Chinese Communist Party Demands Employees At Western Firm Show Their Support

When China began to require Western corporations to establish Chinese Communist Party (CCP) cells, businesses brushed off the move as benign. For example, when HSBCHBA
became the first international financial institution at which workers established a Chinese Communist Party cell in its investment banking venture in China in July, the bank stated that the CCP committee does not influence the direction of the firm and has no formal role in its day-to-day activities. But the CCP may have begun to flex its muscle in other ways. This week, the CCP cell inside the Beijing office of Big Four accounting firm EY demanded that party members wear CCP badges at work in the run-up to China’s annual parliamentary meetings. The presence of CCP cells in Western financial institutions may not mean that communists are managing your money. However, they spell trouble for Western businesses operating in China.

The CCP is a master practitioner of lawfare, or the purposeful use of law to achieve strategic objectives. In a recent legal salvo, the CCP launched several reforms to increase Party influence in the corporate world. In January 2020, a CCP regulation required all Chinese state-owned enterprises (SOEs) to amend their corporate charters to include the Party in their governance structure. SOEs must now appoint a Party secretary to serve as chairman of any corporate board, and establish CCP committees to facilitate Party activities and advance government policy. In September 2020, the General Office of the Central Committee of the CCP released a report asking China’s United Front Work Departments to spread Party ideology and influence in the private sector, including integrating Party leadership into all aspects of corporate governance.

Recently, the China Securities Regulatory Commission began requiring the creation of CCP cells in foreign financial firms as well. Within Chinese corporations, CCP committees serve as labor unions. In some cases, they function as a way to install a party member in a corporation’s executive ranks. The Party’s aim seems to be to ensure that private sector businesses fall under Party influence and will work with it to achieve national goals.

The role of CCP cells within China’s corporations is cause for alarm. Day-to-day activities may be disrupted if employees do not comply with the party’s demands, or if political tensions appear in the workplace. Beyond the badge requirement, Dennis Kwok, a former Hong Kong legislator, has observed an increasing influence of CCP cells upon corporations in Hong Kong. Party branches began by observing and absorbing data, but later started to influence board decisions, install directors, and even instruct company management. Some Chinese companies have amended their articles of association to specify that the board will first seek the opinion of the leading CCP group within the company before making key corporate decisions.

More broadly, the establishment of CCP cells might be another manifestation of China’s strategy of what I call “latent weaponization.” China repeatedly represents political, economic, and geopolitical actions has benign while building or accreting them into tools that can be powerfully leveraged against adversaries. China cost the NBA hundreds of millions of dollars in 2020 after the Houston Rockets’ General Manager tweeted his support for protesters in Hong Kong. When the shareholders of a financial firm raise concerns about China’s human rights abuses, the firm’s clients might be at risk from China’s retaliation or rebuke. It remains to be seen when a company may be forced to answer to the Party first and its shareholders second.

Western firms must decide how much they are willing to support—and to expose their employees and customers to—the CCP’s political agenda and military ambitions. The optics alone of having a CCP cell inside institutions that are the standard-bearers of American capitalism will harm the image of many corporations. Some shareholders and customers will balk at businesses’ affiliation with the CCP’s human rights violations and geopolitical aggression. China has openly stated that it plans to reunify with Taiwan, likely by 2049, Xi’s deadline for achieving his Chinese Dream. Given China’s willingness to use economic coercion to advance its geopolitical agenda, the Chinese Dream could easily become a nightmare for global financial institutions, their employees, customers, and the global economy.