Third plenum report by China Trade Winds - extracts

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Here is few extracts of the final part of our report “ Xi Jinping, the new era ” following the highly-anticipated Third Plenum of the XVIII. Congress (from 9 to 12th of November 2013).

It was the missing piece of the puzzle of this country’s leadership until 2022, end of the second five-year legislature under Xi Jinping.

The aim of this brief study is to analyze the results of the Plenum, its significance, and last but not least, the style of this new leadership.

For further details, contact marketing@chinatradewinds.com

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Third plenum report by China Trade Winds - extracts

  1. 1. THE THIRD PLENUM REFORMS OR MORE POWER IN XI JINPING’S HAND? DECEMBER 2013 A study by China Trade Winds, HK, Ltd marketing@chinatradewinds.com Study carried out by China Trade Winds Ltd. for the exclusive use of Page 1
  2. 2. CONTENT INTRODUCTION - KEY REFORMS BY SECTOR - ECONOMY FINANCE CONSUMER ENVIRONMENTAL PROTECTION FAMILY PLANNING HEALTH OLD AGE CARE PENSIONS RULE OF LAW LABOR CAMPS PETITIONING SYSTEM CORRUPTION - FUNDAMENTAL CHANGES, TWO NEW GOVERNING BODIES - THE NATIONAL SECURITY COMMITTEE THE LEADING GROUP ON THE COMPREHENSIVE DEEPENING OF REFORM - XI JINPING’S OVERALL STRATEGY - THE JUDICIARY REFORM - PROMOTING ALLIES AND KEEPING ENEMIES AT BAY CONCLUSION *************** ANNEX 1: LIU HE’S PROFILE – THE ARCHITECT OF THE REFORMS ANNEX 2: SHANGHAI FREE TRADE ZONE – FACT BOX ANNEX 3: AI BAOJUN’S PROFILE - HEAD OF THE SHANGHAI FREE-TRADE ZONE Study carried out by China Trade Winds Ltd. for the exclusive use of Page 2
  3. 3. INTRODUCTION This study, “The Third Plenum: Reforms or More Power in Xi Jinping’s hand?”, handling with the reforms and achievements of the Third Plenum (XVIIIth Party Congress), is the third part of our overall investigation “Xi Jinping, the new era”, on Xi Jinping’s leadership in its first year of shaping-up. (………) A) KEY REFORMS BY SECTOR (………) B) FUNDAMENTAL CHANGES THROUGH TWO NEW AGENCIES In its abridged version (5,000 Chinese characters), the communiqué issued after the Plenum made no mention of the key reforms that had been the subject of speculation in the domestic and international media. There was quite a bit more in the final document, which filled in at least some of the details, coming in at 20,000 characters. But the shorter communique did specifically mention two crucial decisions, i.e. the creation of two new bodies. They arguably represent the handiwork of Xi Jinping. While even the longer document did not spell out the specifics of these two important new groups, a few characteristics become already apparent. THE NATIONAL SECURITY COMMITTEE The National Security Committee is expected to be a vehicle for coordinating international as well as domestic intelligence, acting somewhat like the National Security Council of the US but perhaps with a dose of the KGB under the former Soviet Union, also potentially playing a role in ensuring domestic “social harmony.” Its stated objectives are a rather bland pledge to “formulate and implement national security strategies, push forward legal construction on state security and formulate the goals and policies of national security work.” The body will actually gather information from a wide range of political organizations, including the People’s Liberation Army, the militia or People’s Armed Police, the Ministry of Foreign Affairs, the Ministry of Defense, the Ministry of Public Study carried out by China Trade Winds Ltd. for the exclusive use of Page 3
  4. 4. Security, the Ministry of Trade, the Department of Propaganda and the International Liaison Department. The first objective will be to ensure that all possible policy-related information is channeled to the ruling Party leadership. The origins of this body are believed to have come from former Party chief Jiang Zemin who pushed for such a coordinating body. Jiang may have felt deceived by his own military intelligence in the case of the fatal collision of a Chinese fighter jet and a US spy plane near Hainan in April 2001. That led to embarrassing statements and further policy miscalculations. (………) THE LEADING GROUP ON THE COMPREHENSIVE DEEPENING OF REFORM The second new secretariat carries the unwieldy name of “leading group on the comprehensive deepening of reform”. It supervises and coordinates work on the economy, politics, culture, society, the environment and Party construction. It was expected to be headed by Li Keqiang, with Wang Yang (a noted reformist) as vice chairman, but