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THE CHINESE POLITICAL SYSTEM – AN OVERVIEWNOVEMBER 2018

CHINA POLITICAL ECONOMY BRIEFING FOR PLMRTHE CHINESE POLITICAL SYSTEM – AN OVERVIEW

This Report is the second in a series of private papers prepared by PLMR which will look at the challenges and opportunities presented by working with and in China in 2018 and beyond.

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EXECUTIVE SUMMARY

• China’s political system is complex and opaque

• The party in power and the State (government) overlap to a significant extent, and the lines are blurring even further

• Political discourse is permitted however there is an expectation for decisions, once taken, to be unanimously upheld

• Factionalism and centre – local dynamics underpin the system

• The key State bodies are the National People’s Congress and the State Council

• The National People’s Congress is China’s legislative body

• The State Council is China’s principle administrative body

• State council delegates are Xi Jinping loyalists and Party devotees

• The restructure of the State Council’s commissions will impact the operating environment for businesses causing confusion in the short term but with a positive long term outlook

• The key Communist Party of China organs are the CPC National Congress, Central Committee, Political Bureau and Political Bureau Standing Committee

• The CPC National Congress sets the political direction of the Party

• The Central Committee is a quasi board of directors for the CPC

• The Political Bureau and its Standing Committee are the Party’s leading decision making bodies, members tend to hold concurrent senior State positions

• Leading Small Groups advise on and coordinate policy implementation, their importance has been on the rise under Xi Jinping

• The Chinese People’s Political Consultative Conference is a Party dominated advisory panel on State affairs which deliberates on issues before policy making takes place

• State Owned Enterprises function in a State-business-Party triangle and are a crucial element of the Chinese political economy

• China’s central bank has made significant monetary policy and financial reforms impact and provides a steer for the economy


CONTENTS

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INTRODUCTION

THE DYNAMICS UNDERPINNING THE SYSTEM

Informal politics and factionalism

Centre – local forces and undercurrent

ORGANISATIONAL STRUCTURE – PART 1

The State

The National People’s Congress

The State Council

Who’s who on the State Council

The State restructure


Communist Party of China

CPC National Congress

Central Committee

The Political Bureau of the CPC Central Committee

The Political Bureau Standing Committee

Who’s who on the PBSC

LEADING SMALL GROUPS

Party – State implications

BETWIXT AND BETWEEN

The Chinese People’s Political Consultative Conference – Party dominated advisory panel on State affairs

State Owned Enterprises

People’s Bank of China

XI JINPING’S ‘NEW ERA’ AND THE ‘CHINA DREAM’

APPENDICES

2

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INTRODUCTION

China’s political system is dense, multidimensional, and notoriously opaque. Its institutional architecture is comprised of both State and Party. The State broadly refers to government while the Party refers to the Communist Party of China (CPC/Party) which has been in power since 1949. Conceptually there is a distinct separation between State and Party and this is substantiated in some instances but in practice, with numerous areas of overlap, the two are intrinsically linked.

Key State and Party bodies are closely associated through process and via overlapping appointments of Party members to State positions leaving the Party with significant influence over the State. Prominent Party member and State official Wang Qishan has stated that there “is no such thing as separation between the Party and the government, there is only a division of functions.”

A common misconception however is that there is no disparity or discord between Party and State blocs or indeed within them. Difference of opinion and debate does occur, however it largely does so behind closed doors. While challenge is accepted in the preliminary stages of policy and decision planning, a united front is always upheld once decisions have been taken thus fueling the imposition of a skewed narrative on the system.

Both Party and State forces permeate the business environment in China and stakeholders at the official level can be crucial or detrimental to success. An understanding of the basic political structure is absolutely essential for any company wishing to conduct business in or with China.


THE DYNAMICS UNDERPINNING THE SYSTEM

Informal politics and factionalism

The Chinese concept of guanxi refers to relationships based on trust, often garnered through the exchange of favours. Guanxi-based relationships are revered, carefully nurtured, and fiercely protected. Guanxi underpins Chinese society at every level and it is intrinsic to the political milieu.

