World Economy

German trade body warns firms may pull out of China over Communist Party pressure

He Huifeng
A man walks next to the Volkswagen Group China office in Beijing on March 29, 2017.
Fred Dufour | AFP | Getty Images

A trade group has warned that members of the German business community in China are concerned about a request from the ruling Communist Party to set up cells in their companies – and some may even pull out of the market if the pressure continues.

In a statement released last week, the Delegations of German Industry and Commerce in China – which represents the Association of German Chambers of Industry and Commerce in China – said foreign businesses faced increasing challenges in the country as the party's influence on their operations grew.

The body said it had received reports about attempts by the party to strengthen its influence on wholly foreign-owned German companies operating in China. There is no legal basis for such companies to promote the party.

"We do not believe that foreign-invested companies generally should be required to promote the development of any political party within company structures," the statement said. "Should these attempts to influence foreign-invested companies continue, it cannot be ruled out that German companies might retreat from the Chinese market or reconsider investment strategies."

Doing in business in China has become unpredictable
Doing in business in China has become unpredictable

The party has been trying to make inroads into foreign-funded companies since President Xi Jinping came to power and began pushing to increase its role in all aspects of life in China.

"As far as I know, some foreign-funded companies have been required to offer full pay for at least one party branch member who would deal with the company's party branch issues," said Liu Kaiming, head of the Institute of Contemporary Observation, a think tank based in Shenzhen.

"Operators of foreign firms usually see a Communist Party branch in their company as something set up by staff to help promote goodwill and communication with the party. But now they feel these branches are trying to extend the party's influence within company operations," Liu said.

"Members of these branches often meet and hold activities – it's not a positive influence on staff. So far, the effects have been limited, but many companies are worried about whether this situation will escalate."

More from the South China Morning Post:
China's Communist Party makes big inroads into foreign-funded firms
Why a Chinese Communist Party branch at the University of California, Davis, was disbanded
Let a thousand trees bloom: Chinese officials start drive to give Xi Jinping's dream city a greener look

About 106,000 foreign-invested companies had set up party units by the end of last year, Qi Yu, deputy head of the Central Organisation Department, said in a media briefing last month. That figure has more than doubled since 2011, when it was 47,000.

Meanwhile, 70 per cent of foreign-funded firms in China – or 750,000 – have set up party branches, Qi said. That is similar to the proportion of the country's 2.73 million private businesses that have set up branches – it was 67.9 per cent at the end of last year.

"Some senior executives at foreign-invested companies say party organisations can help them understand China's policies in a timely manner, resolve labour disputes and provide positive energy for their companies' development. The majority of them welcome and support party organisations carrying out activities in their companies," Qi said at the briefing.

Last week, a group of visiting Chinese academics raised eyebrows after they were reported to have founded a party branch at the University of California, Davis.

The branch, which planned to meet every two weeks, had tasked its members with promoting the organisation to their colleagues or neighbours who were coming to the United States, it said, and to absorb party members into the organisation. The branch was shut down after the academics realised they had founded it illegally.

The US Foreign Agents Registration Act requires all individuals and groups acting under the direction or control of a foreign government or political party to register with the Department of Justice in advance and regularly report their activities.