1 Analyzing the CCP’s strategy and goals behind ‘modernizing’ Chinese enterprises
Beijing issues guidelines on improving the ‘modern enterprise system’
May 26
The CCP General Office and State Council General Office published an opinion on “improving the modern enterprise system with Chinese characteristics” (中共中央辦公廳 國務院辦公廳關於完善中國特色現代企業制度的意見).
The Opinion consists of eight sections and 19 specific measures. Below is a summary of key content in the document:
1. Overall requirements
Guiding ideology
- Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era will serve as the guide.
- Thoroughly implement the spirit of the 20th Party Congress, as well as the second and third plenums of the 20th Central Committee.
- Adhere to the general principle of seeking progress while maintaining stability (穩中求進).
- Uphold the leadership of the Party.
- Improve the socialist market economy system.
- Build world-class enterprises.
Working principles
- Uphold the Party’s comprehensive leadership and improve the mechanism for the role of Party organizations.
- Implement the “two unwavering commitments” (i.e. unwaveringly consolidate and develop the public sector, and unwaveringly encourage, support, and guide the development of the non-public sector) and promote complementary advantages among enterprises of different ownership types.
- Promote development through institutional reforms to overcome systemic and structural obstacles.
- Tailor policies based on enterprise size, development stage, and ownership type.
Main goals
- Within five years (2030), enterprises that meet the conditions should generally establish a modern enterprise system. Party-building, governance structures, market-oriented mechanisms, and scientific management levels should be significantly improved.
- By 2035, a modern enterprise system with Chinese characteristics should be more fully developed, and the international competitiveness of enterprises should be comprehensively enhanced.
2. Upholding and strengthening Party leadership
Party-building in state-owned enterprises
- Clarify the boundaries of major decision-making powers of Party committees.
- Explore models integrating Party management of cadres with market mechanisms.
Party-building in private enterprises
- Establish communication mechanisms between Party organizations and management.
- Strengthen the development of Party member teams.
3. Improving corporate governance structures
Enterprise ownership
- Establish a clear, reasonable, and smooth property rights system.
- SOEs are to optimize their equity structures.
- Private enterprises are to build simple and transparent shareholding structures.
Governance in SOEs
- Strengthen the Party Committee’s leadership role of “setting the direction, overseeing the overall situation, and ensuring implementation” (發揮把方向、管大局、保落實).
- Clarify the powers of the shareholders’ meeting, the decision-making authority of the board of directors, the role of external directors, and the executive functions of management.
- Promote tenure-based and contract-based management systems.
Governance in private enterprises
- Encourage private enterprises to improve governance structures and standardize shareholder behavior.
- Support the transformation of family businesses into modern enterprises.
Role of capital markets
- Strengthen the fiduciary duty of controlling shareholders.
- Support listed companies in bringing in institutional investors holding more than 5 percent of shares as active shareholders.
- Improve the independent director system and information disclosure to enhance scientific decision-making.
4. Improving scientific enterprise management
Strategic management
- Develop strategies aligned with the new development pattern.
- Focus on core businesses and avoid blind expansion.
Internal management
- Strengthen internal controls, legal affairs, anti-corruption efforts, and audit supervision to improve management efficiency.
Risk management
- Establish multi-level risk prevention and control mechanisms to guard against domestic and international investment and operational risks.
Democratic management
- Implement comprehensive budget management and performance evaluation.
- Promote digital transformation.
- Improve systems such as workers’ congresses and collective wage bargaining.
5. Improving enterprise innovation and incentive systems
Innovative organizational models
- Promote the joint construction of R&D institutions by enterprises.
- Open up innovation resources.
- Support technology transfer by small and micro enterprises.
Innovation factor allocation
- Improve the bidirectional flow of talent and technology transfer management.
- Support financial product innovation.
Incentive mechanisms
- Focus on medium- and long-term value creation.
- Grant autonomy to project teams.
- Establish intellectual property operation agencies.
6. Establishing enterprise social responsibility and cultural systems
Social responsibility
- Integrate social responsibility into business operations.
- Promote green development and rural revitalization.
Income distribution
- Improve the wage growth mechanism.
- Refine executive compensation and performance evaluation.
- Implement medium- and long-term incentives.
Corporate culture
- Integrate fine traditional Chinese culture.
- Shape corporate images of patriotism, dedication, and legal compliance.
7. Optimizing enterprise regulation and service systems
Comprehensive regulation
- Strengthen cross-department joint regulation.
- Promote credit-based, tiered regulation.
- Strictly prevent financial fraud.
State-owned asset supervision
- Focus on managing capital.