Chinese political society is divided into a number of factions based on shared geography, experiences or interests including those with Youth League affiliations1, those with ties to Shanghai, those who’ve risen up in Shaanxi, and Princelings (those whose parents were senior ranking communist officials before the Cultural Revolution). The latter three groups are sometimes collated. It is among these factions that the ‘politics’ takes place as disagreements, including over key appointments, seeing power play dynamics bear out.

These factions are not clear cut, a number of smaller sub groups exist and loyalties are not necessarily absolute but rather there is a sliding scale with blurred edges. Though factional dynamics dominate China’s political landscape, this should be understood as infighting for favour and the specific approach to policy rather than as a divergence in broader political objectives – ultimately they share the same priorities for continued one party rule through the maintenance of social stability and a robust economy.

Centre – local forces and undercurrents

China’s political administration is characterized by a centre-local dynamic on a sliding scale of cohesion and friction. Local administration is divided into municipalities, provinces, autonomous regions, and special administrative regions (SARs). The next tier down is the county level and below that sit the townships. Below the counties are the prefectures, and below the townships are the villages though these are informal participants in the structure.2

The distribution of fiscal and administrative power between the centre and the local bodies has fluctuated since 1978, with some local bodies holding significant authority. A constant factor of this dynamic is that the centre crafts national policy which is then implemented by the local administrations. The policy mandates coming from the centre are often variously interpreted by these local bodies resulting in uneven execution. Political networks across localities have not formed, rather, they interact with the centre on a direct basis. Some cross locality economic initiatives do exist.

1 The Youth League is the CPC’s youth movement. It is based on the Party structure. The Youth League faction is centered around former General Secretary Hu Jintao and his allies who advocated a populist narrative. The Youth League’s standing has weakened under Xi Jinping. This is also true of the Youth League faction.

2 See Appendix 1 for the full list of municipalities, provinces, autonomous regions, and SARs

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The State

The key State bodies are the National People’s Congress (NPC) and the State Council.

The National People’s Congress

The NPC is a meeting of China’s ‘parliament’ with a mandate to vote on new legislation. As China’s legislative body it is responsible for implementing the State Constitution, appointing key State positions, and approving the country’s broad policy direction. It is formally considered to be the highest or most powerful organ of State.

Its 2980 delegates3 comprise representatives across China’s provinces, municipalities, autonomous regions, special administrative regions (SARs) and the armed forces. They hold a five year term of office. Just over 70% of NPC members are also Party members. The remainder includes delegates with no political affiliation as well as those affiliated with the eight minority political parties often called the Democratic Parties4.

The NPC meets in session for only two weeks each year and this takes place in March. Every fifth year it elects members of the Party’s Central Committee5 for the following five year term and sets major policy direction by approving the Five Year Plan6 for China’s economic and social development. The NPC conducts the formal election of candidates for the country’s highest positions including State President and Vice President, Chairman of the government’s Military Affairs Commission, and President of the Supreme People’s Court.

Though NPC decision making operates on a voting system, back-channel deliberation, debate, and lobbying takes place. The votes are not always unanimous, however a broad consensus on the outcome is reached before matters are put to the vote. Whilst formally the NPC holds supervisory powers over the Party, in practice there exists a level of alignment of thought between the two that results in the NPC supporting all Party propositions. This does not however mean that the proposals go unchecked or unchallenged. Based on early feedback, they must often undergo significant revisions before they are put to the NPC for a formal verdict.

The majority of bills put to the NPC by other State organs tend to be passed as well. Rather than reject proposals outright, the NPC has tended to shelf them indefinitely. While critical analysts suggest that the NPC merely performs a rubber stamp function for Party proposals, insiders consider this view, which glosses over the cultural subtleties and nuances of Chinese political interaction as well as the back and forth free and reciprocal flow of decision making to lean towards reductionism.

NPC delegates are elected through a multi-tiered representative system whereby candidates are chosen through the tiers from local bodies upwards through regional ones and on to the NPC. Experts suggest that informal politicking comes into play with regards to who finds themselves on the NPC and strategic allegiances are often a factor.

When not in session, the NPC is represented by its permanent body, the NPC Standing Committee7.

