China’s party-business ties grow

China’s rapid economic growth has created huge companies, but most of them are owned by the state. Now the Communist Party is embracing businessmen in its drive to modernise the country – but it faces growing accusations of corruption.

In the provincial town of Liuzhou, 1,200 miles south-west of Shanghai near the Vietnamese border, town officials held a banquet for GM executives and journalists to celebrate GM’s investment in a new engine plant at formerly state-owned Wuling, China’s leading maker of small minivans.

Leading the toasts was Liuzhou’s most important official, who hailed GM’s investment and hoped that more multinationals would invest in Guangxi Province to help boost people’s standard of living.

GM’s Rick Wagoner celebrates with company and party bosses at Wuling

That toastmaster, however, was the head of the province’s Communist Party, who is in a battle to gain a growing share of China’s booming car industry.

In September, he won a significant victory, when the government named Liuzhou as one of four “designated secondary centres” for the production of auto spare parts – a fast-growing segment of the Chinese auto industry.

State-directed capitalism

The auto industry encapsulates all the strengths and weaknesses of China’s state-directed capitalism.

Car production in China is growing so rapidly that it is set to overtake the US within a decade as the world’s largest market, and multinationals are flooding in to invest.

But all foreign multinationals must find a Chinese joint-venture company, which takes a majority stake in the business, and nearly all these Chinese companies are state-owned.

In Shanghai, GM was lucky to find Shanghai Automotive (SAIC), China’s largest car company, as its partner.

As SAIC was owned by the Shanghai municipal government, it found no difficulty in finding new sites to expand its business in the new Pudong district.

And it had no problems getting suppliers – as the government even owned its own parts company.

The Shanghai government was also instrumental in helping the other early investor in Shanghai Automotive, Volkswagen, with its markets. All 20,000 municipal taxis in Shanghai are Volkswagens and made locally.

In return for its help, the government requires foreign car companies to share their modern technology with the state companies, thus helping them modernise both the production line and introduce new equipment in the cars.

GM has no regrets about its relationship with a state-run, party-controlled business.

GM boss Rick Wagoner says the Chinese managers have a “very professional” approach and that GM has benefited from party backing in smoothing the way for it to produce in China.