Recently, a “military strategist” of a Chinese state-owned enterprise revealed the inside story of the Chinese Communist Party‘s strategy of “raising and killing” foreign companies. The Epoch Times revealed that the biggest risk for foreign companies investing in China is not from market competition, but from the 10 major traps set by the Chinese Communist Party.
Foreign companies often encounter various traps in China, and many investors are often left empty-handed. Yu Youjun, the former vice governor of Hunan Province, famously said that officials play the role of grandson when attracting investment, and are willing to be the “three companions” (eating, drinking and playing with them).
When foreign investment is introduced, officials will begin to play the grandfather, foreign businessmen (injury) will be beaten into internal business (injury), internal businessmen (injury) will be beaten into serious injury. This famous quote by Yu Youjun fully reflects the real situation of foreign companies’ investment in China.
The following are the ten traps of the Chinese Communist government in attracting investment.
One, the trap of setting up party organizations for private enterprises
In November 2018, the CCP announced the “Regulations on the Work of the Branches of the Communist Party of China (for Trial Implementation),” which includes provisions for the establishment of “Party branches” in all enterprises, including private and foreign enterprises, as well as other administrative and social organizations, communities, schools, research institutes, the military and other grassroots organizations.
As of December 2019, China has more than 32 million private enterprises and more than 76 million individual entrepreneurs, according to the Communist Party of China News Network. According to the work regulations, all enterprises (including individual entrepreneurs) with fixed business premises and more than three employees are required to establish a party organization. As of October 2020, the coverage rate of Party organizations in Chinese private enterprises (including foreign-funded enterprises) has reached over 90%.
The CCP’s purpose in setting up party organizations in private enterprises is to prepare for the nationalization of private enterprises. This move is even more clever than the Venezuelan tactic of turning private enterprises into state-owned enterprises back then. Venezuela directly expropriated or merged them, while the CCP first set up party branches in enterprises, and then sent CCP officials into the enterprises to serve as party branches or party committee secretaries or advisors to the company’s board of directors, so as to first map the enterprises and then take control of them, and high-quality private enterprises will eventually be nationalized.
Second, the trap of changing officials
In China under the Chinese Communist Party, new officials often ignore old accounts, and one parent official has a new claim. Whenever there is a change of officials, major adjustments have to be made to the positioning of industrial development, which is a fatal blow to investors.
For example, in 2013, the Chinese Communist Party promoted the network economy nationwide, and a large number of network financial enterprises came into being under the vigorous promotion of local governments. When an American listed company invested a huge amount of money in a city in Henan Province to build a Home purchasing headquarters base (online and offline model) in cooperation with the government, when the enterprise invested nearly 300 million yuan to build the product pavilion, the municipal party secretary of the city changed, and when the new municipal party secretary arrived, he thought the decision of the previous municipal party secretary to build the home purchasing headquarters base was wrong.
So he immediately abrogated the cooperation agreement with the enterprise, leading to the direct bankruptcy of the project. Afterwards, all the losses were borne by the enterprise. Such cases are not few in China.
Third, the trap of forced expropriation and demolition by the government
In 2015, a Canadian overseas Chinese bought thousands of mu of land in Tianjin to build a logistics park (the land was industrial land), and soon after the construction of the logistics park started, a local real estate developer looked at the lot. In order to sell the land at a good price (commercial land is more than 10 times more expensive than industrial land), the local government forcibly suspended the construction of the logistics park project.
Afterwards, the local government only refunded the original price of the land purchase to the investor, but was not responsible for all other losses, resulting in a direct loss of more than 50 million yuan to the investor. Later, the investor was prepared to sue the government for breach of contract, but the local court simply did not accept.
Fourth, the government statistics falsification trap
In China, it is no secret that GDP figures are falsified. In order to complete the annual growth rate issued by the higher government, local governments often ask enterprises to cooperate with the government to falsify the output value. For example, if a company’s actual sales volume for the year is 100 million yuan, the government may ask the company to report 200 million yuan or 300 million yuan, or even more.
In the process of production value statistics, the government requires the legal person of the enterprise to sign and stamp the company’s official seal on the “Enterprise Production Value Declaration Form”.
For the enterprises, this poses a legal hazard. Because it is obvious that corporate tax payment does not match the declared figures, when the government needs corporate cooperation in falsification, they will say that it has nothing to do with tax omission, but when the government wants to infringe on corporate property, the “Declaration Form of Enterprise Production Value” filled by the company every year becomes the most powerful evidence of tax evasion.
