What the National People's Congress tells us about the challenges facing China

Happy Dragon Boat Festival 端午节快乐!If you want to know more about the history of the holiday this Twitter thread is a good place to start:

It is a slow news day so I decided to send out a new report on the “Two Sessions” that met last month. The author of the report is Charles Parton.

Mr. Parton is a Senior Associate Fellow of the Royal United Services Institute, and has been a Specialist Adviser on China to Parliament's Foreign Affairs Committee. He is a trustee of the environmental NGO China dialogue. Having spent 22 years of his 37- year diplomatic career working in or on China, Hong Kong and Taiwan, in his final posting, he was seconded to the EU Delegation in Beijing, where he focussed on Chinese politics and internal developments. In 2017 he returned to Beijing for four months as Adviser to the British Embassy to cover the CCP's 19th Congress. 

He is also a longtime Sinocism subscriber and someone whose insight I have often sought.


This is the 9th consecutive report on ‘the two sessions’ [liang hui] which I have written. It is always a challenge to condense a minimum of five major reports (Li Keqiang’s government work report, National Development and Reform Commission – the most informative , Ministry of Finance, Supreme People’s Court, Supreme People’s Procurate) and numerous ministerial press conferences into a few pages. In normal years the ministerial press conferences are usually the most revealing of priorities and problems. Sadly, or perhaps gladly, the amount this year is smaller, since only Li Keqiang and foreign minister Wang Yi held meetings with the press. 

There is often much ‘cutting and pasting’ from the past year’s report into the next.  This year is no exception. For the sake of brevity, I have largely left aside the unchanging aspects. What follows is an idiosyncratic triage of the most interesting points, to me at least, from the ‘liang hui’.

Overall

The purpose of the ‘liang hui’ is partly consultation (the Chinese Communist Party really does consult extensively), partly internal and external propaganda, and predominantly laying down and propagating the guidelines for the next year.

The timing of Covid-19 could not have been worse: with the economy already hitting turbulence, 2020 is the final year for pressing ahead to meet the ‘first centennial goal’ of becoming ‘a moderately well-off society’, that is, in numerical terms, doubling 2010 per capita income. The legitimacy of the CCP’s monopoly of power rests primarily on its continued provision of increasing prosperity. Reduced prosperity is reduced legitimacy.

Covid-19 cut short many things (Li Keqiang’s work report (WR) and press conference included). As a result, the propaganda part of the ‘liang hui’ purpose rose in importance. Fully 11 per cent of the WR is devoted to showing the CCP’s response to the virus as positive and responsible. The second, and allied, overall underlying message in the rest of the report is ‘business as usual’ despite tough challenges.

The economy

Theme of recent years has been 稳中求进 (seek progress amidst stability).  That phrase recurs, but more emphasis is given to ensuring ‘stability on the six fronts and maintain security in the six areas’. (The six fronts refer to employment, the financial sector, foreign trade, foreign investment, domestic investment, and expectations. The six areas refer to job security, basic living needs, operations of market entities, food and energy security, stable industrial and supply chains, and the normal functioning of primary-level governments.) The ‘6 stabilities’ came out in December after the vastly important annual economic work conference, while the ‘6 maintains (or guarantees)’ came out after an April Politburo meeting. 

Understandably, employment is the first concern of both the ‘6 stabilities’ and the ‘6 guarantees’. It has of course been the number one concern for a long time, because the absence of a complete and sufficient social security net means that the unemployed might protest and become a stability threat to the Party. For years documents have highlighted the need to look after the employment of three groups: graduating students, rural migrants and military veterans (respectively a 8.74 million spark, 280 million prairie grass, and 57 million wind, which the CCP fears could cause a mighty conflagration). Another – increased – commitment is to put 35 million people through vocational training to reskill the workforce. 

Premier Li Keqiang’s first visit after last year’s NPC was to Hainan, where a visit to a vocational college made clear his support. The private sector is vital to employment, providing 80 per cent of urban jobs, so yet again it receives the premier’s policy support – in theory at least, getting hold of finance from the banks is another matter.