- Optimize categorized supervision and evaluation.
- Enhance accountability.
Enterprise services
- Promote reforms to streamline enterprise-related approvals.
- Improve market entry and exit mechanisms.
- Optimize policy delivery mechanisms.
8. Safeguard measures
- Local governments and departments should implement the Opinion in line with actual conditions.
Our take
Publicly, Beijing’s Opinion on improving the “modern enterprise system” appears to be focused on strengthening corporate governance, deepening Party oversight over Chinese enterprises, and driving technological innovation to foster globally competitive SOEs and private companies.
Upon closer scrutiny, the enterprise modernization effort also signals Xi Jinping’s intent to tighten the CCP’s control over private enterprises, bolster high-tech industries and increase the PRC’s technological self-sufficiency amid greater restrictions from the United States and its allies, curb elite corruption in the regime, and solidify his leadership ahead of the 21st Party Congress in 2027.
1. The Opinion’s call to build “world-class enterprises” and enhance the international competitiveness of those enterprises by 2035 reflects Beijing’s ambition to strengthen the PRC’s ability to challenge Western economic dominance amid heightening U.S.-China trade and tech tensions. The CCP authorities will likely prioritize efforts to have Chinese companies achieve breakthroughs in semiconductors, artificial intelligence, and green energy. Efforts could include concentrating technology, talent, and capital in core industries, as well as encouraging new R&D institutions and technology transfer platforms to integrate SOE resources with private sector innovation. Beijing’s end goal is likely to make Chinese enterprises more capable of rivaling current industry leaders in the West and elsewhere, and eventually become global leaders.
The CCP authorities, however, face systemic obstacles in successfully carrying out “enterprise system modernization.” Notably, the integration of private and public enterprises could be plagued by the bureaucratism and inefficient decision-making of SOEs. Beijing’s overly centralized approach to “enterprise system modernization” also risks stifling enterprise flexibility, leading to resource misallocation and reduced innovation efficiency.
The Opinion proposes “classified assessments” and “shifting the focus of state-owned asset supervision to managing capital” to enhance the efficiency of enterprises. However, the rigid structures of SOEs and regulatory pressures on private firms may hinder the implementation of this measure. Meanwhile, the overemphasis on the Party’s leadership over enterprises is likely to undermine their market-oriented capabilities, clashing with the expectations of global investors and reducing the appeal of Chinese companies to foreign capital.
Beijing’s strategy faces another problem amid global supply chain restructuring and “deglobalization” trends. For instance, the Opinion calls for “supporting technology transfer by small and micro enterprises” and other measures that represent an attempt to build an SOE-led “industrial fortress” and make the PRC more resilient to pressure from the U.S. and its allies. However, the success of the “industrial fortress” concept hinges on the PRC’s ability to attract global capital and talent, which is affected by China’s economic weakness and the international community’s greater awareness of the CCP threat.
2. The Opinion indirectly highlights the inherent contradictions between Party-building and corporate governance.
For one, the Opinion introduces several measures to strengthen the CCP’s ability to control enterprises. This includes strengthening the Party Committee’s leadership role of “setting the direction, overseeing the overall situation, and ensuring implementation” in corporations, clarifying the roles of the board and executives, and making shareholders of institutional investors holding more than 5 percent of shares in listed companies into “active shareholders.” On the one hand, the CCP is looking to better align enterprises with national priorities. On the other hand, the Party is concerned about its ability to influence enterprises effectively without stifling business autonomy.
In SOEs, the Party Committee’s entrenched role in strategic oversight and implementation often hampers decision-making efficiency and market responsiveness. SOE executives, burdened with both Party and business duties, face complex hierarchies that slow operations. Beijing’s Opinion proposes integrating Party cadre management with market mechanisms to address these issues, but ambiguous implementation guidelines offer little promise of dismantling deep-rooted bureaucratic inefficiencies.
Meanwhile, Beijing’s mandate for private enterprises to integrate Party organizations and include “active shareholders” risks enabling government interference in corporate decision-making. Tech giants like Alibaba and Tencent have faced pressure to bolster Party-building, leading some executives to step back or shift roles. Also, the Opinion’s call for independent director-led audit committees, while aligned with global standards, risks becoming a government monitoring tool if appointments are state-influenced, potentially eroding corporate independence and competitiveness.
In short, the CCP’s reliance on Party-building to address governance issues overlooks the risk that Party involvement could itself impede efficiency, fostering internal power struggles or prioritizing political goals over market needs. This tension is acute in high-tech sectors, where rigid Party oversight could stifle the flexibility needed for innovation.
