Why China’s tech giants are cozying up to the Communist Party

Posted at 11:33 PM, Nov 01, 2018

China’s biggest ride-hailing company has a new plan to beef up customer service: hire 1,000 members of the ruling Communist Party.

The move by Didi Chuxing, a $56 billion startup, shows how leading Chinese tech firms, once hesitant to advertise political connections, are now increasingly promoting their ties to the party — especially after running into trouble with authorities.

“Tech entrepreneurs are seeking to burnish their party credentials, gain brownie points,” said Duncan Clark, the chairman of Beijing-based investment advisory firm BDA.

The Communist Party once controlled virtually all aspects of China’s economy, but reforms launched 40 years ago helped create a vast, dynamic private sector. The party retains its grip on political power and state-owned firms, but its relationship with the tech companies that have flourished with the spread of the internet is more complex.

The Chinese government has helped homegrown internet companies grow by shutting out US platforms like Facebook (FB) and Google (GOOGL). But it has also cracked down on the Chinese firms if they threaten its political aims.

‘Role models and pioneers’

Didi announced the drive to recruit Communist Party members two weeks ago after coming under intensified scrutiny from authorities following the rape and murder of a female passenger in August, the second such killing this year.

“Being role models and pioneers, the party members will help strengthen the construction of the customer service safety system,” Didi said in a post on social media platform WeChat. The company, which says it has more than 10,000 employees, noted 3,750 of them were already party members.

Hiring more Party members is a way for the startup to boost its standing with Chinese leaders.

“Didi stood accused of being reckless, careless,” Clark said. “This was damaging society, and anything that damages social stability gets you in major trouble with the party, which is charged with guaranteeing it.”

The company declined to comment on the matter beyond its earlier statement.

Other tech firms, including another of the country’s biggest startups, have taken similar steps.

After getting rapped over the knuckles for promoting what authorities called “vulgar content” on its popular video and news apps in April, ByteDance announced it would hire 2,000 more people to review content. The job ads noted that party members and candidates with “strong political sensitivity” would be preferred.

Kuaishou, a video app backed by top tech company Tencent (TCEHY), did the same thing earlier this year after getting caught in the government’s crosshairs for promoting “vulgar content.” It hired thousands of content reviewers, giving preference to party members.

‘Falling foul of the party is costly’

The Communist Party of China has nearly 90 million members. The vast majority have regular day jobs, so hiring members doesn’t mean government officials are infiltrating the companies.

Joining the party requires people to secure recommendations from other members and to write several reports demonstrating their thoughts and ideological leanings over at least a year.

Many students and young professionals who join are motivated less by ideological fervor than a desire to improve their career prospects in government or at state-owned enterprises.

“Those seeking jobs in the tech sector or private sector generally weren’t bothered. Outwardly being a party member might be as weird as, say, being a Christian in Silicon Valley,” said Clark, referencing an episode on HBO’s “Silicon Valley” show where a character is viewed with suspicion for being a regular churchgoer.

But now the party “is more directly controlling the fate of Chinese tech ventures,” Clark said. “Falling foul of the party is costly.”

Hiring people with political affiliations to curry favor with governments happens at US tech firms, too. Wall Street and Silicon Valley alike frequently hire former lawmakers or government officials, seeking to leverage their connections for smoother government relations.

The difference in China, observers say, is that the party has virtually unchecked power. It can deliver heavy blows to big tech companies with little warning.

Tencent, the world’s biggest gaming company, took a hit to its profits and lost billions in market value after Chinese regulators stopped approving licenses to make money from new online games. Tencent attributed the problem to a bureaucratic reshuffle in Beijing, and government statements expressed concern that video games are causing addiction and bad eyesight among young people.

Some analysts interpreted the moves as a message to Tencent, which is also a big player in social media, that it was getting too big and needed to fall in line.

Letting the party ‘play a leading role’

Beijing has other mechanisms for influencing tech firms, including requiring all companies in China, both foreign and domestic, to have party committees.

When the committee at bike-sharing startup Ofo met in August, it voted to change the company’s corporate charter to highlight the party’s leadership role in management, according to state-run media.

Figuring out “how to integrate the party into corporate management and let it actually play a leading role — these are major issues for non-public companies in their party building,” Ofo CEO Dai Wei told Xinhua. The startup’s big investors include e-commerce company Alibaba (BABA).

The committees also often hold monthly sessions for employees’ party education.

ByteDance’s April session studied policies laid out at a recent cyberspace conference and the “spirit” of President Xi Jinping’s speech at that event, according to state-run news site China Economic Daily.

ByteDance declined to comment on the matter.

Cynicism remains

For tech firms, expanding the role of party committees and being more open about their adherence to the Communist Party is the cost of doing business in China, especially as President Xi tightens his grip over the government and the party.

But there remains “a lot of cynicism” within the companies, according to Paul Triolo, head of global tech policy at Eurasia Group.

“A lot of this is, ‘OK, we’re going to have a Xi Jinping Thought room here because that’s what’s in vogue,'” Triolo said, referencing the Chinese president’s political philosophy, which was added to China’s constitution this year.

And while the public displays of party affection may feel over the top, China’s tech companies “want to be out in front of this, rather than declare their alliance after something happens,” he said.

Brandishing Communist credentials could pose a problem for tech firms’ global ambitions, however.

The Committee on Foreign Investment in the United States, or CFIUS, vets certain deals that could give a foreign investor control of a US business for national security risks.

Recent reforms to CFIUS will likely mean increased scrutiny by the committee of China-backed deals. It already killed Alibaba-affiliated Ant Financial’s acquisition of MoneyGram last year.

“To the extent these companies are viewed as arms of the Chinese government, that does not play well internationally,” Triolo said.