Inflation is another crucial aspect of stability: if in 1989 the students were the catalyst for protest, corruption and inflation were what mobilised society at large. The target of 3.5 per cent is higher than in the past. Most observers would say that for ordinary citizens the reality exceeds the official inflation rate.  The latter after a rise around the end of the year has fallen well within the target range. Most citizens are highly sensitive to small price rises, even in times of lesser stress than now. It is an indicator to be watched.

The GDP growth target does not figure in the NPC reports for the first time. Despite being unreliable, it was a useful political indicator of where the Party stood on the spectrum of infrastructure investment, debt and reform. Put crudely, a high GDP figure meant less reform. It also symbolised what officials had to deliver, as well as being a promise of ever rising living standards and employment. For this year (it is likely to return in future), it is a recognition that cadres have to focus on other things in the Covid-19 bound present.  

Reform

Xi Jinping’s tripod of reform appeared over successive years: 2013 (economy and society), 2014 (law and the judiciary) and 2015 (military). The NPC does not concern itself with military reform. What it said this year about economic reform is again limited, although it is worth remembering that 改革 (reform) is much more about making the system more efficient than actually changing it. No self-respecting Leninist is going to let go of the levers of economic power, since they connect directly to political power.

Commitments on economic reform are very much ‘cut and paste’ from the past.  There is nothing new on the crucial areas of state owned enterprise (a promise to formulate a three year action plan for SOE reform nearly seven years after the 3rd Plenum is hardly encouraging, while statistical claims of 70 per cent of central SOEs and 50 per cent of local SOEs now enjoying ‘mixed ownership’ fail to impress without a clear definition of the meaning of that term). The important area of how central and local governments are to share fiscal revenue and expenditure responsibility is scarcely addressed.  It is however interesting to note that central government bonds to help local governments struggling with the consequences of Covid-19 will bypass provincial and higher-level governments, and be sent directly to the local authorities – a measure of both distrust and the poor financial plight of the provincial governments themselves.

Legal reform by contrast has come to the fore with the passing of the Civil Code (at the fifth attempt, starting in the 1950s). This is a long-desired achievement of considerable importance in Xi Jinping’s attempt to establish a society and business environment governed by ‘rule by law’.  It is important to note that this is not a step to ‘rule of law’. It in no way undermines the CCP’s claim to control the law or its right to interfere in cases where politics (read: its own interests) dictate. The abuses of the criminal law and of human rights where central or local cadres see threats to their power will continue unabated.

But along with reform of the judiciary, the Civil Code is important in making society’s exchanges and business more predictable. The SPC report notes that the World Bank's Business Environment Report for 2020 shows a ‘significant jump’ in the ranking of China's business environment ranking, particularly in ‘executing contracts’, ‘handling bankruptcy’ and ‘protecting small and medium-sized investors’ and ‘the quality of judicial process’. Given the boom in the resort to law (the SPP report mentions an annual rise of 33% in cases involving the leaking of personal information, 20.4% in environmental cases, 16.7% in ecological cases, and a rise of 56.6 times in intellectual property cases in the last decade), the Civil Code should help with clearer guidance for the judiciary, which hitherto is burdened each year with massive tomes of exemplary cases to consult. It should help in areas such as land rights, e-commerce and the environment.  Finally, the Civil Code fits in well with Xi Jinping’s aims of building ‘new China man’ and of changing society’s behaviour towards greater legal, moral and ideological observance.

Opening up

The impression is not one of renewed impetus. It is true that Li Keqiang’s last answer at his press conference was on the need for greater openness, trade liberalisation and investment facilitation, and that negative lists are to be cut, from 48 to 40 items nationally and 45 to 37 items in free trade zones. But leaving aside the US in current circumstances, there was little to suggest that European concerns about greater market access, changes to procurement policy, greater opening to foreign service providers and more will be met soon. ‘Advance a new round of trials for innovative development of trade in services’ hardly betokens an imminent opening.

