At the start of last year, the Beijing-based magazine China Entrepreneur published an article titled “Private entrepreneurs are all on their way to jail,” which said that entrepreneurs in China were in jail or headed there.
This might be a bit of an exaggeration, but it does reflect the complicated legal and political environment that entrepreneurs face in China.
The article was quickly taken down, but the legal basis for it was explained by Capital Equity Legal Group director Chen Youxi (陳有西) in a speech on the theme of “The environment for survival of Chinese private enterprises and the reconstruction of economic penalties.”
Chen described the cases of former Greencool Technology Holdings and Kelon Group chairman Gu Chujun (顧雛軍), former China East Star Group chairman Lan Shili (蘭世立) and former Better Life chairman Tang Qingnan (唐慶南).
He concluded that if China does not overhaul its system of economic penalties, private entrepreneurs would always be headed for jail.
Look at what has happened to some well-known Chinese entrepreneurs since Chinese President Xi Jinping (習近平) came to power: Last year, Anbang Insurance Group chairman Wu Xiaohui (吳小暉) was thrown in jail, HNA Group cochairman Wang Jian (王建) died “accidentally” and Alibaba Group executive chairman Jack Ma (馬雲) “unexpectedly” announced that he would go into early retirement.
It looks as though when a private company reaches a certain size, any of these things could happen to the person in charge.
China has a policy of “letting the state sector advance while the private sector retreats.” Bank loans are much more freely available to state enterprises than private ones.
Last year, 24 listed companies were acquired by national and local state-owned enterprises.
There is also a policy of “party-building in private enterprises,” which means that the Chinese Communist Party (CCP) gets inside companies, interferes in their operations or even takes over their leadership.
An example of this trend is the Foreign Investment Law of the People’s Republic of China, which was enacted on March 15 and is to come into force on Jan. 1.
The law opens the door wider to foreign investment, but Article 34 says that foreign-funded enterprises must provide the government with investment information reports, which amounts to making companies conduct business with their pants down.
Article 35 states that Chinese authorities can subject someone to a “foreign investment security review,” which amounts to dangling a sharp political sword over their head.
Hon Hai Group chairman Terry Gou (郭台銘) wants to run in next year’s presidential election. He should take the fates of these other entrepreneurs as a warning. The best outcome for him would be to quietly retire like Ma and to hand his company over to the CCP.
If Gou does become president, will he use Taiwan as a bargaining chip to get better treatment for himself and Hon Hai? Only time will tell.
Yu Kung is a Taiwanese businessman operating in China.
Translated by Julian Clegg
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