Burson-Marsteller - Striving for Progress While Maintaining Stability
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Burson-Marsteller China's in-depth analysis report on the 2012 National People's Congress.

Burson-Marsteller China's in-depth analysis report on the 2012 National People's Congress.

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Burson-Marsteller - Striving for Progress While Maintaining Stability Document Transcript

  • 1. 承前启后 稳中求进 Striving for ProgressWhile Maintaining Stability 2012 National People’s Congress
  • 2. 2012 National People’s Congress The National People’s Congress (NPC), China’s national legislature, is responsible for enacting laws, amending the constitution and confirming the appointment of state leaders. It is also responsible for the examination and approval of national economic and social development plans, the approval of related budgets and for providing reports on implementation. The annual meeting of the NPC, held in March in Beijing, is attended by thousands of delegates from around the country and is the major milestone in the annual calendar of events in China’s system of governance. The policies and initiatives approved by the NPC provide understanding and direction of the government’s overall objectives and specific goals related to economic planning and promotion of key sectors, industries and regions. Key Points of 2012 Government Work Report In the Government Work Report (hereafter as the “Report”), Four Focuses: Premier Wen Jiabao concluded that 2011 was “a good start”  Increase domestic demand especially consumer to China’s 12th Five-Year Plan. He reviewed the demand government’s achievements in controlling the Consumer  Enhance indigenous innovation, energy conservation Price Index (CPI), transforming economic development and emissions reduction patterns, developing social services, improving people’s  Deepen reform and “opening up” well-being and deepening reform and opening up.  Improve social services and people’s well-being This year, the final year of the current government, is “an Six Principles: important year linking the past and future,” a statement that  Stabilize growth repeats the message from the China Central Economic  Control prices Conference held at the end of last year.  Restructure the economy  Improve people’s well-being In 2012, the government’s primary goal is to further  Implement reform accelerate the transformation of China’s economic  Promote harmony development model and adjust its economic structure. The fundamental theme is “making progress while It is worth noting that this year’s economic restructuring will maintaining stability.” The government’s objective is to keep follow the principle of “controlled support” (有扶有控) by social harmony and create a favorable environment for the being selective and targeted. All economic development will convening of the 18th National Congress of the Communist emphasize quality, efficiency, coordination and Party of China (CPC) later this year. sustainability. In reviewing the socio-economic situation, Premier Wen has Nine Tasks: pointed out that internationally, there exist challenges of  Promote stable and robust economic development slow global economic recovery and sovereign debt crisis, through expanding domestic demand, especially while domestically, there remain institutional and structural consumer demand conflicts.  Keep overall price levels relatively stable  Steadily develop agriculture and sustainably increase The Report sets the 2012 key macroeconomic targets farmers’ incomes as:  Accelerate the transformation of the pattern of economic development and strategic economic restructuring GDP 7.5 percent  Implement the strategic policies for the development of science, technology, education and talent CPI 4 percent  Ensure and improve people’s well-being New Urban Jobs 9 million  Promote cultural development and prosperity  Deepen reforms in key areas of the economic and Urban 4.6 percent political systems Unemployment  Improve the quality and standards of China’s “opening up” Exports & Imports 10 percent growth Deficit RMB 800 billion (USD 127 billion) With respect to macroeconomic policy, China will continue to implement a proactive fiscal policy and a prudent monetary policy in 2012. The Report further specifies that these To achieve this massive undertaking, Premier Wen outlines policies should be targeted, flexible and forward-looking. It Four Focuses, Six Principles and Nine Tasks for 2012 underlines the importance of monitoring current government’s work. developments and making timely and appropriate adjustments. Prepared by Burson-Marsteller Government Relations & Public Policy Consulting Group
