February 22, 2023

What Concerns Chinese Business Operators These Days
(U.S.-China Relations Study Group Commentary No.16)
Tanaka NobuhikoPartner
Brighton Human Co., Ltd.

1. Severe “money jam” throughout the country
Perhaps the most vexing problem for Chinese business operators today is the problem of not getting
paid. There have always been problems with late payment or failure to collect receivables forindividual projects. However, the current problem is that there is a chain reaction creating a situationin which “I can’t pay because I can’t get paid.”
The author’s brother-in-law runs a manufacturing company with about 70 employees in a certain
city in Jiangsu province. The business is production and sale of equipment used in subways, highspeed railroads, wind power generation, etc., and the main customers are state-owned infrastructurerelated companies. In China, it is customary to make a lump-sum payment of the year’s unpaid bills
when the Chinese New Year approaches each year. According to the author’s brother-in-law, one of
his company’s major clients, a very large state-owned enterprise (a central enterprise), was supposed
to pay his company about RMB 5 million at the end of 2022, but, as of New Year’s Eve, only about
RMB 1.6 million had been received. In all the years of doing business with that client, this wasreportedly the first time this had happened, and they were very surprised.
As a result, my brother-in-law’s company had to delay payment to many suppliers. Employees
were also unable to receive year-end bonuses, resulting in a situation in which only minimal wages
were paid. According to what he says, he is still better off because he was able to receive partial
payment and also because the client is a large state-owned enterprise, so his company will eventually
receive payment.
Unfortunately, no one complains about this situation. Everyone knows that the other party wants
to make payment but that they really don’t have the money. That means there is no point incomplaining, and if you confront a client inappropriately, clients and even your job could be lost
permanently, so there is nothing to be gained. No one says anything; they keep quiet and wait for
payment.
China is a society made up of networks of human relationships, so within each network, even if
someone has something to say on a day-to-day basis, they don’t say it out of consideration for theother person. So even if they don’t get paid, they persevere until the last minute. It is rare to question
the other party or file a lawsuit. The current situation is one of endurance due to this Chinese-style1human relations and the situation in which “I am not paying what should be paid so I can manage
somehow even if I am not paid.” This situation cannot continue indefinitely.
2. Increased political involvement in private companies
At the beginning of 2023, it was reported on the news that the Organization Department of the Central
Committee of the Chinese Communist Party in western China’s Shaanxi province had decided todispatch promising young Party cadres as “First Secretaries” to 25 leading private enterprises in theprovince, and that specific personnel have already been selected. This decision has caused quite a stiramong managers of private enterprises. Although there is no clear authority for the position, if apromising elite cadre candidate selected by the Party’s Organization Department is dispatched to a
private company under the title of “First Secretary,” that fact is that it will be difficult for the company
to resist the person’s wishes, considering the national situation in China.
According to media reports, such a system is being introduced not only in Shaanxi province, butalso in other provinces and cities. However, public opposition has been strong since the decision wasmade on this policy, and there have been few further media reports on this system. It is possible thatthe implementation of the system has been put on hold due to the extent of public opposition. It
remains to be seen whether the system will be expanded nationwide, but it can be said to be anindication that politics is beginning to be used to exert influence on the governance of privatecompanies.
In the area of private companies, the Chinese government has reportedly acquired “golden shares”(shares with veto rights) in companies controlled by Chinese e-commerce giants Alibaba Group
Holding Limited and Tencent Holdings Ltd. In China, these are called “special control shares,” andtheir acquisition allows for the dispatch of directors and the ability to influence management decisions,
essentially the same method applied in 2021 to Didi Chuxing Technology Co., known for its appbased transportation services, and ByteDance Ltd., known for its video-sharing app TikTok. The factthat the Chinese government is now in a position to exercise its veto power, albeit indirectly, over twoof China’s leading private enterprises is sure to further strengthen government involvement in andoversight of private enterprises.
3. “Internet socialism”
Recently, the concept of “Internet socialism” has been attracting attention in relation to the topic ofcorporate management. By fully utilizing the inherent power of the Internet, the concept is based on
the idea of creating a new “Chinese-style” socialism that is more efficient and has fewer disparities,
rather than following the conventional Western-style democracy and market economy,. While thisapproach is not a direct rejection of private enterprises, some have suggested that it may be aiming
for a new form of “public-private partnership.”
The concept of Internet socialism was proposed by Zhao Yanjing, professor at Xiamen University2and Vice President of the Urban Planning Society of China (UPSC).1 He believes that China hasachieved efficient and well-planned economic growth by public ownership of land, which is thefoundation of economic activity and a highly public asset, and that, just like land, the Internet is ahighly public infrastructure, and it is only natural that the government should be involved in its
management and operation.
A concrete manifestation of this concept has been the rapid expansion in recent years of the nonprofit China Co-op (All China Federation of Supply and Marketing Cooperatives, ACFSMC). As of2021, it has 170,000 directly managed stores nationwide, with a transaction value of RMB 6.26
trillion, or nearly 7% of China’s total retail sales of consumer goods of about RMB 44 trillion.
Rather than viewing the spread of the Internet as a threat to the socialist system, the view that thecoming of the Internet society is favorable to the realization of socialism is gradually gaining strength.
4. Losing expectations for the future
During the 40 years of reform and opening-up, the Chinese people’s standard of living improved
rapidly. This was a great achievement. However, behind this improvement, Chinese citizens havedone many “impossible” things.
They take out a loan of more than half of their monthly income to buy a house, pay high monthly
fees to send their children to prep schools, give them culture lessons, and send them to university at
any cost.
The reason why managers of private enterprises have invested heavily and taken risks in theirbusinesses is based on their expectations for the future of the country. They believed that if they
persevered now, things would be better next year. Everyone thought so, and so they bravely moved
forward, knowing that what they do is somewhat impossible. This mindset was the driving force ofChina’s growth.
This expectation has been severely damaged by the blatant oppression of private enterprises andthe mismanagement of Zero-COVID 19 and other measures. Chinese society is losing its greatest
engine for growth.

Zhao Yanjing, “‘土地财政’是中国和平崛起的重要基础 [‘Land finance’ is an important foundation for China’s
peaceful rise],” GuanchaNews website (December 1, 2022)
https://www.guancha.cn/zhaoyanjing/2022_12_01_669328_s.shtml (viewed February 22, 2023).
1

3