3 As of March 2018 when the 13th iteration of the NPC was formed

4 The Democratic Parties exist in addition to the CPC, they accept the absolute rule of the CPC

5 More on the Central Committee to follow but in brief it is the body with the most authority in the Party

6 The current Five Year Plan dates from 2016 to 2020.

7 The incumbent Chairman of the NPC Standing Committee is Li Zhanshu. Born in 1950, Li has been a Party member since 1975 and a Politburo Standing Committee member since October 2017

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State Council

The State Council, also known as the Central People’s Government, is China’s chief administrative body. It exercises the power of administrative legislation, regulations, and leadership, as well as conducting diplomatic administration, and submission of proposals to the NPC and the NPC Standing Committee. The State Council enforces the laws and regulations assumed by the NPC while propagating the principles of the Party.

Domestic and foreign affairs, national defense, economics, finance, urban and rural development, education, science, culture, health, public security, and judicial administration and supervision all fall within the remit of the State Council. It is responsible for drafting and managing an annual national plan for economic and social development and the state budget. It holds accountability for directing the ministries and commissions that sit within it.

Like the NPC, the State Council term of office is five years8. The Standing Committee comprises eleven members with positions including Premier, Vice Premiers, State Councilors and Secretary General. State Council representatives are nominated and, following a review of each candidate by the NPC, appointed by the President. The State Council is officially answerable to the NPC but conversely, its influence upon the NPC through drafting and submitting legislation and other measures which are put to the NPC for approval is significant.

8 March 2018 saw the formation of the 13th State Council

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Who’s who on the State Council

The current State Council is comprised of unwavering Xi loyalists and officials prepared to toe the Party line and drive Xi’s agenda.

President

Xi Jinping, 64, has been hailed as China’s most powerful leader since Mao Zedong. He was unanimously re-elected for a second five-year term as President and controversially pushed through a removal of the two term limit.

Vice President

Wang Qishan, 69, a long term ally of Xi Jinping who headed up the anti-corruption drive in the first five years of Xi’s rule and has earned the nickname ‘firefighter’ for his problem solving ability. Formerly a member of the Political Bureau Standing Committee, Wang no longer officially holds a senior Party position however he is a Party man through and through. The Vice President role has traditionally been seen as largely ceremonial but in Wang’s hands it is becoming increasingly important as he engages on key economic and foreign policy matters.

Premier

Li Keqiang, 62, is serving his second term in the Premier role. Though economic affairs have traditionally been the responsibility of the Premier role, Li’s influence in the economic sphere has diminished.

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Vice Premiers

Han Zheng, 63, previously a long-standing official in Shanghai with a seat on the PBSC.

Sun Chunlan, 67, has held prominent regional Party positions and has the distinction of being the only female member of both the State Council and the Politburo.

Hu Chunhua, 54, a rising star in Chinese politics, Politburo member and once tipped as a successor to Xi Jinping.

Liu He, 66, has a strong economic and financial background with a reformist bent. Liu is emerging to take a leading role in economic policy and planning and foreign affairs.

State Councillors

Wei Fenghe, 64, a career People’s Liberation Army man. Wei is a member of the CPC Central Military Commission and head of the Ministry of National Defense.

Wang Yong, 62, has an engineering background and has held a number of prominent positions including at the State-owned Assets Supervision Commission.

Wang Yi, 64, a career diplomat from the Ministry of Foreign Affairs with foreign postings under his belt. Wang is in a good position to play a leading role in foreign affairs.

Xiao Jie, 60, an economist from the Ministry of Finance. Xiao is the State council Secretary General.

Zhao Keji, 64, has significant experience in regional politics and now heads up the Ministry of National Security.

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The State restructure

On 17 March 2018, the NPC adopted a proposal to reform the State Council’s9 ministries and commissions. The reforms have led to the creation of new agencies, the consolidation and elimination of others, and a revision in remit and clout for those that made the final roster. As it now stands, State Council departments comprise a General Office and a further 26 ministries and commissions10.

Improving efficiency sits at the centre of the restructure. Previously agency regulation of certain sectors overlapped which, as in any ‘too many cooks’ situation, resulted in conflicting regulations, bureaucratic clashes, and things falling through the gaps all of which brought exposure to risk for the country and made navigating the landscape a nightmare for companies.

The execution of the restructure will be a slow process but will result in a reduction in the overlapping of functions and an improvement in efficiency. Change amongst the key government individual and agency stakeholders is already underway, as is a redefinition of responsibilities, all of which is crucial to the operating environment for businesses in China. Only as the reforms trickle through the system will we begin to see the sector specific impact however it is clear that bolstering of market supervision is a priority.