  • 3. 2012 National People’s Congress Burson-Marsteller Analysis of the 2012 National People’s Congress“Making progress while maintaining stability,” the theme first approach that requires the acceptance of a slower-growingput forward at last year’s China Central Economic economy. Increased quality means gradually upgradingConference, sets the tone for this year’s priorities and tasks. industries, moving up the value chain from low-skilledOut of the nine major tasks listed in the Report, manufacturing to sectors that generate more value,Burson-Marsteller China believes the following areas fostering indigenous innovation and increasing research andrepresent the most important policy developments and development.trends for 2012. These are summarized in three consecutiveparts: make progress, maintain stability, and how to make Premier Wen admitted in the Report that China missed itsprogress while maintaining stability. 2011 goal to keep CPI within four percent; it rose 5.4 percent year-on-year. For 2012, the target has again beenI. Maintain stability set at four percent.Lower GDP growth and control the CPI This decision indicates the government’s determination to control inflation while leaving room for pricing reforms andOne of the biggest “surprises” from this year’s Report is that responding to the overall objective of improving people’sChina cut its GDP growth target to just 7.5 percent. This is livelihood. Economists predict that the lowered growththe first time for China’s GDP target to fall below eight target will help stabilize price levels, making a CPI of fourpercent since 2004. In 2011, China’s GDP increased 9.2 percent possible. They are concerned, however, that risingpercent year-on-year, well exceeding the eight percent production costs could cause inflation to bounce back whentarget. Premier Wen stressed China’s progression towards the government begins stimulating growth. Elaborating on"higher-level, higher-quality and longer-term development" the government’s plans to control prices, Premier Wenand said that the country will move forward in line with the vowed to increase food production, improve distributionseven percent annual growth target set forth in the 12th networks, reduce distribution costs and tighten regulations.Five-Year Plan period. The government’s goal to “seek a balance betweenGiven that China is still highly dependent on exports and economic growth and inflation while keeping them bothEurope is China’s largest trading partner, the weak global stable" is one of the Chinese government’s most criticaleconomy and European debt crisis are the chief external long-term priorities and must be approached carefully. Thisreasons behind China’s lowered growth target. The explains why, as China’s economy slows and the trade deficitEuropean economy is visibly stressed; Greece is struggling reaches its largest gap since 1989, the government persiststo get back on its feet, and even larger, sounder economies that it has no plans to introduce a stimulus package as it didlike Italy and Spain are entangled in the crisis. The United during the global financial crisis.States’ economy maintains a slow recovery and has resortedto protectionist measures via political and legal procedures. To control the CPI, China must be resolute in stabilizing commodity prices. The country should concentrate onDomestically, the real estate market, which was a major expanding domestic demand, fostering the growth ofeconomic driver, has experienced stringent policy restraints emerging industries like high-tech, environmental protectionin the past two years. This trend will continue, as the and energy conservation, and equip these new industries togovernment is determined to keep property prices at meet growing domestic demand. Together, this will helpreasonable levels. Increasing domestic consumption, though balance growth and inflation.a top priority in recent years, is still short of substantialimprovement. This is especially true considering that Adopt proactive fiscal policy and prudent monetaryfundamental barriers to increasing domestic consumption, policysuch as education, healthcare and tax reforms, remainmajor issues in need of further improvement and reform. As a key measure to control prices and maintain economic stability, the Report says that the government will continueIn light of these challenges, analysts see the lowered target to implement a proactive fiscal policy and a prudentas realistic and practical, and a decision that shows China’s monetary policy in 2012. The fiscal deficit in 2012 isconfidence. Premier Wen clearly stated in the Report that projected to be RMB 800 billion (about USD 127 billion),this is a decision to focus on quality rather than speed, an consisting of RMB 550 billion in central government deficitPrepared by Burson-MarstellerGovernment Relations & Public Policy Consulting Group 1
  • 4. 2012 National People’s Congressand RMB 250 billion in local government bonds. Regarded as"an appropriate level" by the government, it is a decrease of Public hospital reform will be put into action at certain levelsabout RMB 100 billion from 2011 and around 1.5 percent of of the medical system. The government has pledged to endGDP. the much-criticized system of using profits from hospital pharmacies to subsidize medical services by the end of 2015,Through proactive fiscal policies, the government is set to and three large hospitals in Beijing have been selected tooptimize spending by investing in and allocating resources to pilot a program that will combat this problem withareas that will improve people’s livelihood, including government subsidies. However, Mr. Chen Zhu, Minister ofeducation, culture, healthcare, employment, social welfare Health, said the reform is now entering “deep water”,and affordable housing. The government will also be more complicated by the conflicting views and interests of variouscommitted to technology innovation, environmental stakeholders, from governments to hospitals to businesses.protection, energy conservation and rural development. The impact of healthcare reform on multinational players isShort-term gains might be sacrificed in view of long-term uncertain.interests, and we expect adjustments will be made to makestrategic industries more sustainable. This lays the A good sign is the encouragement of “social