burson-marsteller perspective on the 18th party congress

Prepared by Burson-Marsteller Government Affairs & Communication Group

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Burson-Marsteller’s Perspective on

the 18th Party Congress

The 18th Party Congress was in many respects the most important event of 2012 for China. Its ultimate significance is that it has provided clarity on the two questions that will fundamentally affect China’s future development and direction: Who will lead China in the next decade? And what is the nation’s path forward?

I. Empowered New Leaders Taking on China’s Complex Challenges without Drastic Policy Changes

The 18th Party Congress witnessed a once-in-a-decade power transition from the fourth generation leadership under Hu Jintao to the next generation under Xi Jinping, and set forth the fundamental policy direction under the new leadership. Despite issues that arose in the lead up and competition for leadership positions among various groupings and individuals within the Party, compared to previous power transfers, this year’s was considered smoother, more orderly and better institutionalized in a number of important aspects. The new leadership is expected to have more focused decision-making power – with seven members of the Politburo Standing Committee (PSC) as opposed to nine – and a pragmatic, straightforward leadership style. In the near term, policy continuity will be their top priority. The 18th Party Congress marked the leadership transition at the very top of the CPC power structure – in the PSC, which is the supreme decision-making body of the Party. The newly elected seven PSC members are Xi Jinping, Li Keqiang, Zhang Dejiang, Yu Zhengsheng, Liu Yunshan, Wang Qishan and Zhang Gaoli. Xi was named CPC General Secretary.

Their respective positions in the government will be confirmed in the National People’s Congress (NPC) in March 2013, when Xi is expected to become the new President and Li the new Premier. This will formally complete the overall leadership transition at the national level in China. Leadership Facing More Complex Challenges Xi Jinping assumes the leadership at a critical juncture in China. After three decades of double-digit growth, China’s rapid development has begun to slow. The leadership faces new and more complex challenges. Increasing external pressures, and growing gaps or imbalances in Chinese society and development (e.g. between rich and poor, urban and rural, and various regions of China), make further economic and political reforms more urgent than ever to drive and sustain China’s next phase of development and to maintain the Party’s rule. A key challenge will be to maintain the legitimacy of the Party. This has to a large extent been based on perceived competence in managing the economy and development (with Marxism a less compelling political ideology than in past decades). Slowing growth and rising concerns around corruption within the Party and government have the potential to seriously undermine this legitimacy in the coming decade – if genuine reforms and rectification measures are not implemented. Leadership with More Decision-making Power Former General Secretary Hu Jintao has been praised for handing over both leadership of the Party and the People’s Liberation Army Central Military Commission to Xi Jinping, ensuring a more complete power succession. Some have heralded this as the Party’s first clean power transfer. Hu’s predecessor, Jiang Zemin,

The 18th National Congress of the Communist Party of China (CPC) (the 18th Party Congress) was held from November 8 to 14, 2012. Convening every five years, the National Congress plays a leading role in China’s system of governance and politics as the highest body of the CPC. It is where the top Party leadership transitions occur. These are the most important of all leadership transitions in China’s parallel Party and government system – with the Party in a superior position to government, which implements Party policy and ideology. Policies and messages released and communicated during the National Congress provide guidance with major implications for China’s national policy development and governance in the short and medium terms.

Burson-Marsteller’s Perspective on the 18th Party Congress

Prepared by Burson-Marsteller Government Affairs & Communications Group

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held power over the military for another two years after stepping down as CPC General Secretary in 2002. This clean handover empowers the new leadership under Xi with greater decision-making and policy agenda-setting abilities. Greater Efficiency through Streamlined Authority The new PSC has been reduced from nine to seven members. Because of the PSC’s collective and consensus-based decision-making approach, a smaller inner core will conceivably find it easier to reach agreement and make decisions than its predecessors. Together with a new round of governmental reorganization, the Party-government is emphasizing efforts to improve efficiency in decision-making and policy-execution. More Pragmatic Leaders Xi Jinping and Li Keqiang were both born in the 1950s. In contrast to their predecessors Hu Jintao and Wen Jiabao (who were born in the 1940s and spent their youth in the Sino-Soviet honeymoon period and studied Russian), Xi and Li were sent to the countryside during the Cultural Revolution to “learn from the peasants” in their teen years. This experience contributed to their pragmatic view of humanity. Another aspect of the transition worth noting is the reduction in the number of technocrats in the leadership group. Most former PSC members of the Hu era had a technical or engineering background, but Xi and many of his fellows were educated in social sciences, especially law and economics. This has been widely considered as a response to China’s evolving needs for nation-building from constructing infrastructure to improving institutions and the rule of law. It’s worth noting whether this tendency will be reflected in the leaders selected across China moving forward. Stability through Policy Continuity While the new leaders’ personalities and past experience provide fresh perspectives, policy continuity will be the top priority at least in the near term. It is widely believed that a sharp turn in macro policies would interrupt economic development and potentially threaten regime stability. The 18th Party Congress has inherited the main tone and narrative from the previous leadership, and has also flagged adjustments and reforms of China’s policies, which will be made by the new government leadership.

