Chinese authorities have detained an outspoken entrepreneur and taken control of his businesses, reviving a debate about the state’s dominance over private industry and rule of law in the world’s second-largest economy.

Sun Dawu and the conglomerate he founded, Dawu Agricultural and Animal Husbandry Group, had been publicly feuding with a state-owned farm in China’s northern city of Baoding over a long-running land dispute when police detained him, members of his family and other senior Dawu executives last week.

Mr. Sun and others are in custody for allegedly causing public disorder and disrupting industrial operations. Local officials have stepped in to manage at least some of Dawu’s businesses, including a hospital and a middle school, according to a person briefed on the matter. Zhao Guang, a lawyer consulted by Dawu personnel, said authorities have restricted access to the company’s assets, leaving its staff unable to pay legal fees. It wasn’t clear how long these arrangements would last.

The detention of Mr. Sun, who has gained prominence in China speaking up for farmers and rural businesses, has rippled through Chinese social media and unnerved many within the country’s legal and business circles. Some say the incident underscores the tenuous existence that many private Chinese companies face, particularly when confronting state-backed rivals.

“A dangerous precedent has begun…an enterprise that one so painstakingly built could be completely taken over in a moment of carelessness,” a writer, who goes by the pen name “Xiao Hui,” wrote in a commentary that went viral on the WeChat social-media platform. It has garnered more than 100,000 views. “In this winter, entrepreneurs across the country will be paying attention to the fate of Sun Dawu and Dawu Group.”


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