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Analysis of China's Fourth Plenum

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APCO's team in China analyzes the business impact of China's Fourth Plenum.
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  FROM THE EXPERTS IN APCO’S CHINA TEAM AN ANALYSIS OF CHINA’S FOURTH PLENUM 1 China’s Fourth Plenum: Using Law Enforcement to Get a Grip When Xi Jinping ascended to the Chairmanship of the Chinese Communist Party and Presidency of China in 2012, he was handed a party and country on the tipping point of crisis. China’s economy, reliant on capital investment and heavy industry, was nally running out of steam after 30 years of incredible growth. At the same time, the party faced a crisis of legitimacy among the Chinese people, who were fed up with a corrupt, inefcient government and lower quality of life compared to other countries. If he didn’t move quickly, Xi’s two big problems threatened to destabilize the country and remove the Party from power. A strong leader, Xi consolidated power and began an ambitious reform program, which was announced one year ago at the Third Plenum. Those reforms were mainly for the economy, aiming to ensure domestic stability and global competitiveness, which would in turn solidify the party’s continued legitimacy. At this year’s Fourth Plenum (October 20-23), the rst plenum ever to focus on law, Xi pushed through a far-reaching blueprint of legal reforms. If implemented, these reforms would mean signicantly more uniform and professional law and order nationwide and add to Xi’s ongoing campaign to reign in the out-of-control corruption and government waste and abuse of power that have so damaged the party’s legitimacy in the eyes of its people. Impact on Business The legal reforms outlined in the Fourth Plenum Decision, the policy document released following the meeting, will overall have a positive impact on the business environment in China and are a positive sign for foreign companies. In order to understand the extent of this impact, it’s critical to understand the Chinese government’s goals for its reform plan. When the central government set about developing its legal reforms, its main goal was nding a way to increase its legitimacy with its citizens and further propel its economy by reforming the legal system. China does not intend to adopt a Western-style rule of law, which would give the law supremacy over the party. Nor does the legal reform mean that foreign companies can expect new Chinese commercial laws to mirror those back home. As China has modernized and sought its place among world leaders, it has resolutely chosen its own path, which often deviates signicantly from Western norms. Chinese-style rule of law is no different. Marx said that the law is a tool of the ruling class to exert its will over the ruled; the Chinese Communist Party has always and will continue to use the law as a tool. The key to this set of legal reforms is that Xi has just redened who is in the ruling class, and therefore, above the law. His message to lower-level ofcials and citizens over the past year, through the historically wide-ranging anti-corruption campaign and now these legal reforms, could not be more clear: you are no longer above the law. At the same time, Xi has stopped short of advocating supreme rule-of-law. He often speaks of the duty of the party to What is the Plenum? The Plenum is a meeting of the Communist Party’s Central Committee, and typically happens once per year. Following each plenum, the party releases the outcomes of the meeting through policy documents, most notably the “decision” document containing its policy directives.  FROM THE EXPERTS IN APCO’S CHINA TEAM AN ANALYSIS OF CHINA’S FOURTH PLENUM 2 rule with virtue and self-discipline, an indication that top-level, central government ofcials will continue to stand somewhat outside the law, and to bend the law to t the party’s needs. This duality in the legal reform has positive but complex implications for China’s business environment. The legal reform introduces an impressive array of measures that give the courts and the law power over lower-level ofcials, which will make the overall business environment more fair and predictable. The centerpiece is to create a court system free from extra-judicial interference, which has become a potent force after years of domineering local interests and rampant corruption. Xi’s government lists multiple tools for accomplishing this goal, including removing control over judicial appointments and court nancing from local governments, creating a professional judicial service with experienced lawyers and trained judges, and compelling courts to accept led cases through a docket system. In addition, the decision proposes the creation of “circuit courts” that encompass multiple provinces as an added layer of protection from local interference. If implemented, these measures mean that companies have a much better chance of equitable treatment and access to legal recourse in the local jurisdictions where they operate. Over the past two decades, China has built up an extensive framework of laws and regulations. The strongest advances in terms of legal