II. China’s Path Forward – Socialism with Chinese Characteristics

The fundamental policy direction of the 18th Party Congress was expressed in Hu Jintao’s report delivered at the opening session of the Congress. It summarized past achievements and problems and clarified China’s path forward for years to come: “We must unswervingly follow the path of socialism with Chinese characteristics, rejecting both the old and rigid closed-door policy and any attempt to abandon socialism and take an erroneous path.” This approach rejected both the so-called “Chongqing model”, a call to revert to revolution-era politics, and the “Western model”, leading to multi-party democracy. This statement was a clear affirmation that China will continue to develop along “the path of socialism with Chinese characteristics”, in other words, a CPC-led market-oriented economy. This has reduced doubts about whether the reform and opening-up will continue (there had been calls among some Party intellectuals in the lead up to the transition for a reversion to a greater role for government and stricter ideological controls). CPC Ideology with Continuity and Unification At the 18th Party Congress, Hu Jintao’s “Scientific Outlook on Development” was given a more prominent position, equal to the “guiding thoughts” of Mao Zedong, Deng Xiaoping and Jiang Zemin. As all of his predecessors espoused their own ideological legacies (Mao Zedong’s Thought, Deng Xiaoping’s Theory and Jiang Zemin’s Three Represents), Hu incorporated the “Scientific Outlook on Development” into the CPC Constitution as his ideological legacy. This ensures the Party’s “socialist theory with Chinese characteristics” encompasses the contributions of each generation’s leaders. The incorporation of the “Scientific Outlook on Development” into the CPC Constitution is said to represent a very significant stage of CPC ideological development because it confirms the theory as part of the core ideological framework that guides the Party and government moving forward. This “modern stage” of CPC ideology supposedly reflects the latest situation and challenges facing the Party and the country. In many respects it is aligned more closely with contemporary development theories than with traditional Marxism.



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“Moderately Prosperous Society” in Quantity and Quality In Hu Jintao’s report to the Congress, China’s development goal was for the first time set as “completing the building of a moderately prosperous society by 2020” instead of “building a moderately prosperous society”. “Moderately prosperous society” is the CPC’s phraseology representing a developmental objective for China’s drive towards modernization. By setting a timeline for the goal, the Party expressed its determination and confidence in advancing the country’s development. A moderately prosperous society, according to Hu’s report, can be characterized in both quantity and quality.

Focus on Quantity China aims to “double its 2020 GDP and per capita income for both urban and rural residents from 2010 levels”. This statement is significant, as for the first time the Party or the government set the target for per capita income growth. This goal was set to address concerns regarding the widening gap between fast GDP growth and slower individual income growth. For the next decade, China’s development strategy will focus more on improving people’s well-being and life quality with tangible economic benefits and a better protected environment to meet rising expectations.

Focus on Quality According to the Party, a moderately prosperous society should be sustainable and better balanced. By advocating the building of a “beautiful country”, Hu Jintao’s report emphasized ecological progress, incorporating it for the first time into the country’s overall “Five-in-One” development objective together with economic, political, cultural and social progress. It is a response to China’s growing environmental pressures and resource constraints, and part of a promise to deliver more sustainable economic development. China is also increasingly focused on how to upgrade its industries to move up the value chain and achieve less resource intensive and more sustainable development. This is part of an overall attempt to “transform the economic growth pattern” (including less reliance on exports and investment, more innovation and consumption, etc). Meanwhile, to achieve higher quality development, there is also increasing focus on how to provide more opportunities for small and medium sized private companies, how to develop the service sector, and

how to reduce the negative effect of industry monopolies and special interest groups. Achieving Moderately Prosperous Society through Reform Both economic and political reforms are regarded as the main drivers for completing the building of moderately prosperous society. Hu Jintao’s report stressed the need for deepening both reforms, which requires greater political courage and wisdom from the new leadership. Under these circumstances, the new leadership’s capacity and initiative in conducting reform are vitally important. In many respects the challenges facing China’s new leaders are greater than those confronting their predecessors.

