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Chinese Communist Party Seeks Sway Over Private Business

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Mao Zedong vowed to abolish China’s capitalists. Deng Xiaoping said they could get rich.

Now Xi Jinping, China’s current leader, has his own message for China’s private businesses that reflects a drive for both economic growth and greater Communist Party control: We’re here to help you, but you must also help and heed us.

The party that leads the world’s second-largest economy after the United States this week laid the groundwork for greater party influence over private business, while also promising them more support and opportunities to convey their needs.

Though lacking many specifics, the guidelines underscored the competing economic and political undercurrents bearing on Mr. Xi’s government. China needs to shore up growth, especially after a hit from the coronavirus epidemic. At the same time, Mr. Xi sees smaller private firms as a weak spot in his efforts to secure Communist Party dominance across society.

“Unify members of the private sector around the party, and do better in promoting the healthy development of the private economy” Mr. Xi said in orders to officials published Thursday by People’s Daily, the party’s main newspaper.

The official instructions are likely to reinforce accusations from critics of Beijing, including members of the Trump administration, that China’s private businesses must follow the orders of the Communist Party. Hard-liners in Washington have pushed for broad limits on Chinese companies’ operations, most recently by demanding the sale of TikTok, the Chinese-owned social media app.

More broadly, the instructions reflect a long-running debate within China about the role of private business in a country where the government still controls crucial levers of industry. China emerged as a global economic power in large part by freeing entrepreneurs to open factories and find markets around the world.

That freewheeling approach has long unnerved some Chinese leaders who want businesses to hew more closely to the party’s strategic goals, which can range from greater sway abroad to lifting people out of poverty in underdeveloped parts of the country.

ImageA factory in Xuzhou. China is depending on retailers, manufacturers and online services to create jobs to offset global economic uncertainties.
Credit…Giulia Marchi for The New York Times

“It has been an ongoing dilemma about co-optation and ensuring loyalty, while allowing sufficient autonomy to develop a competitive economy,” Kellee Tsai, a political scientist at the Hong Kong University of Science and Technology who studies China’s private entrepreneurs, said in a telephone interview. “I think it really reasserts the party’s leadership and authority. I think that’s really the primary message.”

The instructions amount to an acknowledgment in part that China needs its retailers, manufacturers and online services to create more jobs to offset global economic uncertainties. Mr. Xi has already laid out a post-pandemic strategy of relying more on domestic activity for economic growth, suggesting that the government will give private businesses more support and opportunities.

Officials must establish additional channels for business owners to share their needs and grievances. Above all, the new directive admonishes officials to accept the private sector as a vital part of China’s economy. “Fully grasp that the existence and development of the private sector is long-term and inevitable,” it says.

At the same time, the new directives call for ensuring that China’s rising capitalists are recruited into the party’s “united front” of allies, ready to support the government’s economic and political priorities.

Private entrepreneurs are “a pillar of employment in China, and also a pillar of innovation,” Li Su, a business consultant in Beijing, said in a telephone interview.

But he used a catchphrase of Mr. Xi’s to explain the other side of the equation: “When it comes to the party leading all — north, south, east, west and center — the heart of the matter is relations with private business.”

Businesses must build up party organizations, the guidelines said, implying that internal Communist Party committees will be more active in companies. Entrepreneurs should receive instruction to ensure they “identify politically, intellectually and emotionally” with the party, the guidelines said.

Credit…Nicolas Asfouri/Agence France-Presse — Getty Images

“I think that the party’s foundation for rule lies in constantly understanding community sentiment and feedback, and these platforms play that role,” said Wang Xiangdao, the chief executive officer of MoSeeker, a Shanghai-based recruitment company who said he supports the initiative. He said he planned to attend a three-day training session organized by the United Front Department, the party’s arm that manages ties with religious, ethnic and social groups, now clearly including businesspeople.

“This united front work has been happening all along, and so this wasn’t out of the blue, but this time it’s clearer and more systematic,” he said.

That party officials would need to hear such a warning suggests how much China has changed politically since Mr. Xi came to power in 2012, vowing to revive the party and reinvigorate state-owned companies.

Over 30 years earlier, Deng Xiaoping’s generation of reformist leaders revived the private sector that Mao Zedong had largely snuffed out. In the following decades China’s entrepreneurs grew into prosperous capitalists, such as Li Shufu, who started a small business making refrigerator parts and then motorcycle parts. He now owns Volvo Cars and has a sizable stake in mighty Daimler of Germany.

But China’s entrepreneurial class attracted suspicion from some party officials as it grew. After he came to power, Mr. Xi launched a ferocious anticorruption drive that left many business owners wary of dealing with government officials. His robust rhetoric about the importance of the state sector and party dominance increasingly worried business leaders.

After business confidence shrank, Mr. Xi sought to reassure Chinese business owners in 2018 through a series of meetings and policy concessions. The latest pronouncements appear to be intended to reinforce those assurances, said Zhu Ning, a deputy dean of the Shanghai Advanced Institute of Finance.

“It’s probably a real, reassuring message to private enterprises,” he said. “This is to say ‘No, no, no, you are still part of us.’”

Still, the new plan also seeks to ensure that the private sector does not become an enclave of opposition to the party. Few Chinese entrepreneurs have dared to resist Mr. Xi openly, but he appears determined that not even small cracks open in the party’s power.

Credit…Mark Schiefelbein/Associated Press

Earlier this month, the police in Beijing detained Geng Xiaonan, a businesswoman who operates a publishing firm, after she spoke up for Xu Zhangrun, a law professor who excoriated Mr. Xi’s hard-line policies. The police said Ms. Geng and her husband were suspected of illegal business activities. Their supporters say the arrests were payback for her activism.

This month, a court in Beijing said that Ren Zhiqiang, a blunt-speaking retired executive from a state-run property developer who denounced Mr. Xi’s initial handling of the coronavirus outbreak, would stand trial on corruption charges. There was no official confirmation that a trial of Mr. Ren, who had become a defender of private enterprise, has taken place. His family has not issued any comment.

The Chinese government should be more worried about dispirited entrepreneurs who quit business, and sometimes emigrate, out of frustration with tax and fee burdens and needless government interference, said Sheng Hong, an economist in Beijing who has called for the private sector to have more scope and say.

“Generally, they won’t go into opposition, but they will leave the scene,” he said. “Some will work for years, saving up, but may shut down their businesses if they don’t think the opportunities are good.”

China needs its private sector. While state-owned companies benefit from government favors and nearly limitless credit from state-controlled banks, small and medium-sized businesses have played a far larger role in the country’s remarkable growth. When the coronavirus pandemic was at its worst in China in February, the government put heavy pressure on banks to lend more money to small businesses.

Mr. Li, the consultant, said that he already advised Chinese companies on how to balance business needs and social and economic goals set by the party. The new policy could mean more such work.

“How to finally find that interface — of helping the boss make money while helping the government get things done — is something that they study day in and day out,” he said.

Amber Wang and Cao Li contributed research.

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The Trump campaign celebrated a growth record that Democrats downplayed.

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The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.

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Black and Hispanic workers, especially women, lag in the U.S. economic recovery.

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The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.

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Ant Challenged Beijing and Prospered. Now It Toes the Line.

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As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.

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