enforcement and judicial precedent have surrounded private property and commercial transactions. This is because the Chinese economy has been focused on protecting producers and investors. The Fourth Plenum Decision seeks to take the next step by instating the predictability, fair enforcement and transparency needed for a consumption-led economy that protects consumers and entrepreneurs. This is vitally important as the Chinese model of state enterprises and banks and infrastructure-led growth is running out of gas and must be supplanted with consumption-led growth based on urbanization. If these reforms are effectively implemented, they will help to facilitate China’s next stage of growth by creating a better business environment.While we expect these reforms to lead to a better business environment overall, the fact remains that China’s highest leadership will continue to use the law as a tool to further domestic interests. Foreign companies may continue to see unfavorable treatment reminiscent of this year’s antimonopoly campaign, in which the antimonopoly law was applied heavily against foreign rms. Because China will not adopt Western-oriented commercial laws or rule-of-law, Western companies can expect China’s leadership to continue pursuing policies that may be unfavorable to them, such as supporting development of national champion companies through supportive policies or applying commercial laws in unexpected ways. Decoding Chinese-Style Rule of Law One of the conundrums of the Fourth Plenum Decision is that it would seemingly make the party beholden to the constitution, stating that “the crux of governing according to the law is governing according to the constitution.” This is the same constitution that guarantees freedom of speech, assembly, and association and stipulates that the National People’s Congress has the authority to recall national leaders, including the president. How can this be? As with the rest of the legal reform measures, the party may use language familiar to Western audiences such as “rule of law” and “constitutionalism,” but it has retained a monopoly over  FROM THE EXPERTS IN APCO’S CHINA TEAM AN ANALYSIS OF CHINA’S FOURTH PLENUM 3 the denition of these terms. How the party denes or declines to comment on various guarantees in the constitution will be interesting to track, but for now, it’s clear that the renewed emphasis on the constitution is a signal that the government is moving toward a more unied, rules-based system.So, while China won’t be adopting Western-style rule-of-law any time soon, the move toward equitable law enforcement is a positive sign for foreign companies doing business with China. The development of a culture where government ofcials accept the authority of laws and apply rules fairly will certainly be positive for foreign business, as will a more professional, independent and transparent court system. Reforms in China are always slow to gain traction and follow the principle of “testing the waters.” As evident with most of China’s reform efforts, the details are crucial in how legal reforms are actually executed. Xi has long spoken of China as “unswervingly following its own path,” and this “Ruling China by Law” Plenum does just that. *** About APCO Worldwide APCO Worldwide is an award-winning, independently-owned global consulting rm and leading provider of government relations, stakeholder engagement and strategic communication services in China. 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, academia and civil society. We are based in well-established ofces in Beijing, Shanghai and Hong Kong. As a political economy in transition, China is a complex, heavily regulated market that welcomes foreign investment while being highly protective of its developing domestic industries and transforming society. APCO Worldwide partners with clients through every aspect of their business development strategies to help them navigate the Chinese context, optimize and protect their investments, and maximize their returns.APCO’s clients include multinational rms, leading Chinese companies, governments, chambers of commerce, issue-based coalitions, multilateral organizations and nonprot interest groups. We work daily with colleagues in APCO ofces around the world to ensure consistency in servicing global clients and facilitating Sino-foreign trade and inward and outward investment.For more information about APCO Worldwide in China, please contact: James McGregor  chairman, Greater China Suite 903, Tower C, Ofce Park  No.5 Jinghua South Street Chaoyang District Beijing 100020   People’s Republic of China  Phone +86.10.6505.5128  jmcgregor@apcoworldwide.com Anne Wang  director Suite 903, Tower C, Ofce Park  No.5 Jinghua South Street Chaoyang District Beijing 100020   People’s Republic of China   Phone: +86.10.6505.5127   qwang@apcoworldwide.com   Linda Du  managing director Unit 301-303, Platinum Tower   233 Tai Cang Road  Shanghai 200020 People’s Republic of China  Phone +86.21.5298.4668 ldu@apcoworldwide.com Amy Wendholt  managing director 1903, 19/F Cambridge House, TaiKoo Place 979 King’s Road  Hong Kong Phone +852.2866.2313  awendholt@apcoworldwide.com
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