Economic Reform The 18th Party Congress reaffirmed that China’s fast development over the past 30 years was mainly due to reform and opening-up; and reconfirmed that China’s future development will only be successful by continuing on this path. Strong recognition of the strategic significance of reform and opening-up was written into the newly amended CPC Constitution. With this clear direction established, the 18th Party Congress reiterated the priorities that were outlined in the 12th Five-Year Plan and this year’s NPC, including transforming China’s economic growth pattern, adjusting the economic structure, spurring industrial upgrading through technology innovation, and developing strategic emerging industries, amongst others. With strong recognition of economic reform priorities, the Party and the government will act in concert to put forward more concrete and detailed policies and measures. Hu Jintao’s report underscored an underlying issue in economic reform – “striking a balance between the role of the government and that of the market.” At the beginning of China’s economic reforms, the country was a government-led planned economy. The aim of reform is to effect a transformation to build a government-led market-oriented economy, which can leverage the market’s potential and ensure social equity and justice. The transfer of power from government to the market is the crux of this transformation. However, current progress is very uneven, as in many aspects the government is still more of an “economic commander” than an “invisible hand” – with significant inefficiencies and obstacles to development as a result. Optimistically, a number of new PSC members are regarded as pro-market. Xi Jinping himself has been credited for promoting private sector and external



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investment in Fujian and Zhejiang provinces; Li Keqiang also publicly set out his intentions on strengthening economic reforms after the 18th Party Congress; Yu Zhengsheng tends to be more liberal in economic reforms; and Wang Qishan – although now tapped to lead the Central Discipline Inspection Commission (the Party’s disciplinary body) – is viewed as one of the country’s strongest economic reformers. Their past experience and pro-market attitudes could reinforce the new leadership’s will and capacity in deepening economic reform. China will continue the process of reform and opening to the world, with an active strategy to utilize foreign investment to advance its development. However, the government is placing increasing emphasis on “making better use of” or being more selective about foreign investment – for example to attract and gain needed technology, expertise and talent while avoiding foreign investment with low value-added and high resource consumption or pollution.

Political Reform Hu Jintao urged in his report to deepen “political structure reform”. Such reform can be expected more at an operational and administrative level, rather than at a fundamental level. It is consistent with the Party’s guiding principle of gradualism on political reforms. Moreover, the 18th Party Congress stressed that China’s political reform will not imitate “Western models” and will always be under the leadership of the CPC. Both Hu and Xi put a great deal of emphasis on the importance and urgency of fighting corruption. Hu said in his report that if the Party “fails to handle this issue well, it could prove fatal to the Party, and even cause the collapse of the Party and the fall of the state”. In a speech after the closing of the 18th Party Congress, Xi echoed that concern. The unusually tough-sounding statements expressed the leaders’ seriousness about the issue, and it is highly likely that anti-corruption will be prioritized by the new leadership as a focus of and driver of political

reform. However, it won’t be an easy task. Despite the new leaders’ focus on anti-corruption, questions remain as to whether they will be capable of establishing independent investigation mechanisms, raising government accountability and ensuring judicial independence. III. Conclusions and Recommendations

The main significance of the 18th Party Congress was a peaceful transition of China’s top leadership and the continuity of fundamental policies for China’s social and economic development. “Maintaining stability while making progress” will continue to be the foremost priority for the new leadership. China will continue to focus on economic development and accelerate reform and opening-up. This means the government will continue to welcome participation and contributions from foreign companies in China’s development. However, the government has been increasingly focused on quality and efficiency, rather than only using GDP growth in defining development. People’s livelihood, environmental protection, industrial upgrading and technology innovation are all receiving greater emphasis. Foreign companies need to have a clear understanding of policy directions and priorities, and to be able to adapt and align their business strategies effectively in China. This is a fundamental starting point to seize new opportunities and tackle emerging challenges. Following the top Party leadership transition at the 18th Party Congress, there will be a transfer of power at the central government level and various organizational adjustments to government agencies, which are to be completed at next year’s NPC. Any associated organizational adjustments at the local levels will continue throughout 2013. Foreign companies should monitor these changes closely and evaluate their relationships and engagement with key government stakeholders on a continuous basis.

