China's 2011 National People's Congress (NPC): - APCO Worldwide

China’s 2011 National
People’s Congress (NPC):
Fine-tuning the economy with an eye
on social stability
March 2011

EXECUTIVE SUMMARY
� The approval of China’s 12 th Five Year Plan (FYP) was the highlight of this year’s
meeting of China’s parliament – the National People’s Congress (NPC). Covering the
years 2011-2015, the 12 th FYP sets out to rebalance the economy with a strong
emphasis on increasing consumption, narrowing China’s growing income gap, promoting
environmental protection and energy efficiency initiatives, and boosting strategic
industries.
� Passage of the plan had added significance given the approaching leadership transition
in 2012/2013. The 12 th FYP is part of President Hu Jintao’s political legacy and China’s
new leaders will inherit the economic and social priorities defined in the plan.
� The NPC meeting occurred against a backdrop of concerns about domestic inflation,
high property prices, and popular uprisings in the Middle East. Not surprisingly, this
NPC session focused on policies to improve the livelihood of Chinese citizens and
control social dissent. Key initiatives included measures to tackle China’s rapidly rising
food and housing prices, increases in the budget for social welfare and greater internal
security spending.
� In addition, this year’s NPC saw a few officials taking turns in the media spotlight,
underscoring the growing role of public relations in Chinese politics. There was jockeying
between China’s established Tuanpai and Shanghai political factions and the emerging
Princeling group. Wen Jiabao and Wu Bangguo delivered what appeared to be opposing
statements regarding political reform, but a closer look suggests that the Party has no
plans for political reform as defined by most foreign observers. Rather, the Party
remains determined to maintain its absolute control.
� The upcoming change in leadership should not significantly change China’s business
environment in the short term. New administrations in China are generally constrained in
their ability to undertake any serious political reforms, and Xi Jinping has already
indicated his intent to follow the policies as laid out by Hu and Wen’s 12 th FYP.
� A shift to consumption-led growth will have a profound impact on foreign business in the
long term as Chinese consumerism rises. In the short term, however, Foreign Invested
Enterprises (FIEs) will face increased costs from social welfare measures and
government mandated increases in minimum wages.
INTRODUCTION & BACKGROUND
PUTTING THE NPC IN CONTEXT
With ritual regularity, the National People’s Congress (NPC) and the Chinese People’s Political
Consultative Conference (CPPCC) convene each March in Beijing for a two-week session. The
meeting draws together nearly 3,000 delegates from around the country. In theory, the NPC is
China’s highest and most powerful organ of state power, and this gathering marks one of the
most important events in the Chinese political calendar.
In practice, however, the NPC’s yearly gathering is largely an exercise in legislative
acquiescence, with delegates approving appointments, laws and ministerial work reports
predetermined by the Communist Party of China (CPC)—hence the gathering’s reputation as
China’s ‖rubber stamp legislature.‖ The control exercised by the Party over NPC proceedings is
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owed mostly to the political allegiance of the delegates themselves—more than 70 percent of
the NPC’s deputies are Party members (they are only 6 percent of the total population), and all
are tacitly approved by the Party.
This year’s NPC (held March 5-14) came at an interesting juncture—the first year of China’s
Twelfth Five Year Plan and the last full year of the Hu-Wen administration. This, however, is no
lame duck administration. Hu and Wen have presented measures that are fully geared towards
improving, and controlling, the lives of Chinese citizens. Against this backdrop, the NPC
meeting serves as a useful snapshot or temperature check on China’s political economy and
how it is being managed.
KEY FEATURES OF THE NPC
The highlight of each session is
the opening remarks delivered
by the State Council premier
and China’s top economic
planner, Wen Jiabao. Often
compared to a ―state of the
union‖ address, the Premier’s
―work report‖ speech is one of
the few times each year that a
top leader provides an overview
of the government’s political,
social and economic priorities,
and it is analyzed carefully as a
rare window into Party thinking.
