Issue 6/2018 (March 9-22, 2018) Contents: Page TOPIC OF THE WEEK: NATIONAL PEOPLE'S CONGRESS - REVISITED 2 More power to the president, a new team and revamped institutions 2 CHINA AND THE WORLD 2 Higher profile, more funding: China upgrades diplomacy 2 New foreign aid agency positions China as donor country 3 POLITICS, SOCIETY AND MEDIA 4 Xi fills positions with loyal followers 4 Reorganization brings state agencies under direct Communist Party control 5 NPC passes controversial anti-corruption law, shunning publicity 7 ECONOMY, FINANCE AND TECHNOLOGY 8 China rewards international experience in top economic appointments 8 China merges banking and insurance oversight 8 THE EUROPEAN VIEW 9 China s reported 16+1 pause could be concession to Brussels or the opposite 9 MAD MERIX 9 Setting up shop in the dorm room 9 METRIX According to reports by Bloomberg and Ming Pao the three TV and radio networks China Central Television, China Radio International and China National Radio will be combined into an overarching organization called Voice of China ( 中国之声 ). The combined network would have over 14.000 employees. It would aim to improve China s global image and enhance the Chinese Communist Party s ability to influence public opinion. 1
TOPIC OF THE WEEK: NATIONAL PEOPLE'S CONGRESS - REVISITED More power to the president, a new team and revamped institutions The National People s Congress has ended with a demonstration of who is the boss in China. Breaking with the tradition of leaving it to the prime minister to conclude the annual legislative session with a press conference, President Xi Jinping took the stage to deliver a fiercely nationalist keynote speech on 20 March. An emboldened Xi, whose power position had been cemented by the NPC s removal of the presidential term limits, told the about 3,000 delegates that China was ready to take its due place in the world and to fight bloody battles against our enemies. He came down harshly on the democratically ruled Taiwan, saying that, all acts and tricks to split the motherland are doomed to failure and will be condemned by the people and punished by history." While it seems unlikely that Xi would push for reunification with the island of Taiwan in the near future, risking a conflict with the United States, there can be little doubt that the end goal of a united China under Communist rule is very much on his mind. For now, Xi s tough talk seemed mostly directed at his domestic audience, perhaps also meant as proof that the power concentration in his hands is justified. Apart from the constitutional change to remove the clause that limited the president s office to two terms, the NPC filled most senior government and state positions with Xi s loyal followers. Wang Qishan, Xi s right-hand man in the fight against corruption, was appointed vice-president. Xi s trusted economic adviser Liu He was promoted to the rank of vice-premier in charge of economic policy. The NPC also voted on establishing a National Supervision Commission. This new agency will coordinate the fight against corruption and disciplinary violation, expanding its reach from Communist Party members to all state officials. The NPC also decided on the reorganization of a number of government ministries and agencies in an attempt to streamline China s bureaucratic processes. Foreign decision-makers dealing with China will have to take a close look at the new distribution of responsibilities. And they should be careful not to dismiss Xi s fierce speech as the usual rhetoric but take it seriously as a warning that from now on, the international community will have to deal with a vastly more ambitious China. CHINA AND THE WORLD Higher profile, more funding: China upgrades diplomacy China s diplomacy has emerged as a stronger player from this year s National People s Congress (NPC). At least five high-ranking officials are now in charge of the country s foreign policy. The NPC also increased the budget for diplomacy and announced the creation of a new agency that will now be in charge of coordinating China s foreign aid. 2
Minister of Foreign Affairs Wang Yi has kept his position but was also promoted to the position state councilor with responsibility for foreign affairs (replacing Yang Jiechi). This boosts his authority, as the state councilor ranks above the minister. Xi Jinping ally Wang Qishan was confirmed as vice-president, and is widely expected to be given a foreign affairs portfolio with a special focus on relations with the United States. Politburo Standing Committee members Wang Yang and Wang Huning are also considered as two important advisers to Xi in foreign affairs. The changes reflect Xi s vision to turn China into a global power by 2049. The reforms also come at a time when China sees a window of opportunity to expand its global presence and influence as the United States is pulling back. While the Trump administration has reduced funding for the State Department by 29.1 percent from 2017, Beijing s budgeted 60.07 billion CNY (9.49 billion USD) for foreign affairs represents a 15.6 percent increase from 2017. China s foreign affairs budget still pales compared to its defense spending. But the increased funding for the Ministry of