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Appendix: Brief Introduction to the Seven PSC Members

Xi Jinping, General Secretary of the CPC Central Committee

‒ Xi was appointed Vice President of the PRC in 2008.

‒ In 2007, Xi was promoted as Shanghai Party Secretary, a position he held until his elevation to the

PSC in October.

‒ In 2002, Xi assumed the position of Deputy Provincial Party Secretary of Zhejiang before taking

office of Provincial Party Secretary in 2003.

‒ In 1995, Xi became Deputy Provincial Party Secretary of Fujian.

‒ Born in 1953; Xi holds a PhD in Law from Tsinghua University.

Li Keqiang

‒ Li was appointed Vice Premier in 2008, following his rise to the ranks of the PSC in 2007.

‒ In 2004, Li was promoted as Provincial Party Secretary of Liaoning.

‒ In 2002, Li took office of Provincial Party Secretary of Henan after serving as Deputy Party

Secretary and Governor of the province.

‒ Li spent the next 16 years working in various capacities at the Communist Youth League of China

after graduation, under former CPC General Secretary Hu Jintao.

‒ Born in 1955; Li holds a PhD in Economics from Peking University.

Zhang Dejiang

‒ Zhang was appointed Vice Premier in 2008.

‒ In 2002, Zhang was appointed a Politburo member, and took office as Provincial Party Secretary of

Guangdong.

‒ In 1998, Zhang was named Provincial Party Secretary of Zhejiang.

‒ In 1995, Zhang assumed the position of Party Secretary of Jilin.

‒ Zhang acted as Vice Minister of Civil Affair from 1986 to 1996 and served in various party positions

in Jilin since 1983.

‒ Born in 1946; Zhang holds a B.A. in Economics from Kim Il Sung University in North Korea.

Yu Zhengsheng

‒ Yu was appointed Municipal Party Secretary of Shanghai in 2007 and a Politburo member in 2002.

‒ Yu served as Provincial Party Secretary of Hubei in 2001.

‒ Prior to that, Yu assumed the position of the Minister of Construction in 1998.

‒ Yu took office as Mayor of Qingdao City from 1987 to 1994.

‒ Born in 1945; Yu holds a B.Sc. in Missile Engineering from Harbin Military Engineering Institute.



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Liu Yunshan

‒ Liu was appointed a Politburo member in 2002.

‒ Liu has been leading the Propaganda Department of the CPC Central Committee for nearly 20 years

since he assumed the positions of Vice Minister in 1993 and then Minister in 1997.

‒ From late 1970s to 1993, Liu served as a reporter and then an official in Inner Mongolia

Autonomous Region.

‒ Born in 1947; Liu graduated from the Central Party School of the CPC Central Committee.

Wang Qishan

‒ Wang was appointed Vice Premier in 2008 and a Politburo member in 2007.

‒ Before that, Wang was Mayor of Beijing since 2004.

‒ Wang was appointed Provincial Party Secretary of Hainan in 2002.

‒ In 2000, Wang was promoted as Director of the State Council's Economic Restructuring Office. Prior

to that, Wang was Vice Governor of Guangdong.

‒ In the early years of his career, Wang held various leading positions in several state-owned financial

institutions, including China Construction Bank.

‒ Born in 1948; Wang holds a B.A. in History from China Northwest University.

Zhang Gaoli

‒ Zhang was appointed Municipal Party Secretary of Tianjin and a Politburo member in 2007.

‒ In 2001, Zhang became Governor and then Provincial Party Secretary of Shandong.

‒ Before that, he served in several party and government roles in Guangdong Province for 12 years,

where he worked as an oil worker since 1970.

‒ Born in 1946; Zhang holds a B.Sc. in Statistics from Xiamen University.

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