China’s conflicted goals: Freer markets, more party control

 In World
BEIJING — China’s ruling Communist Party is expanding its role in business even as it promises freer markets and support for entrepreneurs on the eve of President Xi Jinping’s second five-year term as leader.

Party officials are tightening their control over state-owned enterprises and want a voice in how some foreign companies are run. State companies that dominate energy and other fields are being made even bigger through mergers. Some are forming ties with private sector success stories such as tech giants Alibaba and Tencent to draw on their skills.

Beijing’s conflicting goals are raising concerns that leaders might put off changes needed to reinvigorate a cooling economy that faces surging debt and trade tensions with Washington and Europe.

“There is no grand vision. There are parallel goals that are competing with each other,” said Andrew Polk, an economist at Trivium/China, a research firm in Beijing. “We are not sure which ones are going to win out at a given moment.”

No major policy changes are expected out of the twice-a-decade party congress that is due to re-appoint Xi as general secretary. The party also will name a Standing Committee, the country’s ruling inner circle of power, in preparation for installing a new government in early 2018.

The impact of those choices, by creating jobs and business opportunities or dragging on economic activity, will take time to filter down to ordinary Chinese.

At the opening of the congress Wednesday, Xi repeated official promises to support entrepreneurs and give market forces a “decisive role” but affirmed the dominance of state-owned industry.

“There must be no irresolution about working to consolidate and develop the public sector,” said Xi in a nationally televised address.

Data released Thursday showed economic growth stayed relatively stable in the quarter ending in September, buoyed by strength in consumer spending and exports. Output rose 6.8 percent, down marginally from the previous quarter’s 6.9 percent.

Investors are watching the congress for signs of where the party wants to go and how fast. A key indicator will be which posts go to Xi allies seen as reformers with the personal authority to overcome opposition from party or state industry factions that might lose influence.

One closely watched figure is Wang Qishan, a vice premier and respected problem-solver who oversaw China’s response to SARS and at age 69 is obliged by party tradition to leave the seven-person Standing Committee. If he stays in a leadership post, analysts say that would suggest Xi wants his help to carry out painful changes.

Reform advocates complain that since Xi took power in 2012, the leadership has dragged its feet on fulfilling promises to tackle debt that has soared to dangerous levels, curb the dominance of state industry and give a bigger role to entrepreneurs who create China’s new jobs and wealth.

Instead, Xi focused on an anti-corruption campaign and tightened political control, detained activist lawyers and stepped up internet censorship.

Foreign industry groups complain China is moving too slowly on promises to shrink state-owned steel and aluminum producers they accuse of threatening jobs by flooding global markets with low-cost exports.

“Generally speaking, there has been no major progress in economic reform,” said Sheng Hong, director of the Unirule Institute, an independent economic research group in Beijing.

Regulators closed Unirule’s website and social media accounts in a crackdown in January on liberal voices.

The party’s internal conflict is reflected in a 2013 declaration that promised for the first time to give market forces the “decisive role” but also vowed the party would intensify its control of state industry. Private sector analysts say this appears to be aimed at rooting out corruption and waste.

This year, some foreign companies say the party, which already has cells in all enterprises and controls agencies that regulate them, is trying to expand its authority further by asking for a formal voice in commercial decisions.

Some 32 mainland companies with shares traded in Hong Kong have proposed changes to their legal structure to make the party an adviser to their board. Financial commentators complain this might hurt shareholders.

“This is potentially a huge problem,” said the German ambassador to China, Michael Clauss. “Many foreign companies are very alarmed.”

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