9 Previous reforms have taken place in 1982, 1988, 1993, 2003, 2008, and 2013

10 See Appendix 2 for the full list

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Communist Party of China (CPC, Party)

Party structures overlap and interlock with those of the State. The key Party organs include the CPC National Congress, Central Committee, the Political Bureau (Politburo), and the Political Bureau Standing Committee (PBSC). The Party exerts absolute control over the armed forces.

CPC National Congress (Party Congress)

Held every five years in autumn, the CPC National Congress is a week-long gathering of delegates from across the country to set the direction of the Party and provide political guidance for the country for the following five years. The 2300 delegates deliberate on reports presented by the Central Committee, decide on key issues relating to the Party including the selection of the next Central Committee, review the political theory at the core of China’s ethos, and address any crucial matters such as proposed changes to the CPC Constitution.

The 19th Party Congress, 18 – 25 October 2017, was the focus of significant media attention. In previous years, the Party Congress served as a forum for making successors to the roles of General Secretary and State Council Premier tacitly known. These candidates would be younger than the rest of the proposed senior leadership team. In 2017, Xi Jinping failed to follow precedent by signaling a successor. This fueled rumours, which later transpired, that he was angling to abolish the two term limit to Presidency. In addition, the 19th Party Congress approved significant amendments to the CPC constitution, laying the ground work for changes to the State constitution in 2018.

Central Committee

The Central Committee goes hand in hand with the National Congress and also runs for a five year term of office. Like the Standing Committees of other bodies, the Central Committee is an active fixture year round. It is accountable to the National Congress, implements National Congress resolutions when the National Congress is not in session, and functions as a quasi board of directors for the CPC.

Members are elected by the new National Congress when it is in session11, though candidates have been pre-agreed in advance through an informal process of garnering support behind closed doors. There are currently 205 full members of the Central Committee with a further 171 alternates. Delegates include ministers, senior officials, and military representatives. Meetings of the Central Committee are called plenary sessions or plenums, and are held at least once a year but occasionally, as in the case of 2018 which has already seen two, there may be multiple plenums in a given year.

On a five year cycle, the Central Committee determines the election procedure for the next NPC and selects members for key leadership roles in the Political Bureau, Political Bureau Standing Committee as well as key State positions. In these elections, a single candidate who has been pre-vetted is put to the vote for each position and Central Committee members have the option to vote in the affirmative, negative or abstain. Votes are not always unanimous however they always achieve a majority.

Alongside leadership appointments, the Central Committee also serves as the fora for discussing, refining, and announcing top level policy including major reform agendas. In addition, the Committee oversees the work of a number of authoritative national departments within the Party.

11 The 19th Central Committee was confirmed in October 2017 by the Party Congress

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The most senior Central Committee role is that of General Secretary, currently filled by Xi Jinping. Only Political Bureau Standing Committee members are eligible for the position of General Secretary of the Central Committee. The role has responsibility for the Secretariat12 of the Central Committee and for convening Political Bureau meetings.

The Political Bureau of the CPC Central Committee (Politburo)

When the Central Committee is not in session it is represented by the Politburo, the most authoritative body within the Central Committee structure. The 25 members of the Politburo usually also hold high-ranking state positions and/or important regional titles in the powerful municipalities and provinces.

The delegates of the Politburo are officially elected by the Central Committee. The prior process of selection is opaque however it is known that current and former Politburo members weigh in heavily to ensure that their causes are well represented and their allies and protégés are seen in power. Factional and institutional representation tends to be fairly even both in the wider Politburo and in the consolidated Political Bureau Standing Committee. Party, State, Regional and Military/Security circles are all spoken for so as to reduce the possibility for any one group dominating.

The Political Bureau Standing Committee (Politburo Standing Committee, PBSC)

The PBSC is made up of China’s most senior officials and it acts as the county’s leading decision-making body. It exercises the functions and powers of the Politburo, but meets more frequently to discuss priority topics. Although it reports in to the wider Politburo, the PBSC members outrank the rest of the Politburo giving it final voice in all matters. It currently has seven members, each responsible for a specific portfolio, and their roles are ranked in a status based hierarchy. Members of the PBSC hold State roles in addition to their Party roles.