capital” tofoundation for more complex reforms that require bolder create a diversified medical services system open to foreignchanges in financial and tax policy restructuring. investment. This is a significant message to multinational healthcare companies in the medical services,To ensure that resources are allocated to prioritized areas, pharmaceutical and medical devices sectors. Though theChina has decided to continue prudent monetary policies. specific measures are still unclear, healthcare reform seemsThis is in part a reaction to criticism of the RMB four trillion to be moving forward in tangible steps.stimulus package meant to mitigate the impact of the globalfinancial crisis in 2008. Some critics claimed the stimulus Ensuring food safety is another important issue formade matters worse by pumping excessive cash into an improving people’s well-being. Though this year’s Reportalready overheated economy. The government is attempting does not articulate food safety in detail, the government isto pave the way for healthy growth in key areas while determined to intensify supervision of the industry, withremaining cautious about where it provides financial dairy products, drinks, meat products, food additives andsupport. organic food on the top of the watch list. In China’s vast and quickly developing consumer market, foreign food giantsII. Make Progress can more easily fall victim to scandals due to their brand penetration and market leadership. Foreign companies haveImprove people’s well-being been criticized for applying a “double standard” to China by lowering the quality of their products sold in the mainland.In 2012, RMB 1.384 trillion (about USD 220 billion), will be Not only will foreign companies be more scrutinized by thededicated to areas like education, healthcare, social security, government, consumers and media, they are also requiredemployment, affordable housing, culture and agriculture. to be the industry’s role model, holding themselves to theThis is an 11% increase from 2011. same standards as in their home countries.The current government under President Hu and Premier Increase domestic consumptionWen has strived to build a “harmonious society,” andcontinuously improving people’s everyday lives is the In this year’s Report, Premier Wen named "expandingcornerstone of that objective. Expanding employment is an domestic demand, particularly consumer demand" theimportant part of this, and Premier Wen has tasked all levels fundamental driver of Chinas long-term, steady and healthyof government to create jobs, particularly in sectors such as economic development. Mr. Chen Deming, China’s Ministerservices, technology and innovation-driven small of Commerce, announced that household appliancebusinesses. subsidies for rural residents will continue and the Ministry will introduce a series of policies making it easier andHealthcare reform remains a high priority. In 2012, China cheaper for consumers to purchase environmentally friendlywill further improve the universal healthcare system and products.expand basic medical insurance coverage. Medical insurancesubsidies will be raised by 20% from RMB 200 to RMB 240 Because China faces shrinking external demand, anper person, per year. The government will expand medical uncertain global economic recovery and strong competitioninsurance to cover more diseases and conditions. in traditional manufacturing, expanding domestic demandPrepared by Burson-MarstellerGovernment Relations & Public Policy Consulting Group 2
  • 5. 2012 National People’s Congressand shifting to a consumption-led economy is an inevitable The government will continue to restrict loans given totransition. Currently, China’s consumption rate is about 35% industries that are considered energy-intensive, polluting orof GDP, significantly lower than even other emerging overheated. Preferential policies and investment will beeconomies, such as India (54%) and Brazil (63%). given to stimulate innovation-based small businesses. As China’s economic landscape continues to evolve, the shift ofTo further boost China’s domestic consumption, the Chinese traditional industries to the more economical westerngovernment needs to address a range of issues, from regions is inevitable; the development of the eastern part ofincome distribution and the social safety net to education, the country will be increasingly dependent on technologicalhealthcare and food quality. The consistent and effective innovation.implementation of the government policies will be a criticalpart of making domestic consumption an engine for China’s Energy conservation, emission reduction and environmentalgrowth, both this year and in the years ahead. protection were priorities in the 2011 work review and are named again as priorities in 2012. Their importance hasThis is still a work in progress, but the direction is clear: the been further confirmed by the central budget’s allocation ofgovernment will continue its consumption-stimulating RMB 48.8 billion to these areas.policies and flag new policies targeted at developing a greeneconomy and improving people’s well-being. The Report This is in line with the government’s objective to improveannounced specific work plans meant to increase individual people’s well-being and also a response to last year’s failureincomes; extend consumer credit; control rising food prices, to meet targets in these areas. Premier Wen declared thatdevelop community services; boost the culture; tourism and “China will by no means sacrifice the environment