China Politics Weekly No. 41 – February 16, 2015

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Dear friends and colleagues,

Happy New Year! Should be a quiet week next week as the whole country takes off for Spring Festival.

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Addition through subtraction

On Monday February 9^th, Premier Li chaired a work conference on clean governance. Though technically a government meeting, it should be seen as a complement to the many high-profile Party-building activities that have taken place in Beijing in the past six weeks, including the CDIC’s plenary session, the annual training for ministerial-level officials at the Central Party School and a new round of training for county-level cadres, among others.

The goal of all of these activities is to enhance the Party’s governing capacity. The strategy laid out at Monday’s work conference is simple and straightforward: 1) more clearly define government roles and responsibilities and 2) make government operations more transparent.

Government authority will become more circumscribed through abolition of non-administrative approvals and further devolution or abolition of administrative approvals. Government energies will instead turn to market supervision. Meanwhile, efforts to increase budget transparency will also increase, with Li saying that “every single penny of government expenses should be subject to auditing supervision”. This should lead to more efficient governance by focusing officials’ attention on their priority tasks, while increasing the ability of the center and the public to monitor and evaluate officials’ performance.

This limited-government agenda would appear to be welcome news to business, but foreign companies need to also realize the risks inherent in more streamlined and accountable government. Going forward, businesses will have less leeway to negotiate tax breaks and other incentives. Regulatory risk will also increase as governments at all levels turn more attention towards enforcing laws and regulations.

In a broader sense, a more efficient and effective Party will better be able to implement the CCP’s agenda. When one looks at the sector level, it is difficult to find sector development plans that don’t call for the creation of national champions. Efforts to build national champions have been hindered in the past by local protectionism and the lack of a unified national market, but moves outlined above should help to ameliorate these problems. Foreign companies should expect the emergence of bigger, stronger Chinese competitors that increasingly challenge them not just in China, but in foreign markets as well.

About CPWChina Politics Weekly aims to keep business leaders, investors, diplomats, scholars and other China hands up to date on important trends in China. It is produced by Trey McArver, a London-based consultant providing advice and intelligence to firms and investors engaged in China and the region. You can find out more about Trey and CPW in this interview. Want to help? Please tell us how we can make this newsletter more useful to you. Feedback on both form and content are always welcome, as are suggestions for topics to be covered. Please contact us at [email protected]. We look forward to hearing from you. Want more? We offer tailored briefings and research reports for senior management who need to know more about China. Our network of analysts and associates have experience across a range of sectors. Please email us to discuss your needs and get a quote.