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China Boosts Government Presence at Alibaba, Private Giants

Lulu Yilun Chen

(Bloomberg) -- The government of one of China’s top technology hubs is dispatching officials to 100 local corporations including e-commerce giant Alibaba Group Holding Ltd., the latest effort to exert greater influence over the country’s massive private sector.

Hangzhou, in the eastern province of Zhejiang, is assigning government affairs representatives to facilitate communication and expedite projects, the city government said on its website. Chinese beverage giant Hangzhou Wahaha Group Co. and automaker Zhejiang Geely Holding Group Co. are among the other companies based in the prosperous region that have been singled out, according to reports in state media.

The Hangzhou government said the initiative was aimed at smoothing work flow between officials and China’s high-tech companies and manufacturers. But the move could be perceived also as an effort to keep tabs on a non state-owned sector that’s gaining clout as a prime driver of the world’s No. 2 economy. Representatives of the country’s public security system are already embedded within China’s largest internet companies, responsible for crime prevention and stamping out false rumors.

Government agencies may also be heightening their monitoring of the vast private sector at a time China’s economy is decelerating -- raising the prospect of destabiliziing job cuts as enterprises try to protect bottom lines. Alibaba is hosting its annual investors’ conference this week in Hangzhou against the backdrop of a worsening outlook for the country.

“They might be checking whether the Communist party units are working effectively within the companies,” said Paul Gillis, a professor at Peking University’s Guanghua School of Management. “While China legitimized capitalism, the level of government influence was never intended to disappear. Occasionally private entrepreneurs forget about this and are reminded of it.”

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Zhejiang is considered the cradle of modern Chinese private enterprise, home to a generation of self-made billionaires from Alibaba’s Jack Ma and Geely founder Li Shufu to Wahaha’s Zong Qinghou. The Communist Party accepted so-called “red capitalists” or private entrepreneurs into the Party in 2001, allowing them to become part of the country’s legislature a year later.

Still, the relationship between Beijing and well-known business people remains sensitive. The government has been seen to try and step up an official presence within non-state firms, by among other things mandating that private companies of scale set up and maintain a Party branch. It wasn’t clear whether the 100 Zhejiang-based companies included foreign enterprises.

“We understand this initiative from the Hangzhou city government aims to foster a better business environment in support of Hangzhou-based enterprises. The government representative will function as a bridge to the private sector, and will not interfere with the company’s operations,” Alibaba said in a text statement. Representatives for Wahaha and Geely didn’t immediately respond to requests for comment.

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The Hangzhou initiative also underscores how the government is trying to arrest a slowdown in the economy brought on by the trade war, said Brock Silvers, managing director of Kaiyuan Capital. He expects similar policies to soon follow for other manufacturing-intensive areas.

“The economic slowdown and trade war are having a significant impact on China’s manufacturing base, and officials probably don’t see a quick resolution on the horizon,” Silvers said. “As the government expects manufacturers to experience near-term difficulties, it wants to exert a firm control over local policy decisions and implementation.”

(Updates with analyst’s comment from the eighth paragraph)

--With assistance from Tian Ying and Rachel Chang.

To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net

To contact the editors responsible for this story: Edwin Chan at echan273@bloomberg.net, Colum Murphy

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