andhealth sectors; and encourage green products and online people’s health for economic development.” Industriesshopping as new consumption trends. related to environmental monitoring and governance are expected to grow.Transform development patterns and restructurethe economy III. Deepen reform and “opening up”In this year’s Report, restructuring the economy is defined Deepen economic reform in key areasas the country’s most urgent task for 2012; it is also along-term objective, symbolized by the reduction of the GDP The Report emphasizes the critical role of the state-ownedgrowth rate to 7.5 percent. The central government will economy, stating that it should be “unswervingly”invest RMB 29.9 billion in boosting seven strategic emerging consolidated and further developed. But the Report alsoindustries, but with a more selective approach than years states that the government should “unswervingly”past. encourage, support and guide the development of a non-state-owned economy.Special plans covering next-generation IT, high-endequipment manufacturing, new materials and new energy This year’s debate seems to be in favor of thevehicles will be released in the first half of this year. But non-state-owned economy. The Report stressed thatPremier Wen singled out new energy - specifically solar monopolies should be broken up and the private sectorenergy and wind power - as industries where overheated should be given wider access to strategic sectors likeexpansion has caused disorder and friction with major railroads, municipal administration, finance, energy, telecom,trading partners. It is interesting to note that the wording in education and healthcare, creating a level playing field forthe Report has been revised from “stopping” to “preventing” all forms of ownership. It is said that the detailed measuresthe blind expansion of these two sectors, which hints at a of “New 36 Articles,” which promote non-governmentaltradeoff between the government and vested interest investment, will be published within the first half of 2012.groups, and also leaves room for further policy discussions. Top officials in the central government are realizing that state-owned enterprises (SOEs), by taking advantage ofAnother pillar of economic restructuring relies on moving their privileged positions to strengthen their monopolies, areindustries up the value chain. The Report calls for the negatively impacting China’s economy and making it difficultoptimization and reorganization of certain traditional for it to advance to the next level. When private and foreignindustries like automobile, steel, shipbuilding and cement to businesses are hampered by policy restraints, both visibletackle the side effects of the RMB four trillion stimulus and invisible, and competition with SOEs, innovation andpackage. industry development lack momentum.Prepared by Burson-MarstellerGovernment Relations & Public Policy Consulting Group 3
  • 6. 2012 National People’s CongressAnother breakthrough can be seen in the repeated calls for between the agendas of political elites in the centralsupport of the real economy, especially small businesses. government and the priorities of local leaders, who are moreThe government pledged to put immediate measures in inclined to focus on short-term economic and politicalplace, including reducing tax burdens, launching pilot achievements. Though the Report uses general language toprograms to convert business tax to value-added tax, describe reform, “transforming the functionality of theenlarging funding for micro-businesses, setting up an RMB government” seems to be a top priority. This concept can be15 billion fund for small- and medium-sized enterprises explained as sorting out the relationships between the(SMEs) and promoting small-scale financial institutions. government and market, central and local governments, andAccording to Mr. Miao Wei, Minister of Industry and the government and social organizations, in an effort to letInformation Technology, assistance will be particularly market forces distribute resources and motivatedirected to innovation-oriented and labor-intensive SMEs. governments.These measures will address the growing complaint that In the past decade, China’s political system and policySOEs achieve market leadership through exclusive and making process have become more transparent. However,preferential policies that prevent the private sector and there are a number of factors that need to be taken intoforeign companies from competing head-to-head with SOEs. account when evaluating whether the progress will continueIf the reforms are successful, it will help develop China’s and where it is heading.private companies and sustain the long-term and balanced  First, the transition of China’s top leadership may notgrowth of the entire economy. In addition, as foreign change the overall course of development, yet to whatinvestment struggles in Europe and the United States, a extent and how quickly reforms will be carried outhealthier China market is expected to draw high-quality remains unknown.investment from abroad.  