China's New Government Takes Shape :: The 2013 National People's Congress

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One of the highlights of China's political calendar, the annual meeting of the National People's Congress (NPC), took place in Beijing March 5-17. This year's meeting was the first of its kind since China's once-in-a-decade leadership transition last November. This year's NPC saw the new government begin to take shape as key personnel appointments and changes to China's governing structures were announced. While there were few concrete policy outcomes, the newly appointed President, Xi Jinping, and Premier, Li Keqiang, ended the Congress with hints about their government's future policy direction.APCO invites you to take a look at our recent analysis of the NPC which highlights the main outcomes and implications for foreign business.

Text of China's New Government Takes Shape :: The 2013 National People's Congress

EXECUTIVE SUMMARYLeadership transition over The 2013 National Peoples Congress saw the Xi Jinping administration begin to take shape as Chinas long leadership transition finally concluded. Key personnel and structures are now in place. While there were few concrete policy outcomes, Xi Jinping and Li Keqiang ended the Congress with hints about their governments future policy direction. Top appointments

Senior appointments largely followed the script, particularly the appointments of Xi Jinping, Li Keqiang, Zhang Dejiang and Yu Zhengsheng to their respective government positions. Li Yuanchaos appointment as vice president surprised some and broke with recent tradition as Li is not a member of the Standing Committee. Lis appointment restores some of the factional balance at the top, given his close affiliation with Hu Jintao.Key ministers The appointment of the vice premiers and state councilors also went broadly as expected, and the retention of 15 of 25 ministers sent a strong message of stability. Many of the new faces were at key ministries, including the National Development and Reform Commission (NDRC), Commerce, Finance and the National Health and Family Commission. These appointments will be vital to shaping the policy environment affecting foreign companies.

Government reorganizationThe widely anticipated government reorganization was less dramatic than many expected and many anticipated changes failed to materialize. NDRC and MOST emerged unscathed and there was no creation of new super-ministries for energy, culture or finance. The changes that did take place especially the abolition of the Ministry of Railways and a newly strengthened food safety organization seemed to reflect public pressures, an increasingly important feature of politics in todays China. Wens final work report Wen Jiabao delivered his final work report on a predictable note, laying out conservative targets for growth, inflation and money supply for 2013 and emphasizing policy priorities closely in line with those of recent years. The absence of specific policy initiatives was appropriate for this swansong speech. Policy direction While the NPC itself did not produce significant policy initiatives, Xi and Li used the last day of the Congress to hint at the future direction of their administration. Xi reiterated his rhetoric about national rejuvenation and the Chinese dream, suggesting an elevated role for nationalism in his administration. Li Keqiang hinted at a policy program consisting of increased market economic reforms, a pledge to maintain or increase levels of social spending, anti-corruption, urbanization and reform of Chinas re-education through labor system. Implications for foreign business Foreign enterprises now know the shape of the government they will face for the next five years. Xi has moved quickly to consolidate his authority. While policy continuity in the short-term seems likely, Xi and Lis comments suggest considerable room for policy change in the coming months. The contours of those changes may become more evident as we approach the Partys Third Plenum in the fall. Public expectations run high, especially on corruption and pollution, and many policy-makers believe that change is needed to sustain economic growth. Finally, the tone of Xis rhetoric highlights the continuing dangers that nationalism poses to foreign enterprises in China. Foreign enterprises should prepare to adjust their engagement and advocacy strategies as well as their crisis management procedures to reflect these changing realities.

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THE 2013 NPC: TRANSITION OVER, HARD WORK BEGINSThe 2013 National Peoples Congress (NPC) marked the end of the six-month leadership transition process which began in November with the Party Congress. The tripartite reins of power party, military and government have now officially moved to Xi Jinping. In keeping with the NPCs limited role in policymaking, the meeting produced little in terms of concrete policy outcomes. Nonetheless, the announcement of high-level government appointments and the results of the government reorganization will alter the regulatory and stakeholder environment faced by many businesses in China. Most notably, closing remarks by Xi Jinping and Li Keqiang provided hints at the direction of their newly consolidated regime, with Xi emphasizing nationalism as a unifying theme and Li laying out the case for a greater reliance on market forces in the Chinese economy.

WHAT IS THE NPC AND WHO ARE ITS DELEGATES?