Key elements of this year’s
work report are summarized in
the table to the right. At the end
of each NPC, the premier holds
a press conference. This is
usually the premier’s only such
press conference each year,
and his remarks are also
subject to close scrutiny.
In another example of the fast pace of economic and social change in China, there was much
media attention this year on the sheer number of billionaire delegates in both the NPC and
CPPCC. A Hurun Report on China’s wealthy noted that the richest 70 delegates had a
combined wealth of about USD 75 billion, compared with USD 4.8 billion for the wealthiest 70
members of U.S. Congress. The NPC and CPPCC, once a gathering of working-class
comrades, are quickly becoming a home for Chinese elites, perhaps resulting in an uptick in
importance for these two congresses as they develop into a business and networking forum just
as much as a political event.
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RAISING LIVING STANDARDS A TOP PRIORITY
“Now we want to put more emphasis on ensuring and improving people’s livelihood.”
– Zhang Ping, NDRC Director, March 5, 2011
THE TWELFTH FIVE-YEAR PLAN
Wen Jiabao unveiled the government’s 12 th FYP for National Economic and Social
Development (2011-2015) at this year’s NPC, which delegates dutifully ratified with 2,778 in
favor, 59 against and 38 abstentions. The 12 th FYP is a bold initiative – it emphasizes the
quality, rather than the quantity, of growth, and it strives to ensure that more Chinese citizens
benefit from the country’s unprecedented development.
Not surprisingly, Hu and Wen are seeking to use the 12 th FYP to bed down their legacy as the
first leadership team in the post-reform era with a strong focus on equality issues. Under Hu and
Wen’s ―harmonious society‖ and ―scientific development concept‖ policy frameworks, the 12 th
FYP will continue the 11 th FYP’s focus on moving away from ―growth at any cost‖ and toward a
more balanced and sustainable growth pattern. Unlike the 11 th FYP, however, the development
of the 12 th FYP took place in a markedly different internal and external environment: the global
financial crisis and increased risk of social instability are all salient issues in China that are
prominently addressed by this plan.
Implementing the initiatives of the 12 th FYP will also ensure policy continuity during the
upcoming leadership transition in 2012-2013, when President Hu and Premier Wen are
expected to be replaced by Xi Jinping and Li Keqiang. Xi publically stated that he intends to
follow Hu and Wen’s policy initiatives throughout the entire 12 th FYP period.
RESTRUCTURING THE ECONOMY
Restructuring the economy is the principal objective of the 12 th FYP. Changing the country’s
growth model is a critical concern for Chinese decision-makers for several reasons. First, the
sharp decrease in Chinese exports during the financial crisis, leading to the layoff of millions of
factory workers, underscored the importance for Chinese decision-makers of moving to a more
balanced growth structure. Second, large global trade and foreign exchange imbalances have
led to tensions between China and its major trading partners. Third, China suffers from the
inefficient use of resources and extreme environmental degradation that accompanies high
levels of Fixed Asset Investment (FAI). However, perhaps the most critical reason why the
Chinese government is pushing for bold economic reform is the perceived threat of social
instability that can grow out of China’s rapidly rising income disparity.
While the Chinese government has usually fared well with economic initiatives focused on
splashing large sums of money around, the sheer size of China’s economy, coupled with
various entrenched interests to keep things as is, has meant that making a major shift in China’s
growth model is actually quite difficult – the 10 th and 11 th FYPs also called for similar economic
reforms, to no avail. Nevertheless, if the government is serious about substantive change, like
the opening up of the late 1970s and the marketization reforms of the late 1990s, the 12 th FYP
may well be remembered as one of the most significant such plans in modern China’s history.
The 12 th FYP aims to fundamentally restructure the economy through four primary initiatives:
lowering economic growth targets, increasing consumption, implementing energy savings and
environmental protection measures, and promoting strategic industries.