Following Party guidelines, the PBSC adheres to a collective leadership approach. This manifests as the General Secretary garnering support from the six

12 The Secretariat is responsible for carrying out the day to day work of the Politburo and is empowered to make decisions on non-substantive matters on its behalf

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remaining members on all major decisions with majority voting as the final backstop. Disagreements do take place however due to the Party’s principles of Democratic Centralism, once a decision has been taken it is binding upon all Party members and thus there is no room for dissent. All PBSC members must then speak with a unified and supportive voice.

The current PBSC was elected on 25 October 2017 at the first plenary session of the 19th Central Committee. Five of the seven members are new to the PBSC, two were re-elected. The five former PBSC members stepped down due to their age, following the precedent set in 2002 at the 16th Party Congress that those over the age of 67 retire from their seat on the PBSC or indeed the wider Politburo.

Western analysts spent much of 2017 speculating about whether or not Xi would make an exception to this precedent in order to keep his close ally Wang Qishan13 on the PBSC. Chinese analysts on the other hand, who believe that Xi is playing a longer and more nuanced game, were not surprised when this did not materialize.

13 Formerly China’s anti-graft chief, Wang Qishan is the current Vice President. He still holds significant sway with Xi and has been given unprecedented foreign policy responsibilities in 2018. Experts suggest that in an exceptional demonstration of (informal) status, Wang continues to attend PBSC meetings despite having retired from his seat.

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Who’s who on the PBSC

1. Xi Jinping

Xi Jinping, 1953, has been labeled the ‘Chairman of Everything’ due to the number of titles he holds. His roles include the most senior Party, State and Military positions in China.

Selected Party titles: General Secretary of the CPC Central Committee Chairman of the CPC Central Military Commission Leader of the Central Leading Group for Comprehensively Deepening Reforms Chairman of the National Security Commission Selected State titles: President of the People’s Republic of China Chairman of the PRC Central Military Commission

During the course of his term in office he has consolidated power through a multi-pronged approach of cracking down on corruption, thereby ousting a number of would-be opponents, transferring authority from ministries and technocrats to Party officials and commissions14, and increasing an emphasis on ideology not only in the Party but in the media, academia and in companies.

In a momentous turn of events, both the Party and State Constitutions have recently been amended to include Xi Jinping’s political doctrine ‘Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era’. It joined the principles of Marxism-Leninism, Mao Zedong Thought, Deng Xiaoping Theory, the Theory of the Three Represents (Jiang Zemin’s contribution), and the Scientific Outlook on Development (Hu Jintao’s contribution). That the title language of Xi’s follows in the footsteps of Mao’s has led analysts to proclaim that Xi is the most important leader since Mao. Indeed, in Chinese political and broader culture, specific linguistic choices of this kind are rarely without significance.

2. Li Keqiang

Li Keqiang, 1955, Premier of the State Council

Party titles: Party Secretary of the State Council of the PRC

Deputy Leader of the Central Leading Group for Comprehensively Deepening Reforms Vice Chairman of the National Security Commission

State title: Premier of the State Council of the PRC

This is Li Keqiang’s second term, in the same position, on the PBSC. Li has an academic background in law and economics, and worked his way up the ranks of the Communist Youth League to senior roles at the province level in Henan and Liaoning. Li was a protégé of former President Hu Jintao. In the early days of the Xi-Li administration, Chinese netizens were abuzz with ‘Likonomics’, Li’s forward leaning economic approach however Li has seen his influence wane over the years.

14 Including Xi’s newly created Small Leading Groups

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3. Li Zhanshu

Li Zhanshu, born in 1950, Director of the CPC Central Committee General Office

Party title: Director of the General Office of the CPC Central Committee (2012 – present) State title: Chairman of the NPC Standing Committee (2018 – present)

Li Zhanshu has long been a trusted ally of Xi Jinping. The two have shared history dating to early in their careers when they were in charge of neighbouring counties in Hebei province. Li was promoted to his role as Director of the CPC Central Committee General Office and moved to Beijing in 2012 when his predecessor, who was closely linked with Xi’s predecessor Hu Jintao, was sidelined and later charged with corruption. Li has granted favours to members of Xi’s family building guanxi which has consolidated their relationship. Furthermore, in the months preceding Xi’s rise to the top of the system, he found Li’s views on politics and ideology to be aligned with his own.

