China’s New Government Takes Office

China’s transition to its next generation of leaders is now complete, but China watchers will have to wait until the fall to get a clearer sense of the new government’s policy direction.

By Ben Baden

Capping a transition that began in November 2012 with the announcement of Chinese Communist Party (CCP) leaders, Xi Jinping was named president of the PRC government and Li Keqiang was chosen as premier of the State Council, China’s cabinet, during the National People’s Congress (NPC) in March in Beijing.

The NPC is often referred to as China’s “rubber stamp” parliament because there is usually little dissension among voters. The NPC consists of about 3,000 delegates who vote on government leaders and policy proposals. Xi was elected president by a vote of 2,952 to one with three abstaining, and Li was chosen as premier with 2,940 votes. Of the nominees for the 25 ministries and commissions now under the State Council, only four received more than 100 dissenting votes, according to Bloomberg News.

China watchers looking for significant policy announcements or other guidance were disappointed. One of the key tasks at the NPC is electing new government leaders, not necessarily making significant policy changes, says Derek Scissors, a senior research fellow at the Heritage Foundation in Washington, DC.

“I wasn’t expecting that much at the NPC,” Scissors says. “It’s not really fair for a lot to happen. This is the beginning of the government appointments. … These people didn’t have their formal positions yet, and it would not have been good for them to act as if they did before this point.”

In addition, the NPC’s government restructuring plan, intended to make the government more efficient, reduced the number of ministries and commissions under the State Council from 27 to 25. “The government restructuring was pretty mild,” Scissors says. Proposals for more extensive changes—such as reducing the powerful National Development and Reform Commission’s (NDRC) role in China’s economy—appear to have been put aside for now. The NDRC is the PRC government’s chief economic planning and regulatory body, and it also has a broad scope of authority over foreign investment project approvals. It is seen by many outsiders as an obstacle to market-oriented reforms because it often backs state-owned enterprises over private enterprise.

China’s Fifth Generation of Leaders

Many of the high-level appointments had been telegraphed at the CCP Congress. Xi has now assumed the top posts in the party, military, and government, and Li is premier and head of the 10-member State Council, which includes four new vice premiers: Zhang Gaoli, Liu Yandong, Wang Yang, and Ma Kai. Zhang is the highest-ranking vice premier—and could potentially take the finance portfolio from former Vice Premier Wang Qishan, who met frequently with foreign business leaders. After the NPC, Vice Premier Wang Yang was named China’s lead representative for the economic discussions of the US-China Strategic and Economic Dialogue (S&ED), an annual bilateral meeting held between China and the United States.

Xi addressed the close of the NPC and reiterated the idea of the “Chinese dream,” laid out in November at the CCP Congress, which touches on providing better education, jobs, healthcare, social security, and higher incomes for Chinese citizens. In  Li’s first speech as premier, he discussed cutting the state’s role in the economy. “The reform is about curbing government power,” Li said, as reported in Xinhua.

Reading the Tea Leaves

The leadership transition is essentially a transfer of power, and it is still unclear how China’s new leaders will govern. “China’s new leaders did not come to power by campaigning on a new policy platform,” according to analysis by the Brunswick Group, an international corporate communications partnership based in London. “They were selected as worthy successors who could be trusted to safeguard the legacy of those who had gone before.” Although Xi has been outspoken on excess and corruption in government and has attempted to re-engage with the Chinese public, Brunswick says it’s too early to identify Xi’s political leanings.

Most pledges made by new government officials in speeches or work reports issued by various ministries fell on deaf ears. “Obviously, many of the pledges to make the economy and government work more efficiently are the same as we have heard year after year,” says Elizabeth Economy, the director of Asia studies at the Council on Foreign Relations in New York. “There were no bold plans outlined that suggested that this group of leaders would be more successful than those who have come before.”

However, a line in outgoing Premier Wen Jiabao’s final speech caught the ear of Patrick Chovanec, managing director and chief strategist at Silvercrest Asset Management in New York: “We deem it necessary and appropriate to set this year’s target for economic growth at about 7.5 percent, a goal that we will have to work hard to attain,” Wen said, according to a translated version of his speech.

“That was, I thought, very interesting, because most people generally say China will very easily overshoot their target,” says Chovanec, a former professor at Tsinghua University in Beijing. “I think it’s a recognition on the part of the Chinese leadership that the economic adjustment they face is quite serious. Now, of course, that was the outgoing premier, but having said that, I would take that very seriously.”

Scissors says Zhang is the leader to watch because he is the swing vote in the government. With Li leading as premier, Scissors say there is hope for economic reform because Li has backed reform in the past, most notably a report issued in February 2012 by the World Bank and China’s Development Research Center, which called for various market-oriented reforms for China to implement by 2030.

“Li put his name on the World Bank document,” Scissors says. “He’s willing to consider reform. I don’t think there is any doubt about that.”

Businesses Will Have to Wait for More Guidance

Economy says she believes the government made a few small, but important moves during the NPC. One of those moves was the restructuring of the Ministry of Railways, which was widely seen as corrupt, and various ministries dealing with health and the controversial one-child policy. Economy also notes that Li said that China would cut the number of approvals required to do business in China by one-third from the current 1,700.

Other experts are not so sure about China’s new leaders.

“Making Zhang Gaoli the executive vice premier is not a reformist gesture,” says Douglas Paal, vice president for studies at the Carnegie Endowment for International Peace in Washington, DC. “He is no replacement for a guy like Wang Qishan based on what I know about him so far.”

Wang now heads up the CCP’s Central Commission for Discipline Inspection tasked with dealing with corruption. Previously, Wang had a great deal of interaction with foreign business leaders and held a lead role in various bilateral dialogues with the United States. “I’d be hard pressed to tell a businessperson where to find encouragement,” says Paal, who previously served on the National Security staff of Presidents Ronald Reagan and George H.W. Bush.

Paal points to the upcoming S&ED, which will take place in July in Washington, DC, and the next meeting—or third plenum—of the CCP Congress, which will convene this fall, as the next dates to watch to see what plans the Chinese government has in mind.
[author] Ben Baden ([email protected]) is associate editor of the China Business Review. [/author]

(Photo by Bert van Dijk via Flickr)