Foreign Affairs as well as the creation of the State International Development Cooperation Agency ( 国家国际发展合作署 ) underline the leadership s ambition to bolster China s global security interests through diplomatic and economic means. MERICS analysis: "China upgrades diplomacy while the United States pulls back." Blogpost by Helena Legarda. New foreign aid agency positions China as donor country China has created a new infrastructure to manage its growing foreign aid. The State International Development Cooperation Agency ( 国家国际发展合作署 ), which the NPC established on 17 March, will take over duties previously scattered among the ministries of foreign affairs, commerce and finance, besides around 30 other government agencies. The new body will report directly to the State Council and will be in charge of designing policies as well as approving and monitoring projects, but apparently the implementation will remain with the existing agencies. China has quickly developed from a recipient to a donor of foreign aid over the past decade. In 2008, China still received more than 2 billion USD in aid. Today, it receives next to nothing. But according to a report by the US organization Aid Data, it funded projects in 140 countries with a total value of more than 350 billion USD between 2000 and 2014 alone. The bulk of China s aid does not conform to OECD-set criteria for development assistance, but even the OECD-recognized official development aid (ODA) has moved up considerably. The AidData report suggests that China seems poised to replace the United States as the primary donor for much of the developing world. Moving competencies away from the Ministry of Commerce (MOFCOM) in particular could be seen as an indication that Chinese economic interests will play a smaller role in the disbursement of its foreign aid. This could mean that a larger proportion of aid could be assigned to least developed countries, which would bring China in line with international best practice. 3
On the other hand, the new agency appears closely linked to the strategic goals of the Belt and Road Initiative, which would signal further alignment between foreign aid and political interests. Countries like Russia, Pakistan and Kazakhstan are likely to remain among the largest recipients all countries at the center of China s geostrategic ambitions. News in brief Confrontation: Trump plans to slap tariffs and investment restrictions on China Left out: Australia and ASEAN agree on regional infrastructure cooperation without China Cooperation: EU and China jointly urge Taliban to accept offer for talks POLITICS, SOCIETY AND MEDIA Xi fills positions with loyal followers With few exceptions, the NPC has filled major Chinese state and government positions with acolytes of President Xi Jinping. The personnel appointments reflect Xi s dominance in political decision-making and implementation. At the same time, he seems to have compromised by promoting a number of cadres who are viewed as representing different factions - although several of them seem to have chosen to support Xi. At its annual session, China s top legislative body confirmed the Chinese Communist Party s proposed candidates for the leading posts of all supreme state organs. The NPC s new president Li Zhanshu, the previous director of the General Office of the CCP Central Committee, is viewed as one of Xi s most loyal supporters. The director of the newly established National Supervision Commission Yang Xiaodu worked under Xi when the latter was party chief in Shanghai in 2007. Zhang Jun, former vice secretary of the Central Commission for Discipline Inspection (CCDI) and minister of justice, played a leading role in Xi s signature anti-corruption campaign. Not all new appointees belong as firmly in Xi s camp as his powerful economic advisor Liu He who was appointed to one of the four vice-premier positions under premier Li Keqiang. (see Economy, Finance and Technology). China s new first vice premier Han Zheng is regarded as the single remaining ally of former president Jiang Zemin in the Standing Committee of the Politburo whereas another newly appointed vice-premier, Hu Chunhua, rose through the so-called Youth League Faction ( 团派 ) under former president Hu Jintao. Zhou Qiang, who will keep the position as head of China s supreme court, was formerly also a member of the Youth League Faction. But it is believed that Zhou gained Xi s trust when he spoke out against judicial independence in a speech in 2017. The same is true for the newly appointed minister of justice. Fu Zhenghua, the former director of the Beijing municipal bureau of public security and vice-minister of public security, was originally seen as a supporter of Jiang, not Xi. But Fu proved his loyalty to Xi in 4