the Chinese press seems more and more convinced that its chairmanship might indeed be assumed by none other than Xi Jinping, the envisaged deputy being Han Zheng, the very able, 59-year-old mayor of Shanghai. Xi Jinping already chaired the drafting team for the Plenum report aided by Liu Yunshan, boss of ideology matters at the Standing Committee (a former protégé of Jiang Zemin and not exactly known for his liberal ideas), and Zhang Gaoli, Executive Vice Premier. If Xi is in fact the head of the economic group – in addition to taking the reins of the National Security Committee – he leaves little room for the Premier, this would raise questions over the effectiveness of Li Keqiang’s reforms on the table, and their future. The final document also carries this other interesting message that the priority goes to “top level design”. This suggests that the state must firmly control all transformations, whether it affects society or the economy, to ensure the sound “balance between reform, development and stability”. The Party’s senior leaders have shown they are seeking“ modernization of the institutions of social governance” -a concept that is quite different from Li’s, letting social forces and the market interact on their own with lesser State interference. Study carried out by China Trade Winds Ltd. for the exclusive use of Page 4
  5. 5. Urbanization is one area that the Premier has pushed very hard, and that policy and its related reform measure – the easing of hukou restrictions – could suffer if he is not actively directing the implementation of policy. The Plenum adopted a long series of decisions to nurture the change for decades to come. It has determined that market forces should play a “decisive role” in the allocation of resources. (………) C) XI JINPING’S OVERALL STRATEGY We now turn to the judiciary reforms, a pivotal tool of Xi Jinping’s strategy, as it deals with the central power’s objective to exercise more controls on the provinces. THE JUDICIARY REFORM: This is quite an unexpected addition to the reforms that emerged from the Plenum. It revolves around freedoms and rights, all precedent things least touched upon ruling teams in this by country. Historically the judiciary – along with information and education -- is one of the most tightly controlled social institutions in China. There as well, the noose is only slightly loosened. The principle of independence of the more than 200.000 the task of the judges is reaffirmed, “adjudication and committees” appended to the nation’s 3,500 courts is reduced. The anti-corruption drive Started smoothly after the new government’s formal anointment in March, this campaign gathered steam in June 2013, fulfilling Xi’s promise to catch “not only flies (the small corrupted cadres) but also the tigers”. It started with the indictment of almost two dozens of cadres at the CNPC, the national oil company. This implied the end of the so called “oil gang”, an all powerful lobby close to Zhou Yongkang, himself close to Bo Xilai. The judge alone is responsible for preparing his verdict, and as such, must take responsibility for it. The judiciary becomes imparted with a new, “authoritative” role. Now it remains to be seen how this novel function will translate into practice – in an apparent contradictory trend, the provincial and local level receive from the central one the budgetary and judge-nominating power. But an interesting reading by analyst Francesco Sisci explains the move to the central level strategy as an effort to amplify the anti-corruption drive (see box). Study carried out by China Trade Winds Ltd. for the exclusive use of Page 5
  6. 6. To all those bold reform proposals approved by the Third Plenum, most of the opposition is likely to come from the intermediary levels, which have the most to lose. The “independence” of judges is not meant to give freedom to the magistrates, but rather to cut their links to local Party officials. This is also not meant to announce an endless wave of condemnations of local cadres for corruption – such a “witch hunt” would harm the stability of the state and society as a whole. But grass-root society is to report on the worst cases of corruption, which will be punished, so as to inspire prudence and restraint to local cadres, both in their everyday conduct and political blockade of the main reforms approved at the Third Plenum. (………) CONCLUSION ANNEX 1 LIU HE (刘鹤) THE ARCHITECT OF THE REFORMS When Tom Donilon, President Obama's special envoy (then-U.S. National Security Adviser), came to Beijing, in May 2012, to prepare the next China-US Summit with Xi Jinping, the latter