Li has pledged absolute allegiance to Xi, and was the first top official to do so. Li has accompanied Xi on nearly all of his domestic and foreign trips since 2012, and has even travelled abroad on Xi’s behalf. Due to this close relationship, Li has risen higher in profile than previous Directors of the General Office. In March 2018, Li was elected Chairman of the National People’s Congress.

4. Wang Yang

Wang Yang, 1955, Vice Premier of the State Council State title: Vice Premier of the State Council (2013 – present) Other title: Chairman of the CPPCC (2018 – Present)

Wang Yang is a steadfast supporter of economic reform. In his previous role governing Guangdong province, the beating heart of China’s industrial force, Wang strove to implement the government’s reform agenda through introducing transparency in his dealings with the budget, encouraging a shift from low to high end manufacture as a driver of Guangdong’s economy, and championing the easing of rural to urban employment migration through liberal policy measures. He has long been an active advocate for a market oriented economic approach.

Experts suggest that, despite abstaining from overtly liberal rhetoric over the past few years, Wang’s long standing reputation as a liberal reformer could work to counterbalance Xi’s recent constricting of ideology in the eye of the public. Wang has also played a leading role in efforts towards poverty alleviation over the past five years.

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5. Wang Huning

Wang Huning, 1955, Executive Secretary of the CPC Central Committee Secretariat

Party title: Executive Secretary of the CPC Central Committee Secretariat (2017 – present) Director of the CPC Central Committee Guidance Commission for Building Spiritual Civilization (2017 – present)

Wang Huning, an international relations academic and political theorist turned politician, has served as an advisor to three Chinese presidents through his work as a speech writer, theorist and policy ‘guru’. He is known to have had a role in crafting both Jiang Zemin and Hu Jintao’s ideological models which were written into the Party constitution as well as having had a hand in the theoretical framework for some of Xi’s notable notions and narratives such as the ‘Chinese Dream’.

Wang’s appointment to the PBSC and his role as one of Xi’s closest advisors has propelled him out of a previously low profile locus into the limelight. Another liberal thinker, in his early published academic work, Wang was an advocate of the compatibility of escalating democratic values with the stability and growth goals of the centralised government.

6. Zhao Leji

Zhao Leji, 1957, Secretary of the Central Committee for Discipline Inspection

Party title: Secretary of the Central Committee for Discipline Inspection (2017 – present)

Prior to his appointment to the PBSC, Zhao Leji had a fairly low profile only raised above the parapet for his loyalty to the Party line. He worked closely with another of Xi’s closest allies and former head of the anti-corruption drive Wang Qishan and is responsible for positioning a number of Xi stalwarts in influential roles over the past few years as he headed up a department responsible for making personnel appointments.

Experts suggest that an abstinence from leveraging his position to further the careers of his inner circle, his commitment to poverty alleviation, and his efforts for generating grass roots support for the Party have further fueled Xi’s trust. Zhao is expected to continue to pursue a supporting role in the Xi administration.

7. Han Zheng

Han Zheng, 1954, Executive Vice Premier of the State Council

Party title: Deputy Head of the Central Leading Group for Comprehensively Deepening Reforms (2018 – present)

State title: Executive Vice Premier of the State Council (2018 – present)

While working at a State Owned Enterprise Han was appointed to head up its Youth League committee. This launched him into a series of Party roles in Shanghai where he climbed up the rungs of the political hierarchy in the country’s financial capital. In 2006, Han emerged unscathed when the serving Shanghai Party Secretary was brought down for corruption. Under Han’s lead, Shanghai was the first province to adopt the stance of the leadership with regards to targeting economic growth through pursuing technological innovation. He is considered to be a competent technocrat.

Throughout his career Han has been a dedicated proponent of the Party line. He has worked tirelessly to placate his colleagues and superiors. Experts suggest that he does not have grand political aspirations, rather, his appointment to the PBSC follows a pattern of Shanghai’s top official being conferred a seat on the PBSC.

