Institutionalizing Political Influence in Business: Managerial Resistance and Insider Control

Abstract

The United States (U.S.) government and judiciary have long been trying to understand the state-backed or state-influenced actions behind Chinese enterprises that threaten U.S. businesses and economy. This Article takes advantage of a recent “party-building” (dangjian) reform in Chinese state-owned enterprises (SOEs) to dissect the power struggle between the Chinese Communist Party (CCP) and SOEs and shed light on the opaque terrain of political influence in business in China. By presenting the four-year party-building charter-amendment data from 2015 to 2018, this Article documents the voting responses of external shareholders and finds evidence of insider control in SOEs and SOE managerial resistance against political influence. Foreign and minority shareholders expressed their concerns about enhancing the party’s influence by voting against the amendments. However, their power is limited given the state’s dominating shareholding in SOEs. This Article also finds resistance from SOE managers. High-level, nationally important central SOEs are more likely to resist party order. Even after multiple amendment requests from the government, resisting SOEs still adopted fewer party-building provisions than other adopting SOEs. Resisting SOEs are also less profitable and less internationally competitive, suggesting that they might suffer from insider-control problems. This Article thus argues that the writing-in of party-building provisions is not just putting something already in practice into written words, as conventionally believed. The charter amendment illustrated the power struggle between the CCP and SOE managers and was, in fact, a political renegotiation in which the CCP regained its control over SOEs by institutionalizing party organizations in business. However, the charter amendment does not warrant power shifting; it is just the first step. It remains to be seen whether institutionalizing party influence in business makes real changes in business decision-making.