3. Private firms have long driven economic growth and technological breakthroughs in China. However, the CCP views their mastery of key technologies as a potential threat to its authority. Alibaba’s Ant Group, for instance, faced a halted IPO in 2020 under regulatory pressure, while crackdowns on tech giants like Didi Chuxing and public criticism of figures like Jack Ma reflect Beijing’s caution toward private sector influence.
The Opinion contains measures that are aimed at giving the state greater insight and control over private enterprises. For instance, the Opinion calls for “standardizing shareholder behavior” and “building simple and transparent shareholding structures,” which are presented as “transparency” and “fairness” measures but are likely designed to curb the autonomy of private enterprises and prevent them from challenging state authority. However, enhanced information disclosure and shareholder conduct rules are likely to raise compliance costs, particularly for tech giants, and potentially limit their expansion in data and financial sectors. Beijing also risks stifling the independent growth of private companies as it strives to align them with national priorities.
Overregulation threatens to undermine the flexibility that fuels private sector competitiveness. Chinese tech firms, such as ByteDance’s TikTok, are already facing slowed global expansion due to regulatory and political hurdles. In pushing for greater control over dynamism, Beijing risks weakening the global competitiveness of Chinese enterprises even as it seeks to strengthen said competitiveness, undermining its ambition to create world-class firms.
4. The Opinion seeks to rein in crony capitalism and local protectionism. This is hinted at from measures such as the “standardization of shareholder behavior” and the establishment of a “robust corporate credit commitment system.” These measures target the so-called “local fiefdoms” formed by private firms and local officials, who leveraged vanity projects and policy favoritism to distort markets and foster corruption. China’s real estate sector debt crisis was partly driven by “local fiefdoms” and the collusion between CCP elites and business tycoons.
In theory, the enhanced Party oversight and regulatory measures introduced in the Opinion would disrupt the “local fiefdoms” and other profit-driven networks, as well as curb the lingering influence of Xi Jinping’s factional rivals over the economy. But one trade-off of the centralized approach is a reduction of local economic dynamism, which in turn weakens the ability of local governments to properly implement “enterprise system modernization.”
5. The Opinion seeks to tackle rampant financial fraud and credibility issues among listed companies through stringent measures against financial fraud and enhanced information disclosure. Beijing is aware of how practices such as falsified financial reports and exaggerated technological claims — often exploiting retail investors — have eroded market confidence. For instance, the 2020 Luckin Coffee scandal triggered a stock price collapse, led to the company’s delisting from Nasdaq, and raised concerns about the transparency of Chinese firms.
The CCP authorities’ strengthened financial oversight, however, may not necessarily restore business confidence in Chinese companies. The Party’s expanded supervision still lacks an independent legal framework, and critics have long pointed out that the authorities conduct “selective enforcement” and show favoritism towards politically-connected firms. Beijing cannot address these systemic flaws by working within the CCP system, and the measures proposed in the Opinion are at risk of falling short in curbing fraud and rebuilding the credibility of Chinese enterprises. Moreover, heightened Party-building mandates may inflate compliance costs and potentially weaken the ability of Chinese firms to compete globally.
6. The focus on expanded Party control in Beijing’s “enterprise system modernization” risks chilling investors and entrepreneurs, intensifying capital and talent outflows. In particular, foreign investors who are increasingly wary of political, geopolitical, and security risks in China, could find greater reason to relocate their assets when they consider the greater scrutiny that the CCP authorities will place on the equity structures of private firms, decision-making transparency, and shareholder behavior. Chinese firms could see their market valuations come under pressure should international investors lose confidence in them due to doubts over governance independence and financial transparency.
7. The Xi leadership appears to have timed the implementation of the Opinion and the expected actualization of the “modern enterprise system” with geopolitics and the domestic political cycles in mind. The 2030 deadline to “generally establish a modern enterprise system” comes three years after the 21st Party Congress (2027) and gives Xi Jinping a compelling reason to take a fourth term so that he can oversee the successful implementation of the CCP’s latest economic strategy.
As for geopolitical considerations, Xi could be hoping that Chinese enterprises can be sufficiently “modernized” over the next five years to make China even more important to the global manufacturing supply chain. If countries find it difficult to decouple from a China with renewed manufacturing advantages, future U.S. administrations will find it tougher to counter the CCP together with U.S. allies and partner nations.
The progress of Xi’s bid to “modernize” the “enterprise system” in the years leading up to the 21st Party Congress will impact his political capital. Success would solidify his paramount position and strengthen his bid for reappointment as CCP General Secretary. But failure and economic downturn could lead to social and political problems that challenge the stability of his leadership.
