playing field with “house chickens” (SOEs) and “foreign chickens” (foreign enterprises).

Many private businessmen see Beijing’s recent crackdown on tax evasion as a means to milk them of hard-earned gains. High-profile tax evaders who have been jailed or detained for questioning have included popular former movie queen Liu Xiaoqing and flamboyant agri-business mogul Yang Bin, who won worldwide fame when he was recently appointed head of a special economic zone in North Korea. Then there was the case of automobile magnate Yang Rong, who fled to the United States a few months ago. The former chairman of Brilliance China Automotive claimed the government of Liaoning Province had confiscated his personal investments in the company, which had both U.S. and Hong Kong listings.

According to businessman Zheng Yuanzhong, who is based in the quasi-capitalist enclave of Wenzhou, Zhejiang Province, party policies toward private capital have been fickle. “I support the party’s current policy,” said Zheng, a famous manufacturer of garments and household appliances. “Yet I am still afraid the policy may change–and if that were to happen, I have fears for my life and property.” It is not accidental that many of the most successful Wenzhou businessmen have chosen to reinvest their earnings overseas.

Outgoing Politburo member Tian Jiyun, who was the right-hand man of ousted party chief Zhao Ziyang before the Tiananmen Square massacre, also expressed concerns for the future of private enterprises. In a recent talk to the Central Party School, the liberal cadre said many top businessmen and managers were still worried that private firms were being discriminated against. One indication, said Tian, was that the growth rate of so-called getihu (“individually owned enterprises” employing less than eight staff) had been much higher than that of private firms. The reason was that it would be politically less risky for China’s quasi-capitalists to run an inconspicuous getihu rather than a large corporation.

Most businessmen say they won’t feel safe unless they have representatives in the top echelons of the party and government. Only then will the private-sector practitioners have the political clout to ensure that Beijing will stick to its so-called new deal for Chinese-style capitalists. According to Jiang’s now-famous Theory of the Three Represents (that the party must represent the foremost productive forces and culture as well as the interests of the masses), the red bosses–deemed the representatives of the most advanced productivity–should not only be inducted into the party but given relatively senior posts.

As a harbinger of a more enlightened policy on the private sector, several dozen businessmen were picked as delegates to the 16th Congress, one of whose major jobs is to pick the party’s ruling Central Committee. And businessmen are hoping that at least a token number of private entrepreneurs who have proven their loyalty to the Communist party will at this Congress be inducted into the policysetting Central Committee either as full or alternate members.

Prime candidates include the few tens of nonstate entrepreneurs who have already been appointed to the Chinese People’s Political Consultative Conference (CPPCC), the country’s top advisory council. Also in the running are leaders of official or semi-official chambers of commerce such as the All China Federation of Industry and Commerce (ACFIC), China’s oldest and most influential non-official chamber of commerce.

Among hot favorites to secure a place on the Central Committee is the Chairman of the Hope Group, Liu Yonghao, who is one of China’s richest men in addition to being a veteran member of the Standing Committee of the CPPCC. Legend Chairman Liu Chuanzhi, a ACFTC member, is also cited as a possibility.

Unlike nouveau riche “cowboy businessmen” such as the recently detained Yang Bin–who have made their fortune through speculating in the property or stock markets–the likes of the two Lius have built their empires through solid investments in agriculture and manufacturing. Equally important, the latter have demonstrated their loyalty to the party leadership. And the patriotic businessmen are optimistic that given the authorities’ anxiety to absorb new blood to energize the party, it is only a matter of time before they are able to win political clout commensurate with their economic prowess.

Willy Wo-Lap Lam, one of Asia’s best known journalists and authors, is a senior China analyst at CNN’s Asia-Pacific Office in Hong Kong.