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Slowing down growth: Wen Jiabao announced that China’s GDP growth target for the 12 th
FYP plan period is 7 percent, down from the 11 th FYP’s goal of 7.5 percent. This largely
symbolic goal (the 11 th FYP period averaged a growth rate of more than 11 percent, and Wen
announced a GDP growth target of 8 percent for 2011 in his work report) indicates that the
central government is aiming to reduce its focus on FAI as a growth driver and provide some
breathing space to set policies that will slowly increase consumption. As central-level and locallevel
objectives are difficult to align, enforcement of this goal will be problematic – only two of
China’s provinces, Beijing and Shanghai, have announced growth goals that are closer to the
lower 7 percent target, with several provinces having already announced targets of 13 percent
and higher.
Increasing consumption: Wen’s work
report called expanding domestic demand ―a
long-term strategic principle.‖ Increasing
consumption might prove to be a difficult task
– China has enjoyed spectacular growth
from its old growth model; a model that
promoted investments and exports at the
expense of increased wage growth and
household savings. While a small proportion
of individuals in China have become
extremely wealthy as a result, the income of
many citizens has not kept pace with
economic growth over the past decade. The 12 th FYP aims to increase household disposable
income by an annual rate of 7 percent, the same as the projected GDP growth rate during the
FYP period. Specific policy measures to increase income include raising minimum wages (the
Beijing government has announced its plan to increase minimum wages by 40 percent by 2015,
for example), personal income tax reform (raising income tax brackets so low-to-middle incomes
are taxed less) and improved rural land distribution.
Another policy tool to promote consumption is the expansion of government-funded social
welfare initiatives. The government announced at the NPC its intent to increase health care
spending by 25 percent more than originally planned, build 36 million affordable homes at a cost
of nearly USD 200 billion and ensure its pension system covers all rural citizens by 2015.
Increasing the rate of urbanization, partially through reforming the rigid and outmoded
household registration system, is another key 12 th FYP initiative.
The final key pillar of the plan is to move away from manufacturing industries focused on exportled
growth to service industries focused on inward-led growth, including wholesale and retail,
financial services, and leisure and hospitality. Analysts note that since output from the service
industry creates more jobs than manufacturing, this shift in emphasis can allow China to drive
up employment rates without decelerating growth.
If these initiatives are ultimately successful, analysts say China’s consumption rate could
increase from its current low of 35.1 percent to around 40 percent of GDP by 2015. While 40
percent is still a low number (by comparison, the United States’ consumption rate is currently 71
percent, Brazil is 63 percent and India is 54 percent), it could put China on the right track toward
rebalancing its economy and meeting its long-term development goals, as well as reducing
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China’s dependency on exports and thus reducing its current account surplus and need to
maintain an artificially weak currency. However, analysts note that despite the administrative
measures to boost consumption listed above (minimum wage increase, etc.), the plan will not be
successful unless entrenched interests in both government and business are incentivized to
slow down FAI.
China’s greenest five-year plan: The 12 th FYP is certainly the greenest ever with measures to
reduce pollution, increase energy efficiency and ensure a stable, reliable and clean energy
supply, with several binding targets embedded in the plan a concrete indication that China’s
central government understands just how expensive and counterproductive resource-intensive
FAI is for China’s future economic
growth.
The 12 th FYP includes a new carbon
intensity target of 17 percent (a
reduction in carbon emissions per unit
of GDP from 2010 levels by 2015).
Whether this target was included
because the Chinese government is
vitally concerned about global
warming is debatable. More likely, the
target reflects the government’s
recognition of the strategic value of developing a low-carbon economy, with its high-value jobs
and strategic location in any 21 st century economy. Analysts have noted that China is gaining,
even surpassing, the United States in several low-carbon industries, such as electric vehicles,
wind turbines and solar panels, and the 12 th FYP includes preferential policies to further these
sectors’ development.
The government also announced a cap on total energy use of the equivalent of four billion tons
of coal by 2015. However, it is not clear at this point if this target is mandatory – the 11 th FYP
included a non-binding cap on energy use that was ultimately exceeded. Again, the motivation
might not solely be to protect the environment, but rather to ensure energy security, a key
concern for the government as China’s energy demands are expected to grow with its economic
development.
