The 2013 National People’s Congress (NPC) saw the Xi Jinping administration begin to take shape. As China’s long leadership transition finally concluded key personnel and structures are now in place. APCO Worldwide’s  Kenneth Jarrett and Peter Martin say that while there were few concrete policy outcomes, Xi and Li ended the Congress with hints about their government’s future policy direction.

Leadership appointments

Top government appointments played out largely according to script, particularly the appointments of Xi Jinping (president), Li Keqiang (premier), Zhang Dejiang (NPC chairman) and Yu Zhengsheng (CPPCC chairman).  Li Yuanchao’s appointment as vice president surprised some and broke with recent tradition as Li is not a member of the Politburo Standing Committee.  Li now ranks 8^th in the hierarchy.  Given his close ties to Hu Jintao, Li’s appointment adds some factional balance to the top leadership.

The appointment of vice premiers and state councillors also went broadly as expected.  Those appointments, and the retention of 15 of 25 ministers, sent a strong message of stability. Many of the new faces were at key ministries, including the National Development and Reform Commission (NDRC), Commerce, Finance and the National Health and Family Commission. These top governmental appointments will be vital to shaping the policy environment affecting foreign companies.

Government restructuring

The widely anticipated government reorganisation was less dramatic than many expected and many of the most anticipated changes failed to materialise. NDRC and MOST emerged unscathed and there was no creation of new super-ministries, such as for energy, culture or finance. The changes that did take place—especially the abolition of the Ministry of Rail and a newly strengthened food safety organisation, the General Administration for Food and Drugs—seemed to reflect public pressures, an increasingly important feature of politics in today’s China.

Other moves were more a matter of bureaucratic tidying up, with the merging of China’s health and family planning authorities to create a National Health and Family Planning Commission; the merging of the broadcasting and publishing regulators to create a General Administration of Press, Publishing, Radio, Film and Television; as well as the enhancement of the powers of the National Energy Administration and the State Oceanic Administration.

Wen Jiabao’s final work report: no surprises

Wen Jiabao delivered his final work report on a predictable note, laying out conservative targets for growth, inflation and money supply for 2013 and emphasising policy priorities closely in line with those of recent years. The absence of specific policy initiatives was appropriate for this swansong speech.

The report’s key targets reflect the government’s ongoing effort to shift toward consumption-led growth, improve the quality of investment, upgrade the industrial base, and move away from an investment-led, growth-at-all costs model:

• Growth: 7.5 per cent growth target for 2013, the same as in 2012
• Inflation: 3.5 per cent inflation rate, a drop from last year’s 4 per cent
• M2 money supply: 13 per cent growth, the lowest in a decade

The 2013 budget also represented significant continuity with previous years, with a focus on increasing domestic demand and raising living standards. There were double-digit increases in only a few areas:

• Health: 28 per cent growth, as China continues with major reforms and improves access in rural areas
• Environmental protection: an increase of 18.8 per cent aimed to address one of China’s most pressing domestic problems
• Defense:  a 10.7 per cent increase, which got much attention internationally, although this amount represents a drop from last year’s 11.2 per cent increase 

Xi and Li lay out their priorities

While the NPC itself did not produce significant policy initiatives, Xi and Li used the last day of the Congress to hint at the future direction of their administration. Xi reiterated his rhetoric about “national rejuvenation” and the “Chinese dream”, suggesting an elevated role for nationalism in his administration.

Li Keqiang hinted at a policy programme consisting of increased market economic reforms, a pledge to maintain or increase levels of social spending, anti-corruption, urbanisation and reform of China’s re-education through labour system. Li’s press conference included specific pledges to “curb government power” by cutting the number of government approvals by one third and allowing private capital into industries monopolised by the state; a pledge to ring-fence social spending; as well as a promise to introduce transparency and a greater role for the media in tackling environmental- and food safety-related problems.

Implications for foreign businesses

Foreign enterprises now know the shape of the government they will face for the next five years. Xi has moved quickly to consolidate his authority.  While policy continuity in the short term seems likely, Xi and Li’s comments suggest considerable room for policy change in the coming months. The contours of those changes may become more evident as we approach the Party’s Third Plenum in autumn. Public expectations run high, especially on corruption and pollution, and many policy makers believe that change is needed to sustain economic growth. Finally, the tone of Xi’s rhetoric highlights the continuing dangers that nationalism poses to foreign enterprises in China. Foreign enterprises should prepare to adjust their engagement and advocacy strategies as well as their crisis management procedures to reflect these changing realities.

APCO Worldwide is an independent global communication, stakeholder engagement and business strategy firm with offices in more than 30 major cities around the world. We have been serving clients’ interests in China since 1989. Today, our China team includes more than 100 professionals from a diverse range of backgrounds, including business, government, journalism, academic and civil society. We are based in well-established offices in Beijing, Shanghai and Hong Kong.