The NPC is Chinas rubber stamp parliament, with just under 3,000 delegates. It is nominally Chinas highest political institution and meets each spring at the same time as the Chinese Peoples Consultative Congress (CPPCC), an advisory body of some 2,200 members.These two meetings (liang hui) are carefully scripted and staged, but nevertheless mark a key point in Chinas political calendar where the Party leadership lays out themes for the year ahead, confirms key government appointments and approves the annual government work report and budget. The meetings also provide an important networking opportunity for aspiring officials and offer the Party the opportunity to legitimize itself under the guise of political pluralism. As well as representatives from the Party, the central government, the military and Chinas provinces, the NPC includes many of Chinas wealthiest business people. According to research conducted by the Hurun report, Chinas NPC includes 31 USD billionaires and the CPPCC includes another 52.

XI JINPINGS ADMINISTRATION: OLD AND NEW FACESThe mysteries about who will constitute Xis government leadership team are now resolved. There were few surprises at the top, although ministerial appointments involved several interesting moves directly relevant to foreign businesses.

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TOP LEADERS Senior assignments largely followed the script, particularly the appointments of Xi Jinping, Li Keqiang, Zhang Dejiang and Yu Zhengsheng to their respective government positions, although Li Yuanchaos appointments as vice president surprised many and brok e with recent tradition. Xi consoliates his grip: Xis assumption of the presidential title, even if a foregone conclusion, marks a further step in his consolidation of power and leaves him with a tighter grip on the Party, governmental and military levers of power than Hu Jintao enjoyed until several years into his administration. Li Yuanchao as vice president: Lis appointment as vice president runs contrary to recent convention that the vice president is usually a Standing Committee member, but there have been such exceptions in the past. Despite rumors of a scandal-linked career setback in 2012, the appointment appears to signal Lis strong chances of promotion to the Standing Committee in 2017. Lis appointment also restores some of the factional balanc e at the top of Chinese politics, given his close affiliation with Hu Jintao. Li now ranks 8th in the official hierarchy.

VICE PREMIERS The line-up of vice premiers, each of whom is responsible for coordinating the work of several ministries within given policy portfolios, was also in line with most peoples expectations. To date, there have been no official announcements made about the portfolios held by each vice premier, but we offer some educated guesses based on their backgrounds. Zhang Gaoli, the executive vice premier and viewed as a strongly establishment figure, is expected to assume the finance portfolio previously held by Wang Qishan. Liu Yandong will likely retain her previous responsibilities for education, science and culture, while also taking on health. The reform oriented Wang Yangs portfolio is not yet clear, but there is speculation that he may receive the agriculture brief. Ma Kai, former head of the NDRC, might take on a broad economics portfolio (potentially including NDRC, MOFCOM and SAIC), making him one of the most influential individuals

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affecting the macro-environment for foreign businesses in China. Among the still unassigned portfolios are telecommunications and state assets. STATE COUNCILORS Few of the state councilor portfolios have direct implications for foreign businesses, with their focus on internal and external security and the administration of the State Council. However, Wang Yongs potential appointments to the industry and transportation portfolio (including MIIT and the Ministry of Transport) given his background in the aerospace industry may be significant. In his previous role as the head of Chinas state-owned enterprise regulator, the state-owned Assets Supervision and Administration Commission (SASAC), Wang earned a reputation as a staunch defender of the interests of the states role in the Chinese economy. This could present challenges for foreign multinationals in terms of continued support for the policy indigenous innovation and other tools for economic protectionism. MINISTERS The retention of 15 of 25 ministers in their current positions sent a strong message of stability. Among the news faces are several of particular importance to the foreign business community: NDRC: Xu Shaoshi takes over as head of the powerful NDRC; as a former minister of land and resources with close links to Wen Jiabao, his appointment may reflect Li Keqiangs attention to urbanization as a key economic driver and core policy aim. Xu is from Zhejiang province and studied hydrogeology. MOFCOM: Gao Hucheng, Chinas chief trade negotiator since 2010, and a vice minister since 2003, was made minister of commerce, a post usually given to rising provincial chiefs. Gao has significant international experience, having studied abroad, worked in industry and as a diplomat in Africa. He has a doctorate in sociology from the University of Paris and is a fluent French speaker. Finance: Lou Jiwei returns to his home base, having served as vice minister of finance for 10 years