By H+K China Government and Public Affairs Team

With the National People’s Congress (NPC) poised to kick off on March 5th, H+K Strategies has prepared below a brief overview of three major outcomes that all businesses should anticipate at this year’s gathering of the world’s largest legislative body – the repeal of presidential term limits, the unveiling of the new government leadership line-up, and the next steps for governance reform in China. We will provide our clients with ongoing coverage of the NPC’s outcomes and developments as it unfolds over the coming two weeks.

Green light for the presidential tenure extension

Coming just ahead of the Two Sessions, the Central Committee’s surprise proposal to repeal the constitutional restriction on presidential term limits in China is virtually guaranteed to receive a green light from the NPC. The planned tenure extension further underscored President Xi’s political stature as the most authoritative Chinese leader in decades following the 19th Party Congress last October.

Although concerns have been voiced about the possibility of rule-by-one in a system without term limits, the Chinese leadership has moved quickly to assuage such worries, with state-run media stressing that the constitutional revision does not equate to “lifelong tenure.”[1] There is clearly consensus at the top that it is necessary for Xi to stay at the helm past 2023 not only to weather any economic headwinds that may arise but also in order to achieve his administration’s bold, multi-decade grand plan for China’s reemergence as a prosperous, modern society by mid-century. For instance, the leadership is likely calculating that ensuring the president is able to keep his hand on the tiller of longer-term projects, such as the Belt and Road Initiative and the Xiongan New Area, for a lengthier period of time will provide them with greater stability and continuity and help guide such programs through to fruition.

New government line-up – Reshuffling the deck of China’s state bureaucracy

Last October, the Party’s new leadership, including the members of the Politburo and its Standing Committee, was announced shortly after the conclusion of the 19th Party Congress. The NPC will complete the top-tier reshuffle for President Xi’s second-five year term by electing the new leaders of China’s vast government bureaucracy, including the president and vice president, the premier, and the premiers and state councilors of the State Council as well as the heads of the Central Military Commission, the Supreme People’s Court, the Supreme People’s Procuratorate, and the soon-to-be-established National Supervision Commission. The new chairpersons of the NPC Standing Committee and the CPPCC National Committee will also be announced.

In the build-up to the NPC, speculation has been rife about what final arrangement for the new government line-up will ultimately emerge. The business community has been particularly focused on who will be appointed as the next central bank governor following the expected retirement of Zhou Xiaochuan, China’s longest-serving head of the People’s Bank of China (PBOC). Liu He, the president’s chief economic advisor and a new member of the Politburo, is believed to be the frontrunner, but other leading contenders include Guo Shuqing, the head of the banking regulator, and Jiang Chaoliang, a veteran banker and the current Party secretary of Hubei province. Global financial markets will be paying close attention to the PBOC’s leadership transition since it will carry significant implications for China’s future monetary policy and continued financial liberalization. Executives will also need to monitor who occupies the other key positions rounding out the Xi administration’s economic and financial management team for its second term, including the heads of the country’s banking, securities, and insurance regulators as well as the National Development and Reform Commission (NDRC) and the State-owned Assets Supervision and Administration Commission (SASAC).

Guesswork has also abounded about what role Wang Qishan will occupy in the Xi administration during the next five years. After retiring from the Standing Committee last October, the seasoned politician, who spearheaded the president’s anti-corruption crackdown, is expected to become China’s vice president at the NPC, holding responsibility for a portfolio that would focus in particular on managing relations with the U.S. and make him Beijing’s chief interlocutor with Washington.

Shaken not stirred – Next steps for the major overhaul of the Party-state apparatus

In its first term, the Xi administration began a dramatic overhaul of China’s governance superstructure by retooling the roles of the Party and the state, shifting the center of gravity of decision-making increasingly into the hands of the Party leadership. The stage now looks set for the NPC to further define where the administration intends to steer this organizational restructuring at the start of the new era. Held the week before the Two Sessions, the third plenary session of the 19th Central Committee departed from past practice not only in its timing – Third Plenums usually convene in the autumn – but also in its overriding focus on improving Party and state organs rather than on China’s economic reform and development. The communique issued after the meeting’s conclusion underscored the Xi administration’s commitment to further strengthening the Party’s leadership over all aspects of society, stressing that, “A primary task of deepening reform of the Party and state institutions is to improve the system for upholding overall Party leadership in a bid to strengthen the CPC’s leadership in every sector, ensure its all-encompassing coverage, and make it more forceful.”[2]

The formal establishment of a new anti-corruption “super-ministry” is expected to be one of the NPC’s hard outcomes in terms of structural reform. Widening the authority of the Party to investigate and discipline all public civil servants on top of Party members, the National Supervision Commission (NSC) will represent a sea-change in governance upon its debut. In addition, the NPC will also likely lay out the next steps for rewiring China’s financial regulatory architecture and controlling financial risks to the economy, an overriding priority for the Xi administration. Major moves that are reportedly under consideration include broadening the powers of the central bank, which could absorb some of the responsibilities of the NDRC and the Ministry of Finance, as well as a possible merger of the China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC).

Recalibrating stakeholder engagement and advocacy strategies

For companies, the government leadership transition and continued shake-up of the Party-state apparatus will require most executives to undertake thorough reassessments of their engagement and advocacy strategies for official stakeholders in China. The migration of officials across the state bureaucracy may see firms suddenly lose longstanding contacts that have been critical to the success of their businesses while ongoing structural reforms may shift the core decision-making on various industries away from the institutions that have companies have traditionally turned to. Following the NPC, all businesses would be well-advised to review their individual governmental relationships and the state organs most relevant to their lobbying efforts to ensure that their public affairs strategies are not fossilized relics in China’s new era.

For further H+K insights on China’s 2018 “Two Sessions,” please visit our analysis hub.

[1] “Constitutional amendment will improve CPC leadership,” The Global Times, 25 February 2018.

[2] “19th CPC Central Committee 3rd plenum issues communique,” Xinhua News Agency, 01 March 2018.

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