Second, the question of how all Chinese people will benefit from China’s growth needs to be answered.More opportunities may exist for multi-national companies The government’s management of China’s growth is(MNCs) willing to explore ventures with businesses in the likely to impact whether reform is accelerated oraforementioned sectors. The software industry, for example, stalled.will benefit significantly as will institutions that provide  Third, despite all the other priorities, economicfinancial services to SMEs. development remains the key. Given that the global economy is struggling to recover from a recession, andExpedite political reform and transform government China is determined to sacrifice size for quality, China’sfunctions growth should continue to slow down. It becomes a question of whether the government is ready andAccording to the Report, China will continue to press political motivated to reform in a decelerating economy.reform "with greater resolve and courage." At theconcluding press conference with Chinese and foreign Improve the quality and standard of “opening up”journalists, Premier Wen delivered a strong warning aboutthe urgent need for reforms, without which, he said, It is highlighted in the Report that China is entering a newtragedies like the Cultural Revolution could recur. stage of opening up - China is now the world’s largest exporter and second-largest importer. The Report sets theChina’s top leadership is well aware of the importance of goal of foreign trade growth at around 10% year-on-year inpolitical and government reform. In his last NPC press 2012, a sharp slowdown from previous years when Chinasconference as Premier, Wen Jiabao noted that, without imports and exports rose over 20% annually.political reform, economic reform will not succeed and theachievements China has already made will be lost. But, he This implies that, after 30 years of export-driven andadded that changes would have to come step-by-step and investment-led growth, China’s opening up is now exploringunder the leadership of the Communist Party of China (CPC). a new path of transformation and restructuring, particularlyTherefore, he explained that China’s political system should against the backdrop of diminishing external demand and abe a socialist democratic one, with the CPC’s leadership at its global economic downturn. The severity of the globalcore. However, the CPC’s evolution over time and methods environment also underscores the strategic role of exports into achieve improvement have become key issues, if not boosting employment and economic growth. As pinpointedobstacles, of China’s political reform. by Premier Wen, “While expanding domestic demand is crucial, we can never overlook the importance of externalAs reform moves ahead, conflicts seem to be emerging demand in Chinas economic development.” This year,Prepared by Burson-MarstellerGovernment Relations & Public Policy Consulting Group 4
  • 7. 2012 National People’s Congressstabilizing exports will be more important than increasing the short-term in return for more sustainable developmentimports. A series of supportive policies, including export tax over the long run. With the CPI target still at four percent,rebates, financial incentives, and export market China is set to confront the enormous challenge ofdiversification and trade facilitation measures are expected combating inflation while growing the economy.to be announced and implemented shortly. China will adoptnew guidelines to encourage imports and promote trade China now emphasizes balance and quality over speed andbalance to alleviate unnecessary friction and tensions during quantity. By adopting a proactive fiscal policy and a prudenta handover year. monetary policy, the government encourages the allocation of resources to innovation, technology advancement,As explicitly stated in this year’s Report, China will continue environmental protection, energy conservation, education,to welcome foreign direct investment (FDI), but with social safety nets, affordable housing, employment andincreased emphasis on quality. Foreign investment will be other areas aimed at improving people’s livelihood. Theseencouraged in advanced manufacturing, new and high measures will help expand domestic consumption,technologies, energy conservation, environmental particularly in the context of shrinking investment andprotection, modern service industries, and the central and external demand.western regions. Upgrading and improving industries, particularly strategicFDI has already witnessed changing attitudes and views emerging industries, will remain a core priority for China forfrom the Chinese government, businesses and the general years. China aspires to create internationally competitivepublic in recent years. In line with the overall direction of “national champions” in these sectors to realize its goal ofeconomic restructuring and moving industries up the value being an innovative country that can challenge foreignchain, China enforced the newly revised “Industrial businesses. However, thanks to the distinctive advantagesGuidelines for Foreign Investment” early this year, focusing MNCs possess in knowledge, technology and experience,more on quality, innovation and the movement of strategic foreign participation will be encouraged by the Chineseindustries up the value chain. As China’s market becomes a government. So the question remains whether foreignmore level playing field with the roll-back of preferences for companies should re-evaluate their operating strategies inSOEs, these new areas and sectors of focus will present China. Are Chinese companies their partners or theiradditional opportunities for foreign companies. Furthermore, competitors?at home, foreign businesses will experience the challengesand opportunities brought on by the Chinese government’s To accomplish all of this, top officials in the central“going global” strategy, which encourages Chinese government