The Communist Party of China will only allow large corporations to function insofar as they retain some control over their operations, even if that control is only occasionally utilized. The degree of guanxi necessary to succeed at the less formal regulations present in China is at a minimum that a Party member gets some degree of control - and their loyalty is not to the company, but to the party, like a political officer on a submarine.

That means, effectively, that every relationship with a Chinese arm of one's company is a partnership with the Chinese government, if push comes to shove, rather than a subsidiary relationship.

This is the clearest explanation I've found of the enormous difference between the somewhat alien structure of Chinese ventures and the familiar Western model:

"By “the Party,” I’m of course referring to the Communist Party of China (CPC, also known as the Chinese Communist Party or CCP), the political organization founded in 1921 which, under Mao Zedong, fought a revolutionary war that ultimately brought it to power in 1949. It is a Leninist party, which means that unlike most Western political parties, it is a tightly-organized, hierarchical organization similar to a military unit or religious order. In the United States, there is no such thing as being a “member” of the Republican or Democratic Party — the closest thing would be to register to vote in either party’s primary. Republican or Democratic “committees,” on either the local or national level, are really just funding and support co-ops for helping candidates; they are in no position to issue orders to voters, activists, candidates, or elected officials. Joining the Communist Party of China, in contrast, is a formal and highly selective process that takes several years to complete. Once initiated, a member must obey Party directives and take on whatever task (including official positions) the Party assigns. If they misbehave, or even break a law, they will be detained, investigated, and punished by the Party, not the police — only after being expelled from the Party will they be turned over to the country’s regular legal system for prosecution.

The best way to think of the Party is to imagine the human resources department of a huge multinational corporation — except that in this case, this HR department is so powerful it gets to appoint everyone from the Board and the CEO to the lowliest janitor, so it effectively calls the shots. In China, every government ministry, every military unit, every state-owned company – and in many cases private companies as well – has a Party committee that decides all major personnel issues and, in doing so, essentially acts as the power behind the throne. Now sometimes the boss of the more visible entity is also head of the Party unit, which means the formal boss actually does call the shots. But if the two roles are split — as they are, for instance, in every province — you can bet that the Party chief is the one holding most of the real power.

The Party’s 78 million members (a little over 5% of China’s total population) are essentially a pool of pre-screened candidates who can be slotted into whatever official role the Party leadership decides — with the understanding, of course, that their primary loyalty remains to the Party that put them there. Directives from Party superiors — on who to assign or promote, or what policies to pursue– are ultimately far more important than instructions received from more formal channels like ministries, courts, or corporate boards."

http://chovanec.wordpress.com/2011/05/08/primer-on-chinas-le...