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The Big Story

In China, private companies walk a fine line

Being part of the political machine means taking policy calls seriously

KENJI KAWASE, Nikkei Asian Review chief business news correspondent | China

HONG KONG -- It is uncommon for Pony Ma Huateng, co-founder, chairman and CEO of Tencent Holdings, to proactively pick up reporters' questions at briefings. Usually he leaves that job to his right hand man, President Martin Lau Chi-ping, and other executives, but when it came to the Communist Party's strategic initiative on urging foreign-listed tech companies to list at home, Ma jumped in.

"If conditions mature and other circumstances permit, we will consider it," Ma said at the company's full-year results announcement in March. Tencent is headquartered in the southern Chinese city of Shenzhen, but it is listed in Hong Kong. Its market capitalization as of May 21 was 3.87 trillion Hong Kong dollars ($493.9 billion), putting it neck-and-neck with New York-listed Alibaba Group Holding, at $507.8 billion, as the most valuable Chinese company.

Now Beijing is trying to lure these new economy companies to list in Shanghai and Shenzhen by introducing a system of Chinese depositary receipts, or CDRs. Alibaba and Baidu -- which, along with Tencent, are known collectively as BAT -- are also responding positively to this call.

Maggie Wu Wei, chief financial officer at Alibaba, said the company is "actively exploring" a CDR listing in China at an annual earnings conference call on May 4. Robin Li Yanhong, co-founder, chairman and CEO of Nasdaq-listed Baidu, described a mainland float as a "long-held dream" in March.

Although it is unclear what the real economic benefits of re-listing in mainland China are for private companies that have successfully listed abroad, an official policy paper released by the government in March spells out other incentives.

While the policy goal is to "help develop and upgrade our country's high tech industry and strategic newly-emerging industry," there is another, equally important purpose: to "fully implement and fulfill the spirit of the 19th Party Congress" and to follow the line of President Xi Jinping's "new-age socialism with Chinese characteristics."

Xi, as the head of the party, said in his keynote address at the twice-a-decade Party Congress last October that his top economic agenda is to "accelerate the development of advanced manufacturing." He specifically pointed to the "integration of the real economy with internet, big data and artificial intelligence" in achieving his goal.

Many private companies are already taking part in the Chinese political machinery, including the BAT chiefs. This spring Ma of Tencent was selected for another five-year stint as a representative of the National People's Congress, China's rubber-stamp legislature. Li of Baidu, meanwhile, is a member of the Chinese People's Political Consultative Conference, a nominal top advisory body. While Jack Ma Yun, founder and chairman of Alibaba, does not belong to either organization, Wang Jian, chief technology officer of software unit Alisoft, became a member of the people's congress of Zhejiang Province this spring.

Other heads of U.S.-listed Chinese private companies -- including those of, NetEase, Qihoo 360 Technology and Sogou -- were newly selected as CPPCC members this year as well. Lei Jun, the founder, chairman and CEO of smartphone maker Xiaomi, was reappointed as an NPC member. His company, one of China's top unicorns, is preparing to list in Hong Kong.

These positions are largely ceremonial, but membership symbolizes a political recognition by the party and the state, and also provides a certain amount of protection. For the authorities, selecting these business leaders is a way to ensure that private companies cooperate with policy goals, including that of gaining a tighter grip over cyberspace.

Qi Yu, deputy head of the Communist Party's organization department, revealed on the sidelines of the Party Congress last fall that out of 2.73 million non-state-owned companies, 67.9% had party cells in their organization as of the end of 2016.

Responding to a reporter's question on the issue, Qi claimed these cells have a "positive effect" on corporate activities, as they can be "organically integrated and coordinated with corporate production and management for the healthy development of the company." In China, the control and influence of the party and state over private business show no signs of retreating.

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