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It was an incredibly busy week among the top leadership in Beijing. The Politburo held a meeting on Party-building and SOE management, as well as a study session on military modernization. The NPC Standing Committee met Monday through Sunday and discussed a raft of amendments and revisions to the National Security Law, Legislation Law, Budget Law, Administrative Procedure Law and others. The State Council held an executive meeting and the CPPCC Standing Committee also met.
A year and a half into the Xi administration, the governing strategy of the new leadership is apparent. Party and government meetings this week clearly exhibited some of the key features of efficient authoritarianism:
- The primacy of the Party. This administration is not interested in political liberalization; if anything, it seeks to strengthen the role of the Party in the political system. The Politburo meeting Friday called for “improving democratic centralism” and making Party organizations at every level forts flying the flag of the Party. To further emphasize that the Party will not accept challenges to its authority, the NPC decided on Sunday that Beijing will continue to control selection of the Hong Kong chief executive despite promises of universal suffrage in 2017.
- A stronger, more assertive and more patriotic China. Friday’s Politburo study session looked for ways to further modernize China’s military and called for a “new military revolution.” Meanwhile, the NPC decided to officially create an annual Martyr’s Day on September 30; the day will commemorate Chinese who have died in wars with foreigners since the Opium War in 1839. It is the third new national day created by this administration, which has also commemorated September 3 as War Against Japanese Aggression Victory Day and December 13 as Nanjing Massacre Memorial Day.
- A more market-oriented economy. Wednesday’s State Council meeting called for more private investment in various sectors, including healthcare, insurance, new energy and environmental protection.
- More efficient administration. The State Council called for further streamlining and simplification of government processes and approvals, while several of the laws debated at the NPC (in particular the Administrative Procedure and Budget Laws) aim to achieve similar outcomes.
- An increasingly rules-based system. In general, the revisions and amendments proposed at this week’s NPC’s meeting should reduce ambiguity, increase transparency and close loopholes in China’s legal system. The establishment of IPR courts is also a step forward for professionalization of the judiciary. Improving the rule of law is not in contradiction with strengthening the role of the Party. The current leadership realizes that having a rules-based system makes it easier to govern, bolsters legitimacy and increases economic efficiency.
- A less corrupt Party. The CPPCC Standing Committee meeting this week focused on anti-corruption efforts. CDIC chief Wang Qishan was invited to address the delegates and made it clear that the anti-corruption campaign is far from over and investigations will continue. The Politburo meeting called for improving the cadre promotion system and increasing oversight over SOE executive expenditures; both measures are designed to further reduce corruption within the Party.
Efficient authoritarianism is clearly what Xi has in mind. Liberalizing measures such as reducing approvals or improving the rule of law are technocratic means to improve the Party’s governing capacity and increase China’s comprehensive national strength.
The good news for foreign companies is that the rules of the game are becoming clearer. The bad news is that those who do not contribute to the Party’s overall goals will find the going more difficult than in years past. It’s not that the government is out to get foreigners so much as bolster China. Companies that can understand the operating environment and communicate their value to relevant stakeholders will still succeed.
Beijing will not allow candidates for Hong Kong’s chief executive to be directly elected by the people, despite the promise of universal suffrage by 2017. While Hong Kong citizens will be allowed to vote for the chief executive, candidates will be nominated by a committee controlled by Beijing.
The decision announced by China’s legislature on Sunday is the latest evidence that the Xi administration is ardently conservative when it comes to political liberalization.
One reason given for not allowing direct nomination of candidates is that it would damage Hong Kong’s economy. This is ironic, given that Beijing’s decision is likely to cause a spate of protests in Hong Kong that will almost certainly affect business.
More importantly, the decision has the potential to have long-term negative effects on the economy that would go far beyond any disruptions caused by protests. If businesses and investors believe that the rule of law is being eroded, it will undermine Hong Kong’s position as a financial center and regional headquarters for multinationals. This is not a foregone conclusion, as the absence of democracy does not necessarily undermine the rule of law (see Singapore). However, it is a risk.
The decision is also likely to affect politics on Taiwan. At first glance, it would seem to benefit the DPP, who has longed warned of the CCP’s illiberal tendencies. However- because most Taiwanese prefer the status quo– if the decision pushes the DPP away from Tsai Ing-wen’s recent moderate position towards a more extreme pro-independence stance, it could end up alienating voters and pushing swing votes to the KMT. Municipal elections (though admittedly more focused on local issues) in November will be the first chance to gauge the effects.
China Politics Weekly aims to keep business leaders, investors, diplomats, scholars and other China hands up to date on important trends in China. It is produced by Trey McArver, a London-based consultant providing advice and intelligence to firms and investors engaged in China and the region.
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