Chinese company shareholders revolt against Communist control

Shareholders of low-profile Chinese property developer Tianjin Realty Development recently made news by voting to keep party politics out of the Shanghai-listed company’s organizational structure.

Such action has never been heard of before at any State-Owned Enterprise (SOE) in the history of China’s economic modernization.

What actually happened was that shareholders holding more than 36% of the company’s stock rejected a motion to establish a Chinese Communist Party committee within the company. For the motion to pass, it needed two-thirds support, so the proposal failed by only a few percentage points.

The motion was proposed based on guidance from the party and the agency that supervises state assets. While party committees have existed within SOEs since they came into being, the fervor to include them in corporate governance structures was renewed in 2015 based on President Xi Jinping’s wish to tighten supervision over state-owned companies, improve their efficiency and reduce corrupt practices within them.

What happened at Tianjin Realty appears to amount to a “rebellion” against this mandate to strengthen the party’s grip on state-owned groups. For those of us used to Western-style corporate governance, well-established company law and self-regulated markets, the mere presence of a political entity within a company may sound threatening or even terrifying. But in China, as well as in other one-party states, it is commonplace.

What we see in Tianjin Realty’s case is the rise of an alternative voice that does not toe the party line. This is perceived as a bold move because going against the grain in China’s political environment is inherently risky. In fact, no one knows how this unprecedented move will cost the company going forward.

This article is republished with permission by China Business Knowledge at Chinese University of Hong Kong Business School. You can  access the original article here.