Foreign companies in China get a new partner: The Communist Party

Newly assertive party members arrange lectures, proudly display hammer-and-sickle insignia at their desks and are praised as exemplary workers

The 300 or so Communist Party members who work at Walt Disney Co’s theme park in China don’t keep their politics to themselves.

Many attend party lectures during business hours and display hammer-and-sickle insignia at their desks. Company newsletters and state media praise them as exemplary workers. Party officials help manage staff welfare and arrange activities such as political seminars for members and singing contests for all employees.

In June, Shanghai’s flagship party newspaper quoted Murray King, the resort’s Canadian vice president for public affairs, as saying its best employees are mostly party members. According to a Disney spokeswoman, Mr King actually said while some employees belong to the party, Disney doesn’t make that a requirement.

The compromises made by Western firms to do business in China are becoming increasingly uncomfortable now that President Xi Jinping is pushing to embed the Communist Party deeper into the world’s second-largest economy.

Mr Xi emerged from a recent party congress with five more years as leader and power comparable with that of Chairman Mao Zedong. One of his top priorities is to restore the party as a force in people’s lives and recapture its revolutionary sense of mission.

Under Mr Xi, the party has pushed to exert greater state control over the economy and rein in some market-oriented experiments of recent years. Chinese regulators recently proposed that the state take 1% stakes in major Chinese internet companies.

Friction created by the party’s more assertive presence is rippling across China’s corporate landscape. One area of tension is whether party members should be allowed to meet during work hours, conduct meetings on company premises or be given time off for party activities, executives and party officials say. Some foreign companies are concerned that party operatives, over time, may gain influence over management decisions or create an alternative power centre.

Foreign companies haven’t publicly criticised China over the initiative. Several Western executives said in interviews that open dissent would be corporate suicide in a critical market.

The party’s inroads into foreign operations are often very visible. At the Chinese arm of French cosmetics firm L’Oréal SA, communist employees decorate their desks at the company’s Shanghai headquarters with stickers saying, “If there’s a problem, look for a party member.”

In June, L’Oréal China placed signs featuring hammer-and-sickle emblems at its Shanghai staff cafeteria. In Chinese, the signs say that the cafeteria serves the party and other groups, while in English they call it an “employee service station.” A L’Oréal spokeswoman says the cafeteria is open to all staff.

French auto maker Renault SA’s Chinese joint venture this year started organizing lectures to educate new foreign staff on the party and its role in Chinese society. Party members at the Beijing arm of German engineering firm Bosch Rexroth AG often spend Saturdays studying Mr Xi’s speeches.

Bosch Rexroth says its associates in China are free to “follow their diverse interests,” including party activities. Renault didn’t respond to requests for comment.

Dow Chemical Co and insurer Prudential Financial Inc both initially resisted party work in their China ventures, according to Chinese officials who now praise the two US companies for subsequently embracing the party’s presence. A Dow spokeswoman said the party unit at its main Chinese plant isn’t involved in operational management. Prudential, which is involved in a joint venture, declined to comment.

The intrusion of politics into the workplace adds to the challenges faced by foreign businesses in China, including intellectual-property theft and sharper competition from local firms.

The Chinese government’s information office, in response to queries, described the party’s role in private business as a positive force, like an auxiliary human-resource department. It said party organisations advise company managers on government policies, help businesses cultivate talent and resolve friction with workers. The party, the office says, doesn’t interfere with the management of foreign companies and joint ventures.

In the Mao era, the Communist Party reached into every corner of Chinese life. That influence receded as the command economy was dismantled and private enterprises and foreign businesses—institutions prohibited for decades—made a comeback.

Rejuvenating the party as a force in people’s lives is a priority for President Xi. The Communist Party now numbers about 89 million—about 6.5% of China’s population. Among them are corporate leaders and entrepreneurs, who were officially welcomed into the party in the early 2000s.

A May 2015 edict from the Politburo led by Mr Xi ordered organisations and businesses to set up party cells to strengthen the party’s leadership across Chinese society. Last year, Mr Xi told a group of business leaders to guide staff to honour the “glorious tradition of listening to the party’s words and following the party’s path.”

Officials stepped up enforcement of a decades-old rule saying all organisations with three or more party members should set up party cells. Chinese law requires eligible businesses to set up party organisations and facilitate their activities, which mainly involve study sessions on Beijing’s latest directives and collection of membership fees.

Party data show 68% of non-state-owned enterprises had set up party organisations by the end of 2016, up from 54% four years earlier. Among companies in China with full or partial foreign ownership, roughly 74,000 firms—70% of the total—had set up party units as of last year, compared with 47,000 firms that did so by the end of 2011.

 “The Communist Party is becoming a new stakeholder in businesses,” says Andy Mok, managing director of Beijing-based business consultancy Red Pagoda Resources. “This introduces the risk of tensions arising in companies over policy and personality clashes, as the party becomes a more dynamic actor in businesses.”