2013 as the top police officer in a task force that investigated his former boss, security tsar Zhou Yongkang, and as the leader of a crackdown on politically disobedient lawyers and online journalists. Reorganization brings state agencies under direct Communist Party control The Chinese Communist Party is preparing to increase its influence over day-to-day policymaking with a sweeping reorganization of China s institutions. The plan on deepening of reform of party and state institutions is based on a decision taken by the CCP Central Committee s second plenum ahead of the NPC. The document indicates a weakening of China s government institutions. Its release on March 21 came one day after the end of the two-week long National People s Congress, which had voted on the appointments for China s new cabinet. Four of the party s prominent Leading Small Groups ( 领导小组 ) will be renamed commissions ( 委员会 ), indicating an expansion of their power. The groups already had de facto decision-making power, but were officially labeled as coordinating and advisory bodies. Institutionalizing their power vis-à-vis state organs, the current Leading Small Groups for the deepening of reform, for cybersecurity and informatization, for finances and for foreign affairs will be elevated to the rank of commissions. Other influential state agencies will come under direct party management under the new structure: The responsibilities for copyright and oversight of film production will be given to the Propaganda Department of the CCP s Central Committee. The international film industry has been on edge since China announced the abolition of the State Administration of Press, Publication, Radio, Film and Television last week. The CCP s United Front Work Department will oversee ethnic and religious issues as well as overseas Chinese affairs. This move strengthens the power of the department in charge of shaping China s influence around the world. The move comes at a time when Western democracies have grown increasingly suspicious of China s influencing activities in their countries. MERICS analysis: In Xi s China, the party morphs into the state. Blogpost by Matthias Stepan and Sabine Muscat. 5
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NPC passes controversial anti-corruption law, shunning publicity On the last day of its annual session, China s legislature passed its controversial anti-corruption law with 46 no votes and abstentions. The National Supervision Law extends the Communist Party s oversight to all government employees in the future (more than 100 million people). The NPC had previously passed a constitutional amendment that mandates the establishment of a supreme anticorruption commission. On March 18, the NPC approved the CCP s proposal to appoint Yang Xiaodu, a senior cadre as the director of that new commission. The law serves to institutionalize Xi Jinping s anticorruption campaigns. The campaigns purported aim is to hold those in power accountable, but many critics believe that they serve as Xi s political instrument to get rid of opponents. In the past five years, around 1.5 million cadres were punished; 440 were above provincial and ministerial ranks. The vote occurred almost in secrecy in the morning of March 20, as most media outlets in China did not cover it. The state-run television channel CCTV posted a short report on its website in the afternoon. An article in People s Daily on March 21 cited foreign experts, who praised the law for its positive contribution to the fight against corruption. Amnesty International criticized the law as a systemic threat to human rights. The law s passage without fanfare is an indicator that the party-state is well aware of the lack of trust among the public. Last year, the draft of this law drew an unprecedented number of more than 13,000 critical feedbacks during the legislature s process of soliciting public opinions. Many legal scholars in China questioned its conformity with the constitution. A point of concern was suspects lack of access to lawyers during investigations and the continued use of arbitrary detention. The law was passed without changes on these critical aspects. MERICS analysis: Anti-corruption bill exposes Achilles heel of China's legal reforms. Blogpost by George G. Chen. News in brief Memes and censorship: Reporter's eye-roll at NPC question sparks outcry by netizens Demanding consumers: Complaints in China rose by 44 percent last year Vatican: China affirms fight against illegal organ harvesting at conference Guangdong: Citizens advocate for more autonomy from the central government 7
ECONOMY, FINANCE AND TECHNOLOGY China rewards international experience in top economic appointments The economic policy appointments at this year s NPC point to continuity, but they also signal the Xi leadership s emphasis on international experience and reform-orientation amidst increasing trade tensions with the United States and the EU. For the first time the two top positions are held by cadres who were trained overseas. Harvard-educated economist Liu He was sworn in as one of four vice-premiers under Li Keqiang. He will oversee the country s financial and economic affairs. He is well known internationally, having recently spoken at the World Economic Forum in Davos. Liu is seen as Xi s most trusted economic advisor and, apart from Xi himself, will be the key figure in shaping China s economic policy. Another US-trained economist will oversee China s monetary policy. The previous deputy central bank governor Yi Gang is replacing Zhou Xiaochuan at the top of the People s Bank of China (PBOC). The PBOC s responsibilities will expand from setting monetary policy to