Other mandatory targets include a non-fossil fuels in total energy mix target of 11.4 percent, an
energy efficiency target of 16 percent (down from the 11 th FYP’s 20-percent goal, which was
narrowly missed), 8 percent targets for sulphur dioxide and COD (compared to 10 percent in the
11 th FYP), and new 10-percent targets for reducing nitrogen oxides and ammonia nitrogen.
From “Made in China” to “Designed in China”:
The 12 th FYP includes an initiative to boost several
so-called ―Strategic Emerging Industries‖ (SEI). No
longer content with being considered the ―world’s
factory,‖ Chinese planners are expected to announce
numerous preferential tax, fiscal and procurement
policies designed to develop the SEIs. The
government hopes these industries will become the
backbone of China’s economy in the decades ahead,
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Strategic Emerging Industries
� Biotechnology
� New energy
� High-end equipment
manufacturing
� Energy conservation and
environmental protection
� Clean-energy vehicles
� New materials
� Next-generation IT

and they have chosen sectors where Chinese corporations are expected to succeed on a global
scale. The seven industries are biotechnology, new energy, high-end equipment manufacturing,
energy conservation and environmental protection, clean-energy vehicles, new materials, and
next-generation IT. The government reportedly expects more than RMB 14 trillion of central and
local government andprivate sector money will be spent on these industries during the 12 th FYP
period, with an aim to increase SEI’s contribution from today’s approximately 5 percent of GDP
to 8 percent by 2015 and 15 percent by 2020.
INFLATION A TOP ECONOMIC PRIORITY FOR 2011
“Rising consumer and housing prices affect the immediate interests of the people and that is
why the government has given top priority to curbing inflation.”
– Wen Jiabao, Closing Remarks, 2011 NPC
Food prices increased 10.3 percent in
February year-on-year (yoy). China’s
poorest citizens reportedly spend
nearly half their income on food and
the substantial increase in costs has
led to ―mass incidents‖ around the
country. Initial measures from the
government to control food prices
have included boosting the country’s
food supply, but as domestic demand
is high and global food commodity
prices are up, controlling food prices
has proved a difficult task. During the NPC Wen announced a target of 4 percent inflation for
2011.
Another issue that is perceived as potentially socially destabilizing is the sustained increase in
housing prices all over the country. According to the government’s National Housing Price
Index, house prices in 70 large Chinese cities were up by 6.4 percent year-on-year in
December. Analysis of house prices shows that houses in Beijing reportedly cost 22 times more
than average incomes in the city, turning the typical Chinese aspiration to own their own homes
into an impossibility (from 1977 to 2010, the median U.S. home price was 4.1 times the median
household income). Wen Jiabao’s work report acknowledges these ―exorbitant‖ prices, and the
government has recently undertaken several measures recently to cool down the property
market, including further restrictions on speculative investments.
BUDGET RELEASED
China’s Ministry of Finance (MOF) presented its draft budget report for 2011 to the NPC. In a
press conference, Finance Minister Xie Xuren stressed that two-thirds of central government
revenue in 2011 will be spent on improving people's livelihoods - including education (increase
of 16 percent yoy), health care (increase of 16.3 percent yoy), public housing (increase of 14.8
percent yoy), and social security and employment (increase of 16.6 percent yoy). The budget
sets 2011 government total expenditures at RMB 5.4 trillion, a 12.5 percent increase over 2010.
However, with all the oratory that the government’s top priority is to increase living standards,
the growth in spending in the areas listed above is in fact a decrease compared to previous
budgets, which averaged 25 percent increases over the past five years. In addition, the Chinese
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government spends only 7 percent of GDP on health care, pensions, unemployment benefits
and other social services. (U.S. social-welfare spending as a percentage of GDP is about 20
percent and is considerably higher still in many European countries.)
As local governments reportedly finance nearly 80 percent of health and education spending in
China, they will need quickly to devise a plan for how to meet these lofty Central level objectives.
