The following is a guest post from the good people at the Brunswick Group, reviewing the results of the 12th National People’s Congress.
Monday morning Beijing awoke to clear skies across the capital – the first clear skies for a number of days – if not the entire Lianghui. It might be a stretch to describe this as a positive signal for the road ahead given today marks the first working day after the completion of the transfer of power to China’s fifth generation of leaders.
On Sunday 17th March, China concluded the inaugural session of the 12th National People’s Congress (“NPC”) five days after the Chinese People’s Political Consultative Congress (“CPPCC”) wrapped up its parallel session. These annual meetings, which are held during the first two weeks of March each year, mark one of the most important events on the Chinese political calendar. This year’s meeting was of even greater significance as it concluded the formal transfer of power to Xi Jinping and Li Keqiang.
A key task at this year’s NPC was to officially elect the incoming State Council and confirm the state positions of China’s new senior leadership. In addition, this year’s Lianghui confirmed a new round of government restructurings that reduced the number of ministries and commissions from 27 to 25. This round of restructuring included a range of changes that have arguably been in response to local citizen concerns – from food safety to health. The focus and nature of the reshuffle indicate the authorities are taking concrete action to address what it sees as its biggest threat – a loss of credibility and declining levels of trust in the Party.
Since the conclusion of the 18th Party Congress in November last year there has been much analysis of the new leadership team – in particular the style, approach and priorities of Xi Jinping. At this stage, it is still too premature to definitively place Xi on the political spectrum. Much of Xi’s focus over the past four months have been focused on addressing public concerns and consolidating his support across a broad base of vested interests – including the military.
As anticipated, the incoming leadership has made no abrupt moves to alter the core priorities laid out in the 12th Five-Year Plan (2011-2015) or to other well-defined economic and political principals. The leadership team will maintain continuity and take a gradualist path towards reform. Reform has many interpretations and is a point for significant discussion. Economic reform will continue, but, as Wu Bangguo has poignantly repeated, “we will never simply copy the system of Western countries or introduce a system of multiple parties holding office in rotation”. We see no imminent change to that philosophy and approach.
KEY IMPLICATIONS AND TAKE-AWAYS
- The China Dream: This Lianghui in many ways was all about the China Dream and addressing challenges laid in the vision Xi outlined in November.
- No Distinct Policy Changes: The leadership team will maintain continuity with the previous administration and take a gradualist path toward new policies.
- Economic Reform – Not Political: The new leadership continues to support economic reform and market opening. Quality economic growth and quality investment remain paramount as officials work to transform China’s economic growth model away from exports and fixed investment. Political reform is not on the cards and the strength of a unified Party is paramount.
- Rebuilding Trust: Trust in the Party and the government has been severely undermined in recent years. In his first four months in office Xi Jinping has taken multiple steps to reengage and address concerns. While it appears political reform is not a near-term consideration, the leadership team does appear to be taking action to clean up the system. Time will tell if they are successful and are able to achieve sustainable change.
- Consensus Rule Continues: There will be no return to a paramount leader and decisions will be based on consensus. Xi Jinping has been actively engaging key groups over the past four months to win support and consolidate power – including across the military.
- Government Restructuring: It will take time for newly restructured government entities to start functioning smoothly as internal responsibilities are defined and clarified – and as internal politics are resolved. Based on past precedent this can be a complicated and long process. Those in impacted sectors need to be patient and update their engagement programs accordingly.
- Environment Prioritized: The state of the environment and the level of environmental degradation was front and center in the Lianghui, with one in ten proposals submitted by delegates related to this issue.
- Inbound and Outbound Investment: China’s Go Global strategy will continue to gather momentum through the next administration and it will diversify beyond large industrial state owned enterprises. Meanwhile, opening-up was recognized for the benefit it has brought and it will continue to be encouraged.
- Domestic Challenges: That being said, China’s vast economic and regional disparities and other domestic challenges continue to trump foreign concerns.
- International Engagement: China’s leaders will become increasingly engaged in bilateral and multilateral issues at a global and regional level over the next administration. However, a more confident China will also mean a more challenging geopolitical environment with greater potential for military tension.
- Further Restructuring: Expect additional changes among the ministers as they reach retirement age and more organizational restructuring in 2018.
If you want to read more about this year’s Lianghui, its potential business implications, and what it may mean for China’s future policy direction go here [link no longer exists] for Brunswick’s full report.