Mats Harborn, president of the European Union Chamber of Commerce in China, says more pressure is being exerted on private Chinese companies and Chinese-foreign joint ventures than on wholly foreign-owned businesses to allow party activities.

In July, the European Chamber met with executives from seven companies facing more assertive party organisations. Many faced demands from Chinese partners to amend joint-venture agreements to enshrine formal roles for in-house party groups, people familiar with the matter say.

Executives at a major European manufacturer argued with party officials at its Chinese joint ventures after company managers tried to set limits on party activities, according to a veteran executive at the company. The company held firm and allowed only three party meetings a year on its premises, and only after business hours, the executive says.

“We’re concerned that the party is pushing the envelope and creeping into the company,” he says.

Chinese authorities have complained about some Western business practices. The Beijing Investment Promotion Bureau, a municipal agency, said the foreign corporate tradition of keeping staff salaries secret makes it harder to assess party dues, which are pegged to members’ wages.

“Party cells at foreign firms face a special work environment,” Xu Ying, a Beijing party official overseeing personnel matters, said in March, according to a bureau notice. “But the political leadership that party cells provide cannot be allowed to weaken.”

At Disney’s Shanghai resort, the US media conglomerate made adjustments to local tastes and rules beyond what it has done in other countries. Disney has a minority stake in the park itself, but owns 70% of the joint-venture company that runs it.

Its Chinese partner, state-owned Shendi Group, says Chinese negotiators required the joint venture to guarantee the right to set up a Communist Party unit and hold activities. State media described the park’s party organisation—established in 2011 with 14 members—as a “bridge of enchantment” between the American and Chinese management.

“At the time, the American management didn’t quite understand this,” Shendi Chairman Fan Xiping told Jiefang Daily, Shanghai’s flagship party newspaper, in a June report marking the resort’s first anniversary. It quoted Mr King, the resort’s vice president for public affairs, as saying that the party organisation has created value for shareholders.

A Disney spokeswoman said the company has “always been fully aware of the laws and regulations in whatever country we operate in, and always adhere to them.” A Shendi spokesman said his company must consult Disney before commenting, as they “cooperate closely” on party affairs. He didn’t respond to further queries.

The resort has roughly 300 party members now, about double the number from three years ago, out of its 11,000 full-time and 7,000 contract employees. A party-activity center, adorned with Mickey Mouse silhouettes, opened this year in an administrative area outside the park.

Days after The Wall Street Journal contacted Shendi, the company removed from its website several photos related to an April meeting on the resort’s party activities. One photo showed Mr King sitting beside the resort’s deputy general manager and party chief, Jean Zou. A screen behind them read “party-building” meeting.

Mr King told the Journal the photo was taken when he spoke about the resort’s operations at a media gathering organised by Shendi.

One workday afternoon in August, more than 70 party members gathered at the resort’s party-activity center to hear a retired Shanghai propaganda official share his views on international affairs. Ms Zou, a party member of two decades, presented the speaker with a Mickey Mouse doll as a token of appreciation.

At one joint venture between a European company and China’s state-owned energy giant China Petroleum & Chemical Corp , some young employees who were party members went away for weeks to attend political classes at a party academy, according to a former European executive who recently left the venture, in which the Chinese firm—also known as Sinopec—held the majority stake. Sinopec didn’t respond to requests for comment.

“How would you feel if some of your best workers go away for party studies for a month?” asked the former executive, who says productivity suffered as a result. “But the Chinese managers were enthusiastic. They see it as a positive.”

A task of party cells in private businesses is to track down estranged members and persuade them to rejoin party activities, party officials say. In Shanghai, party consultants, often retired party officials, are fanning out to help private firms incorporate political work into their business routines, such as by conducting regular meetings to study party policies.

Wang Liangyue, who for decades managed party activities at Chinese and foreign companies, now supervises party affairs at an industrial park in Shanghai’s Jiading district. He says he encourages the dozens of businesses there to set up party cells and facilitate their work.

“We go door to door and talk heart to heart,” says the 63-year-old Mr Wang. A recurring challenge, he says, are executives who prioritise profits over politics and skip party meetings by citing client meetings and work trips.

Mr Wang says his strategy is to show that the party can be useful. At the Chinese arm of a Finnish paper company now part of Valmet Corp, he says, initially reluctant executives eventually allocated time and a place for party meetings. Mr Wang says that happened after the party committee he led helped resolve disputes with workers and local residents.

“Foreigners don’t understand the Communist Party,” Mr Wang says. “They fear that the party would organise the workers and challenge management.”

Valmet says cooperation improved over time as its party committee became “a good discussion partner for our management.”

Kersten Zhang in Shanghai and Ben Fritz in Los Angeles contributed to this article.

The Wall Street Journal