introduced him to Liu He. Liu was previously almost unknown, and Xi advised Donilon to talk with this “important man”. This discreet official had spent 30 years at the government’s higher levels, but somehow long remained in the shadows. He is a brilliant economist, always going against preconceived ideas and biases of the CCP: hostile to protectionism, he advocates an opening up to foreign investments in ‘fiefdom’ sectors such as finance, services, energy or health… Born in Beijing in 1952, Liu attended the 101 Middle School where most children from the top brass cadres were as well, including… Xi Jinping! Aged 18, he joined the Army in Inner Mongolia – far enough to be protected from the unsecure turmoil of the Cultural Revolution. In 1974, aged 22, he started his professional life first as a worker then as a cadre (a kind of aristocracy under the Maoist regime) at the high-tech Beijing Wireless Factory of the Beijing Municipality. At the age of 26 years, he entered the renowned Renmin University and obtained his master degree at 34. Study carried out by China Trade Winds Ltd. for the exclusive use of Page 6
  7. 7. 1987, Liu He joined the Development Research Center of the State Council as a researcher focusing on long-term Industry Policy. After one year, he became deputy director of the Development Research department at the National Development and Reform Commission. He was then on the track for a promising carrier: like many other talented officials, he was sent to study in the US in 1991, at Seton Hall (New Jersey) first, then at Harvard. After graduation in 1998, back in China, he joined the Central Leading Group for Financial and Economic Affairs, became its vice director in 2003 at the age of 51. This powerful institution, brain of China’s reform, is a think-tank on any matters (from migrant workers status to commodities pricing), which reports are read and studied at State Council, Politburo and Standing Committee level. It recruits among bankers, industrialists, and influential senior officials (Wen Jiabao, Wang Qishan, Zhou Xiaochuan) - most of whom are now Liu’s allies. Liu’s career review is impressive: he contributed to four China's five-year plans, earned the trust of three successive Presidents, Jiang Zemin, Hu Jintao and Xi Jinping and thus inspired or created innumerable current – or future national policies. In 2008, he authored the stimulus plan that rolled out $600 billions in the economy and pulled the country out of recession before most other nations. Another success is the creation of an enviable infrastructure network (2000 hospitals, the Beijing-Guangzhou, longest high-speed railway, thousands of schools…). On the other hand, he could not prevent the financial inflow from going to State consortia only, forgetting the private sector and SME’s. As a result, State’s debt has tripled to around ¥20 trillion within 5 years, particularly because of grand, unchecked, prestige often unprofitable projects. But this financial boondoggle enabled him to bounce back today by elaborating latest Xi Jinping’s hard-hitting campaigns: against corruption and reforming the taxation system. Liu He was also promoted to the top of numerous industrial research institutions. He was appointed member of the 18th CPC Central Committee in November 2012, and elected Deputy Director of the National Development and Study carried out by China Trade Winds Ltd. for the exclusive use of Page 7
  8. 8. Reform Commission in March 2013, responsible for drafting a working paper of Third Plenum reforms. On a personal level, this pragmatic man is constantly searching for the right balance between hyper liberalism and planned economy. By opening think-tanks to high-level professionals, he might have invented the method used by Xi Jinping’s team to fade down Maoism in people’s mind: while engaging them gradually, through transparency and outspokenness. In a Socratic manner, Liu likes to answer a question by posing questions of his own, to invite reflection. He also dares to meet with foreigners face to face, without fearing retribution under accusations of betraying national interest – he is confident of being backed at the top level. Another significant detail, Liu is one of the few leaders who doesn’t dye his hair jet-black, not fearing to show his graying temples: self-assured as he is, that his analytical skills and prolixity will contradict the effect of his aging looks. TO ORDER THE FULL REPORT, PLEASE CONTACT US: marketing@chinatradewinds.com Study carried out by China Trade Winds Ltd. for the exclusive use of Page 8

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