Liang Wengen: a phenomenon


by He Qinglian on December 4, 2012

There are only a few Chinese entrepreneurs who became headline stories both in China and abroad at the same time, Liang Wengen is one of them. The reason that he became the focus of the news is his unreserved desire to become entitled to the same beneficial treatments those running state-owned enterprises enjoy. Liang’s efforts in seeking this could be seen in his going all out to join the rank of CPC Central Committee members and his suing the Obama administration for imposing a ban on his wind farms that would situate within or in the vicinity of restricted air space at a naval weapons systems training facility.

Liang Wengen

The reasons Liang has such a wish is that his group, Sany, has been in fierce battles with Zoomlion. Although the two groups—both situated in Changsha and enjoy backing from provincial government department and officials—are major taxpayers of Hunan and the pillar industries of the province, Sany has been losing grounds in its competition with Zoomlion, which is a state-owned enterprise.

The contests between Sany and Zoomlion are filled with means such as spying, slandering, and even kidnapping. Zoomlion has, apart from these, used government departments to strike its rivals; Sany’s being caught in a bribery case in 2011 was an example.

Liang Wengen would love to become entitled to the preferential treatments of State-owned enterprises, but Hunan province is too small for two competing enterprises. Hence, after a series of defeats, Liang expressed his wishes to hand Sany over to the country. 

This year, Liang secured a representative position in the 18th National Party Congress after some maneuvers. Standing alongside other managerial personnel of state-owned enterprises and financial institutions, Liang got so carried away that he came up with the remark that the wives of the party members are prettier than non-party members. After all his efforts failed to land him to the prized position of Central Committee member, Liang had no option but to relocate Sany to Beijing, where he thinks he has a stronger government backing and could avoid having to engage in vicious competitions with Zoomlion. 

Uphill struggle of Private Enterprises

The ways Liang Wengen seeks to improve his situation may seem funny for some. But people who have some understanding of the survival struggle of private enterprises in China would know Liang Wengen is an embodiment of how private entrepreneurs stay afloat in China. Since the Chinese government highly monopolizes resources, being on good terms with the government is a critical asset for private entrepreneurs, the relationships between the Chinese government and businesses can be best illustrated with the “resource dependence theory”. 

The so-called resource dependence theory is part and parcel of the organization theory. The most notable work of this theory is The External Control of Organizations: A Resource Dependence Perspective, written by Jeffrey Pfeffer and Richard Salancik in 1978. 

Resource Dependence

The theory put forward some important assumptions: 1) organizations depend on resources; 2) these resources ultimately originate from an organization's environment; 3) the environment, to a considerable extent, contains other organizations; 4) the resources one organization needs are thus often in the hand of other organizations; 5) resources are a basis of power; and 6) power and resource dependence are directly linked: organization A's power over organization B is equal to organization B's dependence on organization A's resources.

To sum up, the theory suggested that any organization has to obtain the resources it needs from the external environment or from other organizations. The party that needs resources is dependent on the party that controls resources. The more important, uncommon and irreplaceable the resources the controlling party has, and the greater discretion it has in its hand, the more dependent the other party would be.

Government Dominance

In order to survive and to develop, private businesses have to find political patronages. That this is so is because in China's political and social structure, enterprises are dependent on the government in the following aspects at least—what I mean to point out is not government regulations and relevant laws that exist in every country but some that are with Chinese characteristics.

Enterprises depend on the government for business opportunities. The Chinese economy is driven by investment. And of all the investment, those made by the government took up a large chunk. For example, construction of infrastructure projects and government purchases in recent years have created huge amount of business opportunities for enterprises.

Access to vital resources such as land, and obtaining special permit to operate certain businesses and others depends on the government. China's private equity fund industry is mainly dominated by members of the Red families. Ordinary private enterprises couldn't even obtain the eligibility to enter the game.

Enterprises' development depends on government policy tilt. This chiefly means aspects that are related to industrial policies and local development strategies. Some local governments selectively support certain key industries and key enterprises, thereby affecting the competition environment. Those companies chosen as key enterprises could be entitled to special concessions and treatment such as a government chief's help with sorting out problems, settling things at government departments via the express channel, financial help from banks and so on. 

Indispensable Ties

To get these benefits, some enterprises strive hard to be on good terms with the government.

Since the country's resources are monopolized and controlled by the government, its influence over enterprises effectively means the government (or its officials) is capable of bringing uncertainty to businesses. It could increase the transaction costs of enterprises; it could create business opportunities for certain enterprises to boost their profits; or it could change the cost structure of an enterprise through a number of means.

The will of the government often manifests as the individual will of officials. Therefore, those officials with power at hand could become “king makers”. The ties that private entrepreneurs forge with the government are often effectively personal friendship between themselves and officials.

In the relationships network of Chinese private entrepreneurs, certain important local officials are indispensable contacts.

It is precisely because private entrepreneurs get plundered by officials who have the power to allocate resources that their descendent do not feel like to inherit their family businesses. According to a research survey conducted by the Brand Institute of Shanghai Jiaotong University, 80% of private businesses will be taken over by the next generation in the coming decade. Yet 82% of those second generation entrepreneurs are reluctant or do not actively seek to succeed. And one of the main reasons they are not willing to take over is that they do not want to come into contact with government officials and bankers.

Implications of the Liang Wengen Phenomenon

What the Liang Wengen phenomenon revealed from the depth is that in this Chinese market economy which is semi-controlled by the government, those in power could arbitrarily interfere with the operation of businesses in all sorts of ways. As a result, businesses become even more dependent on the government. And therefore Chinese economic elites could in no way become a class with independent political demands. So long as this state of resource-dependent continues to exist, economic elites could only be vassals of political interest groups.