MOF has indicated, however, that during the 12 th FYP period, some sort of property tax is
expected to become the primary source of revenue for local governments. Chongqing and
Shanghai recently started China’s first property tax pilot programs.
A key measure reportedly coming out of this year’s NPC is individual income tax reform—raising
thresholds so China’s low-to-middle-income groups pay less and increasing the rate for those in
higher income brackets. This tax adjustment should increase disposable income and reduce
financial burdens on low-income earners, yet, central government revenues from income tax
currently stand at only 6 percent of total revenue (compared with an average of 25 percent in
OECD countries), which is not considered enough to foot the bill for social welfare programs.
One promising initiative, however, is MOF’s intention to increase the amount allocated for social
welfare programs from State-Owned Enterprise (SOE) dividends, from 2.4 percent in 2010 to 11
percent in 2011.
In the wake of the Middle East’s political revolutions and
subsequent calls for Chinese citizens to undertake
―strolling‖ protests in the country’s largest cities, MOF’s
budget also shows that spending on maintaining law and
order within China’s borders will surpass military
expenditures for the first time. Spending this year on
internal security will total RMB 624.4 billion, an increase
of 13.8 percent from last year. By comparison, China’s
official 2011 PLA budget is RMB 601.1 billion, an
increase of 12.7 percent from 2010. While MOF’s budget
did not specifically outline where the money for internal
security will be spent, Wen Jiabao indicated in his work report that the government will
strengthen its control over the Internet throughout 2011.
THE LEAD UP TO OCTOBER 2012
This year’s NPC saw several officials take turns in the media spotlight, underscoring the
growing role of public relations in Chinese politics. The NPC also highlighted jockeying between
China’s political factions and the possible effect of the “Princeling” group on the balance of
power between the Tuanpai and Shanghai factions. Finally, Wen Jiabao and Wu Bangguo
delivered what appeared to be opposing statements regarding political reform, but a closer look
suggests that the Party has no plans for political reform as defined by most foreign observers.
Rather, the Party remains determined to maintain its absolute control.
POLITICAL TIMELINE
There is only one more year before China’s new leaders are appointed: the 17 th CPC Central
Committee’s (2007-2012) final congress will convene in October 2012 to select China’s 18 th
Central Committee (2013-2018), including the Party’s general secretary, the Politburo and its
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NPC’s Odder Proposals
This year’s NPC has received
more than 5,700 new proposals,
including more than a few
controversial requests: a plea for
woman to stay home after
having children and a
suggestion to keep rural children
away from big-city universities.

Standing Committee. The March 2013 NPC meeting will then see the selection of China’s new
government, including the President, Premier, State Council, and many new ministers.
THE END OF THE STAID OFFICIAL?
Chinese officials engaged in what can only be described as PR campaigns this year at the
normally highly-scripted NPC. The usually low-profile Wang Qishan, State Council vice premier,
made some interesting comments to NPC delegates about greedy Beijing banks that were
widely reported by China’s state media later that day. However, the palm d’or went to one of
China’s most well-known officials, Bo Xilai, party secretary of Chongqing, who held an
unprecedented three-hour media session at the NPC, where he regaled the crowd with stories,
including his efforts to promote revolutionary values in Chongqing and his popular anti-triad
campaign.
The NPC also highlighted the growing influence of social media on Chinese official thinking.
Xinjiang party chief Zhang Chunxian signed up for a microblog account one week prior to the
NPC meeting and quickly acquired more than 140,000 followers. He is reportedly the highestranking
Chinese official to ever sign up for a Weibo account (Weibo is a Twitter-like service in
China). Throughout the session, Zhang sent out comments about inflation, housing prices and
employment, resulting in several favorable comments from Chinese netizens about his
willingness to interact with the public.