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Leading Small Groups

Leading Small Groups are bodies of varying formal and informal status which function to advise and coordinate on policy. Leading Small Groups have long been a feature of the Chinese political system covering all manner of issues from economic policy to foreign policy to security policy and everything in between. Both State and Party run Leading Small Groups with the State traditionally focused on socio-economic issues and the Party focused primarily on domestic political issues. Leading Small Groups are typically cross-functional teams, drawing members with expertise or on a given issue from across the bureaucracy.

The role of these Leading Small Groups has hugely expanded under Xi Jinping, who heads up a number of them himself, and increasingly more are created. Analysts suggest that this reflects a major change in the CPC’s approach to policy making and implementation though this view doesn’t take into account that the Leading Small Groups predate Xi and the political landscape does see an ebbing and flowing over time. It is likely however that Xi has used these Leading Small Groups to circumvent challenges to effecting change and progress in the face of potential factional disputes.

Party-State implications

The changes to China’s constitution and its government structures are the most significant since the reform era began in the 1980s. The removal of presidential term limits from the State Constitution means that Xi Jinping has indefinite leave to rule the country. Ultimately Xi’s most important position is that of General Secretary of the CPC, a position that has no term limits, thus the abolishment of presidential term limits simply brings the two in line. Grave concerns regarding the future of China and the implication on political checks and balances abound. Interestingly, for the first time officials at the NPC swore allegiance to the constitution. While this projects the message of an elevation in the nature of the constitution, there is also a knock on effect to the Party which is bound in more tightly than before.

The role of the Party has always been a key factor in the running of the State and 2018 has seen the Party’s force consolidated. The reform of government structures has blurred the line between Party and State further by reallocating a certain amount of control over the running of the country to the Party. This is likely to lead to a bolder reform agenda but one which will continue to bolster the role of the Party rather than one which follows the lead of western governance structures.

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BETWIXT AND BETWEEN

The Chinese People’s Political Consultative Conference (CPPCC) – a Party dominated advisory panel on State affairs

The CPPCC provides an advisory function on political affairs and the running of the State. It is neither a State nor a Party organ, however the majority of its delegates are Party representatives thus it can be considered Party led.

The CPPCC reviews and consults on the policy decisions which are to be voted on by the NPC and carried out by the government. CPPCC delegates are also able to make proposals on State matters. The CPPCC is an embodiment of China’s principle of Consultative Democracy whereby all sections of society are consulted on major issues before and during the policy making process.

Members of the CPPCC are selected through a process of consultation and recommendation. The majority of delegates are affiliated with the Party however the Democratic Parties as well as those with no political affiliation are also included. All 56 of China’s ethnic groups are included A variety of priority sectors are represented by the membership base which includes those from academia, the business world and other high profile personalities.

With more than 600,000 participants across China, the CPPCC is made up of local committees which feed into a national committee and its standing group. The CPPCC National Committee meets annually in the week preceding the NPC. The CPPCC National Committee currently has 2158 members15 who were each proposed by Party organisations and subjected to a rigorous examination process which put their political stance, integrity and public image to the test. The composition tends to be largely based on national priorities hence the technology sector is heavily represented in the current CPPCC National Committee. Politburo Standing Committee member Wang Yang is the current Chairman of the CPPCC National Committee.

The CPPCC has a corresponding media outlet in the form of The People’s Political Consultative Daily which serves as a mouthpiece for CPPCC activities.

The meetings of the CPPCC National Committee and the NPC in March each year are frequently spoken of in conjunction and their combined title is lianghui which translates as the two meetings.

State Owned Enterprises (SOEs)

SOE’s, intertwined with both State and Party, are a crucial element of China’s political economy. They serve as key vehicles for the dissemination and implementation of Party policies and strategic initiatives.

SOEs have significant authority and as a result through their conduct there have been instances of fragmentation of central policy however measures to curb this do exist. Each SOE has a Party committee, headed up by a Party Secretary. Before a decision is taken on any important matter of consequence to the business, these committees deliberate and make a recommendation to the Board. The roles of Party Secretary and Chairman of the Board at any given SOE are filled by the same candidate, and Party committee members populate the Board, management team and supervisory board.

Though they may not always be run to maximum efficiency or profitability, they dominate all strategic sectors and have a growing role in international markets. Heads of the largest SOEs are appointed by the Party’s Organization Department, are rotated, and often move up to senior State or Party positions.

