Asset managers back China’s Communist Party writing itself into company law

Vote ranks Communist Party above the boards of state-owned companies

Leading asset managers BlackRock and Fidelity backed China’s Communist Party writing itself into company law this year, according to disclosures revealed in the Financial Times.

The disclosures show that some of the world’s largest asset managers voted in favor of ranking the party above the boards of state-owned enterprises (SOEs).

More than 30 Hong Kong-listed SOEs, representing more than $1 tn in market capitalization, have so far amended their articles of association to embed the party, rather than the Chinese state, at the heart of each group.

More are expected to do so as part of a push by Beijing to improve productivity and transparency at SOEs, which account for about a fifth of the country’s economic output.

Party committees have been a familiar but often unwritten part of life for SOEs, but the decision to bring them out of the shadows has prompted soul-searching among investors who are under increasing global pressure to stand up to company boards.

Companies making changes include Sinopec, the state oil company, and China’s four biggest banks including ICBC, the world’s largest bank by assets.

In a sign executives recognize the sensitivity of the issue, many of them met big investors in the run-up to the votes to urge their support.

Disclosures reviewed by the FT show that while funds controlled by Vanguard and Norges Bank voted against the party’s inclusion, BlackRock, Fidelity and Schroders, voted in favor.

All three backed the changes being made at ICBC, whose new rules describe the committee’s role as to ‘ensure and supervise the bank’s implementation of policies and guidelines of the party and the state’.

The votes were held during company AGMs and needed a two-thirds majority to pass. While their majority state ownership made this an easy hurdle, most sought a high approval to help give them ‘face’ within China.

Yet 44 percent of non-state Hong Kong shareholders in China Construction Bank voted against the motion, as did 29 per cent of ICBC investors, according to FT calculations.

Investors have taken the view that making the Communist Party’s involvement explicit could help shareholders better understand the role played by party committees. ‘The committees have always been there,’ Jamie Allen, secretary-general of the Asian Corporate Governance Association, tells the paper.

‘They clearly complicate the role of the board within companies but, on the other hand, we hope [disclosure] leads to more transparency over what the committees do and that would be a positive.’