These PR moves illustrate an interesting trend in Chinese politics. Chinese officials on the
whole do not engage in public relations, and if they do, it is usually in a contrived manner with
preapproved softball questions. More recently, however, Chinese print and online media are
getting bolder in their reporting, and Chinese netizens are using social media as a tool to
comment on government practices. Bo and Wang’s off-the-cuff remarks and Zhang’s microblog
indicate that at least a few Chinese government officials are starting to recognize the powerful
role public opinion plays in shaping official policy responses, and the scope for clever officials to
ride those views to higher office. If these actions ultimately prove successful, there could be
many more media-savvy Chinese politicians in the years to come.
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CHINA’S FACTIONAL JOCKEYING
While the NPC is supposed to be a key state pillar under China’s ―party and state‖ system
(which seeks to formalize the notional split between the Communist Party and the government
bureaucracy), the highly interwoven nature of the Communist Party and all aspects of the
government means the politics and rivalries of the Party are never far away from the surface of
NPC meetings. In the lead up to China’s leadership transition at the October 2012 Party
Congress, this could not be more true.
Although recently the Party has moved away from dependence on a paramount leader and now
relies on the nine-man standing committee of the Politburo as its key decision-making body, this
apex of power is also the center of informal coalitions within the Party that compete against
each other in terms of policy preferences and access to resources. While this competition rarely
spills out onto the public stage, it is fierce and has important implications for how China is
governed. In recent years there have been two distinct groups within the Party: the ―Tuanpai‖
and the ―Shanghai faction.‖ The Tuanpai group is led by China’s President Hu Jintao and—less
formally—Premier Wen Jiabao. Members of their core group include Vice Premier Li Keqiang
and Director of Party Organization Li Yuanchao, who formed bonds during their time at the
Chinese Communist Youth League, through which they advanced their careers. The Shanghai
faction features Wu Bangguo, chairman of the NPC and Jia Qinglin, head of the CPPCC, both
closely associated with previous Party Secretary Jiang Zemin. Another factor at play is the
loose coalition of ―Princelings,‖ known as such because they are the offspring of former highranking
officials. Xi Jinping, Bo Xilai, and Wang Qishan are all so-called ―Princelings.‖
These broad groups, although absolutely united on certain issues, including the primacy of the
Party, have taken different views on socio-economic development. The Tuanpai grouping tends
to take a more equitable view of China’s development. Under the aim of what has been termed
creating a ―harmonious society,‖ Tuanpai members believe that ensuring all sections of China’s
population share the benefits of growth is of equal importance as rapid growth and
development. The Shanghai faction and the Princelings, on the other hand, are more focused
on rapid growth to solve China’s development issues and boost China’s power and prestige,
and are more willing to accept the growing disparities in wealth evident in China as an
unfortunate but necessary consequence.
Both the Tuanpai and Shanghai faction may now be questioning their future to some extent.
The Tuanpai suffered a significant setback when Hu was unable to ensure that his protégé Li
succeeded him as Party Secretary, and many analysts wonder if the group will remain a force in
the years ahead with no powerful and well-placed leader assigning key positions to its
members. The Shanghai faction has also weakened in power as Jiang has faded further from
the political stage; several key leaders retiring in October 2012 will only reinforce this trend.
This leaves factional Party politics in an interesting state of flux 18 months out from a significant
leadership transition. Some analysts wonder if the Shanghai faction will align with the nascent
―Zhejiang faction‖ that seems to be emerging around officials attached to Xi Jinping (and which
has a similar economic growth-focused policy emphasis). Analysts are also watching the
Princelings for any sign of cohesiveness around a particular policy platform. Unlike the Tuanpai
and Shanghai Faction, Princelings are mainly considered a collection of individuals who share a
similar upbringing and privileged status in Chinese society rather than a unifying policy platform.
Princelings are generally viewed as self-serving careerists and several of them can currently be
found in high-level government, PLA, and SOE positions. However, Princelings do tend to share
9

similar views on economic growth and development issues as the Shanghai and Zhejiang
factions. Thus, there is the prospect that Princelings could align more closely with these
groupings in the future, and in doing so create a formidable power bloc within the Party.