15 The 13th CPPCC National Committee was selected in 2018. Party members account for 40% of its number.

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SOEs are the subject of continuous reform aimed at maintaining and increasing the value of state assets. Private investment is already being encouraged under the reforms and the flow is likely to become more reciprocal with SOEs investing in private businesses.

People’s Bank of China (PBoC)

The PBoC is China’s central bank. It plays a significant role in policy deliberations and financial reforms and has actively participated in China’s drive to become a more market-based economy. Since its formation in 1948, a growing mutual dependency between the Party leadership and the PBoC has contributed to the rise of the PBoC with the State system.

Inflationary surges in the 1980s and 1990s had a negative impact on China’s political leadership and the view that the Party needed a stronger central bank emerged. In 1995, the NPC adopted a law confirming the PBoC, as the central bank, in the national legislation with the mandate to formulate and implement monetary policy and financial governance.

Centre-local dynamics and institutional changes also contributed to the rise of the PBoC. Formerly, local branches were heavily influenced by the localities hence they were under dual control – both centre and local. Recentralising through a Party work committee took place, redistributing financial authority back to the centre and the central bank within it. Financial sector hierarchies were strengthened and in 2003 when the work committee dissolved, its functions were absorbed by State regulatory bodies including the PBoC.

Hence, through Party backing and institutional transformations the PBoC was able to build authority and credibility and contribute to significant policy developments in monetary, exchange rate, and banking reform and ultimately provide a steer for the economy. Its growing role sees it taking a responsibility for policy making as well as policy implementation and regulation of the financial sector.

In 2018 Yi Gang was appointed Governor of the PBoC. Yi has a strong background in monetary and foreign exchange policy and is expected to take a leading policy making role in conjunction with Vice Premier Liu He. The commissions which previously oversaw banking, insurance and securities were recently consolidated in the State Council Commissions and Ministries restructure which means that a more coordinate approach to policy making and regulation is on the horizon.

In addition, it was announced in 2017 that a number of restrictions on foreign ownership of financial firms and foreign payments firms were to be alleviated. There are likely to be significant opportunities in the financial sector for foreign market access based on the timing of plans for increased efficiency and transparency in the supervisory commissions coupled with China’s ensuing financial opening to foreign participation.

Xi Jinping’s ‘New Era’ and the ‘China Dream’

The events of the past year have demonstrated a considerable consolidation of the role of the Party in China’s political landscape with Xi at its helm. The vision Xi Jinping Thought outlines for a New Era includes further reform, strengthened governance, more investment in security, and unprecedented levels of engagement in the international arena in a bid to become a leading global power by 2050. Foreign investment and the easing of market access as well as China’s international economic and trade initiatives, including the Belt and Road Initiative (BRI) all provide new opportunities as well as unique challenges for corporate actors.

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APPENDIX 1

China’s Administrative Regions

Municipalities• Beijing• Chongqing• Shanghai• Tianjin

Provinces• Anhui• Fujian• Gansu• Guangdong• Guizhou• Hainan• Hebei• Heilongjiang• Henan• Hubei• Hunan• Jiangsu• Jiangxi• Jilin• Liaoning• Qinghai• Shaanxi• Shandong• Shanxi• Sichuan• Yunnan• Zhejiang• Taiwan

Autonomous Regions• Guangxi• Inner Mongolia• Ningxia• Tibet• Xinjiang

Special Administrative Regions• Hong Kong• Macau

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APPENDIX 2

Current Ministerial Structure

• General Office• National Development and Reform Commission• Ministry of Foreign Affairs• Ministry of National Defense• Ministry of Education• Ministry of Science and Technology• Ministry of Industry and Information Technology• State Ethnic Affairs Commission• Ministry of Public Security• Ministry of State Security• Ministry of Civil Affairs• Ministry of Justice• Ministry of Finance• Ministry of Human Resources and Social Security• Ministry of Natural Resources (new)• Ministry of Ecological Environment (new)• Ministry of Housing and Urban-Rural Development• Ministry of Transport• Ministry of Water Resources• Ministry of Agriculture and Rural Affairs (new)• Ministry of Commerce• Ministry of Culture and Tourism (new)• National Health Commission (new)• Ministry of Veteran Affairs (new)• Ministry of Emergency Management (new)• People’s Bank of China• National Audit Office

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