realize that economic restructuring shouldcompanies, both state-owned and private, to make overseas continue, and political and government reforms will be theinvestments and acquisitions. foundation for the continued success of the economic reforms. Premier Wen said that without political reform,Conclusions economic reform will not succeed and the achievements China has already made will be lost. One critical part ofThis year’s NPC is the last session under the leadership of political reform is to transform the way the governmentPresident Hu Jintao and Premier Wen Jiabao. The functions and improve the market’s essential role in theoverarching theme of “making progress while maintaining allocation of resources.stability” reflects the willingness of Hu and Wen to stay thecourse of pursing a “harmonious society” and quality growth The Chinese government’s role and policy priorities havethrough gradual reform. The NPC was an opportunity to evolved along with China’s opening up and reform over thereiterate the policies and priorities approved at last year’s past 30 years. As China moves up the value chain andCentral Economic Conference and ease the handover to the develops indigenous innovation, it is becoming increasinglynext generation of leadership. Maintaining both economic selective in how it utilizes foreign investment, placingand social stability is the paramount objective – critical to greater emphasis on high-quality intangibles. Capital andensuring a steady leadership transition scheduled to happen technology are no longer the strongest enticements forlater this year at the 18th National Congress of the CPC. China’s central government, and they cannot override the priority of sustainable growth. That said, the governmentConsidering the macro-economic situation in China and welcomes foreign companies who help China’s localaround the world, the government is determined to continue businesses grow their technology, management, andtransforming and restructuring China’s economic model. operation capabilities or expand into overseas markets.This will require tolerance of a slower growing economy in However, energy-intensive and polluting companies,Prepared by Burson-MarstellerGovernment Relations & Public Policy Consulting Group 5
  • 8. 2012 National People’s Congressregardless of their current size or growth, are faced with a through donations alone; it must include investment in areasbleaker future. that will help the Chinese government do things like foster innovation, develop local talent, protect the environment,Recommendations for Foreign MNCs and improve supply chain management.Looking at the theme of the 2012 NPC, “making progress Therefore, foreign MNCs need to carefully evaluate in whichwhile maintaining stability,” as well as the corresponding sectors they will invest in China, how to conduct business,policy dynamics and initiatives, foreign MNCs may not need how to engage and influence central and local governmentsto overhaul their current business strategies and approaches and how to leverage and manage relations with keyin China. However, they need to ensure their goals and stakeholders, such as local business partners, industrystrategies align with the government’s latest agenda and organizations and think tanks.priorities. This includes first understanding the currentperceptions and agendas of their stakeholders and then It is also worth noting that because China’s policies havebuilding a platform for consistent and effective become more inward-looking, adjustments in the allocationcommunication with them. of government-led investment and financial resources are expected. As China moves further down the road ofIn addition to providing capital investment and sharing rebalancing the economy, economic nationalism may grow.advanced technologies, foreign MNCs should be prepared to In this context, foreign investors will be increasinglyshoulder an expanding list of responsibilities attached to the required to contribute to China’s overall national objectives.improvement of people’s livelihood. This cannot be done *****Prepared by Burson-MarstellerGovernment Relations & Public Policy Consulting Group 6
  • 9. 2012 National People’s CongressFor further information on how Burson-Marsteller China can help you increase your understanding of China’s political and regulatoryenvironment and assist you with your specific policy analysis requests, please contact:Ms. Jane ZhangDirector, Government Relations & Public Policy Consulting GroupBurson-Marsteller ChinaTel: 86-10-5816-2584Email: jane.zhang@bm.comMr. Weijia WangSenior Manager, Government Relations & Public Policy Consulting GroupBurson-Marsteller ChinaTel: 86-10-5816-2559Email: weijia.wang@bm.comAbout Burson-Marsteller’s Government Relations and Public Policy Consulting GroupThe Government Relations and Public Policy Consulting Group is composed of former senior government officials, public policyexperts and communication specialists. The Group provides senior-level counsel to clients on government affairs strategy, policyanalysis, government relations and issues management through an evidence-based and knowledge-driven approach.*****CopyrightThis document and the material contained in it is the property of Burson-Marsteller and is given to you on the understanding that such material andthe ideas, concepts and proposals expressed in it are the intellectual property of Burson-Marsteller and protected by copyright.Prepared by Burson-MarstellerGovernment Relations & Public Policy Consulting Group 7