PRINCELING-IN-CHIEF
The men of the hour at this year’s NPC are Xi Jinping and Li Keqiang. If everything goes as
predicted, Xi will become China’s next president, CPC general secretary and military chief, while
Li will run the day-to-day work of the government as premier. A fascinating exercise is
ruminating on China’s direction under this new administration. As Xi has kept a low profile
throughout his career, it is difficult to glean much intelligence on this topic, but there are a few
clues that can help us make an educated read of the tea leaves.
Xi’s ascent to the country’s top government position has not been hiccup-free since being
unveiled as President-in-waiting in 2007. When Xi was not appointed vice chairman of the
Central Military Commission in November 2009, surprising political analysts everywhere, some
suspected that Hu moved against him. Xi is neither a member of the ―Tuanpai‖ group nor the
―Shanghai Faction,‖ which might explain why both sides seem to generally tolerate him. He is a
true ―Princeling‖ whose father, Xi Zhongxun, was a communist revolutionary and Vice Premier.
While it is difficult to pinpoint where Xi falls on the political spectrum, he is probably best
described as a centrist. He has spent time in Fujian, Zhejiang and Shanghai—all liberal
economies relatively open to the West. However, what makes Xi Jinping unique compared to
his princeling contemporaries is that he also spent considerable time in rural areas during his
youth and early political career and seems to be sympathetic to the hardships that face China’s
poor.
Although it is difficult to ascertain what type of policies Xi will support once in power, one thing is
certain: this is a new era in Chinese politics. The fifth generation of leaders that will come to
power in 2012 are not the engineers and technocrats who built the China we know today.
Instead, many of them have degrees in social sciences and started their political careers in the
booming 1980s, a very different formative experience than their predecessors.
Regardless of Xi’s policy preferences, Hu and Wen’s ―inclusive growth‖-focused 12 th FYP will
anchor the new Xi/Li administration in place until 2015, and Xi himself has publically endorsed
the policies within that plan. As for what the 13 th FYP (2016-2020)’s policy measures will look
like is also hard to say. One possible emerging trend is the growing number of billionaires in the
Party and the expanding influence of Princeling-controlled SOEs, which may lead to the further
―businessification‖ of the Party, with ever closer collusion between Party and business and
consequent risks of corruption and ensuing social instability. Whether Xi supports this trend,
however, is not clear: Chinese leaders do not wield the same amount of control as they did in
earlier eras. Xi will have to build consensus or risk having his agenda thwarted by vested
business interests. This might be something Xi does well, for he has a reputation as a pragmatic
politician.
DIFFERENCES OVER POLITICAL REFORM?
As the police clamped down on would-be ―Jasmine Revolution‖ protesters a stone’s throw away
from the Great Hall of the People, two senior Chinese officials provided some interesting
commentary about the state of government political reform at this year’s NPC. In his opening
address, Wu Bangguo, NPC chairman and a powerful member of the nine-man standing
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committee of the Politburo, said that China ―must maintain the correct political orientation and
never waver on key issues of principle such as the fundamental system of the state.‖ Two
weeks later, Wen Jiabao, responding to a question in his closing press conference at the NPC,
said something quite different: ―Without political restructuring, economic restructuring will not
succeed and the achievements we have made in economic restructuring may be lost."
Many have been asking if these two statements represent a rift in the Party or, in his waning
days in office, if Wen is simply trying to cement his legacy as a man who deeply cared about
political reform. But perhaps these statements are not as confusing as they appear. Wen went
on to explain that while political reform is necessary for economic growth, it nevertheless must
be implemented by the Party, and slowly.
If Wu and Wen are using a ―good cop/bad cop‖ routine, the subtext of that message would then
be the same: the Party controls change, and no one else. Considering that the Party as a rule
does not descend into factional fighting about political reform issues, it is likely that Wen’s
reform statements should simply be seen as throwaway comments to keep foreigners
appeased. The sheer opaqueness of the Party means that we do not know what goes on behind
closed doors, but one thing is certain: the Party does not intend to give up power anytime soon,
and it will continue to crush any opposition to make sure of that.
