The three old committees – laosanhui (老三会) consist of a party committee dangweihui (党委会), a workers congress zhigong daibiao dahui（职工代表大会), and a trade union gonghui (工会). Under the planned-economy system all firms had these three committees established and they took an active role in managing of companies. Since the new Company Law was introduced some claim that it is a tale of the past and the three old committees were replaced by the three new ones:
The three new committees – xinsanhui (新三会) seem more familiar to the Western observers, they consist of a shareholders’ meeting gudonghui (股东会), an executive board dongshihui (董事会), and a supervisory board jianshihui（监事会). It may look like a typical two-tier board, but actually Chinese company law is a mix of the one-tier board and the two-tier board. There are two supervisory organs: a supervisory board and independent directors, whose competences often overlap. But that is the slightest problem with the ‘new’ Company Law. What strikes me most is that the three groups that used to control corporation in China still retain their power. Of course, they don’t exercise it directly as they used to do, often they don’t exercise it at all, but still they have a latent power to influence major corporate decisions.
There is an old Chinese adage, to paint an old cucumber green – lao huanggua shua lv qi （老黄瓜刷绿漆). Typically, it refers to old women, who pretend to be younger than they actually are. That’s exactly what the Chinese corporate law is doing – it pretends to be more modern, more investors friendly and more similar to the Western laws, but actually it retains a lot of the previous legal and economic system solutions.
Let’s take a brief look at the art. 19 of the Company Law of PRC:
Article 19 In companies, Communist Party organizations shall, in accordance with the provisions of
the Constitution of the Communist Party of China, be set up to carry out activities of the Party.
Companies shall provide the necessary conditions for the Party organizations to carry out their
The Communist Party of China has around 82.6 mln of members (2012) scattered around the country and it is more than probable that there would be few CPC members at almost every major foreign firm in China and that would form a Party branch (党团组织; 党支) within a corporation. As for June 2012, there were 366 foreign enterprises that had formed Party branches in Beijing alone. The supporters of this solution claim that a Party branch within a company could act as a bridge that brings national policies into companies helping them become familiar with the situation in the country, facilitating the healthy development of foreign enterprises and guaranteeing the legitimate rights and interests of employees. Some add that that it also serves as an useful link to the government and state banks, which would be helpful in obtaining bank loans or securing lucrative contracts. Although, the power of Party committees within private companies might be small, their indirect influence is enormous. They exercise mainly a control function over the company’s activities and over the Chinese employees and if necessary report to higher party instances.
Apart from the Party branches, companies deal also with trade unions. Actually there is only one trade union – All-China Federation of Trade Unions (ACFTU), zhonghua quanguo zonggonghui (中华全国总工会), a 200 mln members giant that is closely connected with the Party. Even Walmart, known for its anti-union stand, had to establish trade unions and has to consult all the employees-related matters (working hours, lay-off, etc.) with ACFTU.
The Party and ACFTU influence on private foreign companies in China is a fact: in some cases it is strong, in some almost negligible; it has drawbacks, but also some advantages. Maybe in a long run it is better for China to maintain a strict control over private sector. Nevertheless, the way of doing business is quite different from the Western standards and anyone setting up a business in China should be aware of that.