V. Hostage Diplomacy Trap
Hostage diplomacy is common in China, and in March 2017, the Chinese Communist Party incited the public to boycott Lotte supermarkets nationwide in opposition to the South Korean government’s agreement to install the U.S. “SAD” anti-missile system.
All of Lotte’s supermarkets in China were fined by the local government and “focused on” by law enforcement, and its official website was hacked and paralyzed.
In March 2021, the Chinese Communist Party launched a boycott of foreign brands in China, guided and orchestrated by official media, in retaliation for the strained relations between China and the United States and Europe. A large number of foreign brands, such as the well-known Swedish brand H&M and American sports brands Nike and Adidas, were hit in the Chinese market.
Some so-called patriotic netizens protested outside H&M and other branches, getting emotional and chanting protest slogans. Even Hong Kong and Taiwanese artists have been involved in this boycott of foreign goods, and many have been forced to take a stand to cancel their endorsement contracts for these brands.
Official media accused some foreign brands of “eating China’s rice and smashing China’s pot” and said that “Chinese netizens are furious”, which triggered a strong international backlash.
This kind of hostage diplomacy is certainly a fatal risk for investors. Nowadays, the Chinese Communist Party has enemies on all sides of the world, and many foreign investors in China are often shot in the face.
Sixth, the Chinese Communist Party’s united war trap
The Chinese Communist Party has three major killer weapons, namely: the barrel of a gun (violence), the barrel of a pen (lies), and the united war (the lure of interests). This has been intensified since Xi Jinping came to power.
In September 2020, the General Office of the CPC Central Committee issued the Opinions on Strengthening the United Front Work of the Private Economy in the New Era. It is stipulated that the united front work should be oriented to all private enterprises and private economy people, and the work targets mainly include the main financiers and actual controllers of private enterprises, the main operators holding shares in private enterprises, the natural major shareholders of private investment institutions, the main persons in charge of social organizations in the field of industry and commerce with private enterprises and private economy people as the main body, the main persons in charge of relevant social service institutions, the main partners of private intermediaries, people investing in the mainland The Hong Kong and Macao business people, a representative of the individual businessmen.
For foreign investors, it is either to endanger the world with the Chinese Communist Party or to withdraw from China. If investors neither cooperate with the Chinese Communist Party’s United Front nor withdraw from China, the consequence may be that they will be left with no money.
Seven, the trap of officials being investigated for corruption
In China, no matter what you do, you have to talk about human relations, the bigger the business, the bigger the backer, if there is no backer, it is difficult to do business. But once an official is investigated, a large number of investors who paid bribes are bound to be involved.
The Chinese Communist Party’s discipline inspection department will take the opportunity to make trouble with investors and implement extortion, investors who refuse to break the money, will have to bear criminal liability, so investors can only break the money to eliminate the disaster. Similar cases have been experienced by almost all entrepreneurs in China.
Eight, the Chinese Communist Party’s National Security Law Trap
In China, the power of state security is greater than the sky, and on July 1, 2015, the Chinese Communist Party’s security law came into force, which means that all Hong Kong, Taiwan and foreign investors in China will be monitored, including their emails and WeChat, as well as their communication software outside of China.
If someone is found to be displeased with the CCP or its leaders, the consequences will be severe. This is almost no security for investors.
Nine, the military-civilian integration trap
On November 23, 2017, the Opinions of the General Office of the State Council on Promoting the Deep Development of Military-Civilian Integration in the National Defense Science and Technology Industry came into effect, and all information, talents, technologies, equipment and facilities of enterprises that match the needs of the military industry are targets of integration. For this reason, any enterprise or individual that is looked at by the CCP will have to serve the CCP military, and if they do not cooperate, they will be in constant trouble.
Ten, intellectual property trap
Forced technology transfer is an important factor triggering the trade war between the U.S. and China. in May 2019, the CCP introduced the Foreign Investment Law, and foreign companies generally reflect that the CCP uses the Foreign Investment Law to force technology transfer on foreign companies. Although the CCP denies this, the fact is undeniable.
In April 2019, the American Chamber of Commerce in China released its annual white paper stating that the U.S. and China must address “structural issues” including forced technology transfer if they are to reach a mutually satisfactory trade agreement.
This shows that in the U.S.-China trade war, reducing the trade deficit is not the only objective of the U.S. side, which reflects how much importance the U.S. side attaches to China’s forced technology transfer, discriminatory economic policies and cyber theft.
In short, the biggest risk in investing in China is not from normal market competition, but from the Chinese Communist government. China is a society governed by man rather than the rule of law, and the various laws it has put in place are designed to maintain the CCP’s authoritarian rule, not to protect investors at large.
Therefore, investors who are not careful will face various investment traps and end up with no money.