IMPLICATIONS FOR FOREIGN BUSINESS
Shift to consumption-led growth to have profound impact: If China’s economic restructuring
ultimately succeeds, this decade could belong to the Chinese consumer, driving the global
economy for years to come. Countries around the world, including the United States and
Europe, could potentially see the creation of millions of jobs with the sole purpose of selling
goods and services to China. In the short term, though, China’s government will likely turn to the
private sector for support in social welfare measures, so FIEs should expect increased costs
that arise from pension and health care reform and minimum wage hikes. On the positive side,
FIEs can expect to see policies that support the expansion of China’s lagging service industry.
Chinese business has better access to decision-makers: The images previously coming out
of the NPC and CPPCC congresses would be of rows and rows of Chinese delegates in the
same dark suits, many asleep, peppered with the odd delegate wearing the bright colors of their
traditional minority costume. That the two congresses are now quickly acquiring very rich
businessmen as delegates, who as a result have access to the highest levels of Chinese
leadership over the two-week period, certainly could have a negative impact on foreign business
interests. Foreign business should continue to update their understanding of relevant
stakeholders followed by targeted engagement strategies in order to assure their voices are
continued to be heard as well.
Industrial upgrading presents both opportunities and challenges: While the 12 th FYP’s
initiative to promote SEIs should yield opportunities for foreign companies due to incentives
created for private investment, given China’s current drive to develop its indigenous innovation
capabilities, these preferential policies may be biased toward domestic firms. Foreign firms must
also be aware of the government’s proclivity to ―re-innovate‖ foreign technology. Either way,
increasing technological capabilities over a variety of sectors will have Chinese regulators
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welcoming advice and training from experienced foreign companies, offering an opportunity to
help guide implementation. This assistance could range from informal consultations to more
formal programs, including foreign-established R&D bases in China. Foreign firms may also
consider the use of partnerships with local companies to better access the significant funding
opportunities available. The 12 th FYP will also present opportunities for foreign companies to
bring over know-how to help local business meet the plan’s energy and environment targets.
Since most of these targets are mandatory and have the backing of China’s central government,
several polluting industries will be scrambling to comply.
Leadership change to have no immediate implications: The upcoming change in leadership
should not significantly change China’s business environment. New administrations in China
generally do not undertake any serious political reforms, and Xi Jinping has already indicated
his intent to follow the policies as laid out by Hu and Wen’s 12 th FYP. As for the implications of
Xi’s ascent to China’s presidency for the 13 th FYP period, Xi’s time in the market liberal
economies of Shanghai, Zhejiang and Fujian bode well for FIE interests, but in a rare unscripted
moment in 2007 Xi made rather inflammatory remarks about foreigners’ ―full bellies‖ as they
―pointed fingers‖ at China.
CONTACT INFORMATION
For further information on how APCO Worldwide can help your organization understand China’s
political/regulatory environment, please contact:
BEIJING
Greg Gilligan
managing director, Beijing
16 th Floor, NCI Tower
12 A Jianguomenwai Avenue
Chaoyang District, Beijing, China 100022
Phone: +86.10.6505.5127
Fax: +86.10.6505.5257
ggilligan@apcoworldwide.com
GUANGZHOU
Ouyang Jun
chief representative and director
14F, Tower B Victory Plaza
103 Tiyuxi Road, Tianhe District
Guangzhou 510600
People's Republic of China
Phone: +86.20.3804.6356
Fax: +86.20.3804.6352
jouyang@apcoworldwide.com
SHANGHAI
Ken Jarrett
chairman, Greater China
2102 CITIC Square
1168 Nanjing Road West
Shanghai, China 2000041
Phone: +86.21.5298.4668
Fax: +86.21.5298.4669
kjarrett@apcoworldwide.com
HONG KONG
Sukyi Yau
senior vice president
1903, 19/F, Cambridge House,
Taikoo Place
979 King’s Road, Hong Kong
Phone: +852.2866.2313
Fax: +852.2866.1917
syau@apcoworldwide.com
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