writing overall rules for banking and securities industries. Yi, who is known for his pro-market inclinations, has indicated that a series of measures to further open-up China s economy will be announced in the coming weeks. Liu and Yi inherit a lot of problems as China struggles with capital flight, an enormous debt burden, and the risk of financial crisis. They will also have to push forward financial reforms including the liberalization of the exchange rate that is necessary for a full internationalization of the yuan. China merges banking and insurance oversight Tightening the oversight over its risk-ridden financial sector, China is merging its regulatory authorities for the banking and insurance industries. The new entity called China Banking and Insurance Regulatory Commission ( 中国银行保险监督管理委员会 ) will report directly to the State Council and will be somewhat weakened as its policymaking functions are being transferred to China s central bank. As the financial magazine Caixin reported on March 21, the new commission will be headed by the veteran technocrat Guo Shuqing, who has up to now been in charge of the China Banking Regulatory Commission (CBRC). In the past, the CBRC and the China Insurance Regulatory Commission (CIRC), whose former chairman Xiang Junbo was removed in April amid corruption investigations, could independently issue regulations. This had invited the practice of regulatory arbitrage, which means that financial companies were able to choose their regulator based on what better suited their interests. China s financial system suffers from high levels of corporate debt that are partially the result of risky lending practices. The China Securities Regulatory Commission (CSRC), headed by Liu Shiyu, will remain a separate entity as of now, which is reasonable since stock markets require a different sort of regulation. 8
News in brief Sold: HNA reportedly plans to sell billions worth of property in Shanghai and Beijing Warned: Study sees high risk for banking crisis in China Cleaned-up: Tougher draft rules to evict companies that violate the law Stopped: US halts takeover of telecommunications company amid fears of Chinese competition Banned: Australian military personnel instructed not to use WeChat THE EUROPEAN VIEW China s reported 16+1 pause could be concession to Brussels or the opposite News that China plans to reduce the frequency of its summits with Central and Eastern European countries has been interpreted as a charm offensive towards Brussels. China may pare back 'divisive' eastern Europe summits, Reuters reported on March 12, referring to Beijing s annual summits with 16 Central and Eastern European countries (CEEC), which include both EU member states and neighborhood countries. China s foreign ministry spokesman avoided to comment on the timing of the next summit. The format has triggered concerns in Brussels that China was luring Eastern European governments with promises of investment and economic aid with the aim to thwart unity among EU member states. Aware of these concerns, Beijing seems to be delaying the next meeting scheduled for 2018 in the Bulgarian capital Sofia to salvage its relations with the EU. But there are other plausible explanations for the potential downgrading of the format. One is that Beijing might want to lower expectations in the region as many promised projects have failed to materialize. Another, more sinister explanation, would be that Beijing hopes to intensify, rather than mitigate, the EU s division. The fact that Eastern Europeans have already started blaming Brussels for alienating China seems to support this interpretation. MERICS analysis: China seems to tone down its 16+1 engagement: three possible explanations. Blogpost by Lucrezia Poggetti and Jan Weidenfeld. MAD MERIX Setting up shop in the dorm room Chinese dormitories are not known to be spacious. Sharing a room of ten square meters with three or more people can be a challenge under normal circumstances. Yet, four male friends at Quanzhou Arts and Crafts Vocational College in Fujian province built up a thriving delivery business that operates out 9
of their dorm room. A video of the operation showed it packed to the brim with crates of food and shelves filled with drinks. According to an unnamed spokesman the business delivered snacks, a selection of pot noodles and a variety of drinks to dormitories on campus within 5 to 8 minutes of an order. Reports say the students handled between 50 and 80 orders a day and banked a profit of 5,000 CNY (640 EUR) per month. Whether the enterprise was legal and where the four friends were sleeping was not answered by the report. But in view of a government drive to raise creativity and ingenuity as a new foundation for the Chinese economy, the students' entrepreneurial spirit certainly seems to point in the right direction. Mercator Institute for China Studies (MERICS) This newsletter is based solely on freely available media reports. It does not necessarily endorse the opinions expressed in these reports and cannot guarantee that their sources and materials are (legally) valid. Any use of link citations assumes that these links were created in accordance with existing laws and regulations. 10