"There is no such thing as a private sector that’s independent of politics. It does not exist.”

Communist Party committees and the Chinese enterprise.

A thread.

Most who write about the Chinese economy focus on the number or size of firms under direct government administration — state-owned enterprises (SOEs).

They believe since the percentage of the state sector in the economy has shrunk, China is no longer a planned system.

Strictly speaking, this is true. SOE totals have dropped, as has the share of wholly public firms in the economy. But this doesn't tell the whole story.

Leaving aside the control the government exerts on private enterprises through the stock market and joint ventures (topics for other threads), these commenters underplay the importance of Communist Party committees in firm-level governance.

What is the CPC committee? Here's what the law tells us. Any enterprise with more than three CPC members, no matter their ownership structure, is required to create a committee.

Responsibilities of committees vary depending on the company, though.

In SOEs, the committees have an incredible amount of power over major decisions. The traditional corporate board has very little say, if any at all.

Joint ventures, very common among private firms, are seeing a similar level of involvement, or fear it in the future. Foreign companies are starting to complain. Boo hoo.

Fully private ventures are no exception, either. The committees here exist to ensure compliance with the law — as well as with national economic goals.

The people in the "pure private" enterprises certainly seem to think party committees are influential. Maybe not to the same degree as SOEs, but certainly an important pillar of firm governance.

So what do these committees do? What are their goals?

Generally, they ignore the shareholders' wishes and put social impact first. In lieu of pure profit-seeking, the committees consider the broader consequences of firm behavior.

You can ignore the "social stability" hand-wringing in this passage and focus on the important bit: Party leadership deliberately maintaining excess employment, despite what shareholders or the market would consider "optimally efficient."

You can also see key objectives for CPC committees in their governance of banks. Above all else, the minimization of risk. Not the maximization of profit.

"Bankers will be held personally responsible." Now that's refreshing. Remind me how many US bankers went to jail after '08?

A bit more on curbing risk through the party committees.

By far the biggest growth industry in China is tech. In the last 10 years its presence in the economy at large has exploded.

Naturally, this has led to an increased party presence in the sector — in addition to the heavy government involvement already in place.

For a time, they had relatively free rein and state support. But as companies got bigger and entered key economic sectors, the party took notice.

Tech giants toe the line — because they have to. This is the reality for capitalists in China.

What happens if they don't? Well, it isn't pretty.

The end result is a group of billionaires, yes — but one that knows exactly where the true power lies.

So whether or not they're sincere, these companies play ball with a big grin on their faces. I'm guessing they hate it, but nuts to them.

What we're seeing with the rise of the party committee is the re-assertion of party and government influence on the economy.

This drives free-market dorks mad. Ironically they're the ones who see things clearly, while many who consider themselves part of the left deny this reality.

Regardless, it's fun to read their whining about the despoiling of the precious Market.

Companies are acting surprised to be dealing with a country governed by a communist party. They really don't like it! Too bad!

This guy from UT's business school sums up the arrangement well.

The capitalist class in China exists tenuously, at the government's disposal. It is an antagonistic relationship, and there's no doubt who holds the cards. This is obvious to anyone trying to do business. It's a big reason why I don't buy the restoration of capitalism argument.

There are other apparatuses that confirm this relationship, which I'll tackle another time. For now, it's worth investigating this particular aspect of the economy and asking ourselves what it represents on a broader level.