The ‘Three Critical Battles’ – Xi Jinping’s favourite themes

Two of Xi’s enthusiasms have held up well despite Covid-19’s effect on the economy. Poverty alleviation is to proceed at full speed towards eliminating the last pockets by the end of the year. This is a personal crusade of Xi, as much a part of his personal conviction as a political realisation that income gaps, whether between regions, urban/rural, or personal, have the potential to be deeply destabilising (identified by a minister of the International Department of the Communist Party of China in 2014 as one of the three biggest threats to the Party’s survival in power).  But as Li Keqiang revealed in his press conference the definition of alleviation is low: 600 million people have a monthly income of around 1,000 RMB, the equivalent of c. 140 USD, insufficient, in Li’s words, to rent a room in a medium Chinese city.

Reducing financial risks retains its importance.  However the environment appears to be downplayed in comparison with the past. This is unexpected given Xi’s repeated emphasis on ‘green hills and blue waters are gold and silver mountains’ (translation: the environment is as important as, and indivisible from, economic growth), and indeed the fact that in his first provincial visit after the Covid-19 lockdown was eased he made a point of visiting an ecological area of Zhejiang and repeating his mantra. Unlike 2019 over 2018, when budgets for air, water and soil pollution were raised 25%, 45.3% and 42.9%, 2020 over 2019 shows slight reductions for water and soil, with air staying the same. Moreover, in Li’s WR the amount relating to the environment is reduced to a few sentences under the heading of ‘Implementing the strategy of expanding domestic demand and promoting accelerated transformation of the economic growth model’, whereas in the 2019 WR it merits a whole and long section for itself. Clearly, there is a risk that the environment will be a casualty of Covid-19.

Concern about the US

Unsurprisingly, deteriorating relations figured prominently at the 2019 NPC, but far more so this year, both in length of coverage and degree of worry. As a result, there is greater emphasis on a number of areas where the Party fears the effects of decoupling. Exhortation towards better innovation, ‘new economic drivers’ (coded reference to the ‘Made in China 2025’ policy?), the importance of science and technology research and ‘high-level’ industry underline the need for China to become more self-sufficient. This trend is here to stay.

The CCP has long tried to hold to its food security policy, which aims for self-sufficiency in the major grains. Relaxing it would make economic sense, but reliance on the US, the vulnerability of supply lines, and worries over global pandemics take precedence. Food security gets its own paragraph in the NDRC report this year, underling its importance. Along with energy security, it also forms one of the ‘six areas of security’ or ‘6 guarantees’ emphasised since the Covid-19 outbreak and raised a number of times in this year’s NPC reports.

Security and defence

Each year a much-discussed figure is the People's Liberation Army’s budget. An increase of 6.6% compared to 7.5% in 2019 nevertheless shows the priority given to PLA modernisation despite Covid-19. What the figures do not reveal is the division between the PLA and the People's Armed Police (PAP). It may well receive a higher proportion than the regular forces given that April an amendment to the PAP law talked of giving it more resources. The PAP’s role in controlling the coastguard, which is ever busier in the disputed waters of the South China Sea, must also require more resourcing.

It is impossible to know the internal security budget. Central spending in 2020 is to rise 0.7% around 183 bn RMB, around the level of spending in 2019 and lower than 2018’s 204 bn. Unlike the PLA budget, which apart from some conscription expenditure is entirely centrally funded, much of the security budget is the responsibility of local governments. Given increased controls, development of the ‘police cloud’ surveillance systems, measures in Xinjiang, it seems likely that the internal security budget is rising faster than the Ministry of Finance report suggests. 

The Hong Kong national security law was the main news item of the NPC. It looks increasingly likely that the law will be passed at the end of June. The haste is surely connected to the Legislative Council elections, which are scheduled for September: last November the democratic parties swept the board in district council elections and a repeat must not be allowed. The fear is that the NSL will be used to bar candidates unacceptable to the CCP. Other fears are: the effect on the judiciary (whose underpins the rule of law so vital to Hong Kong’s prosperity); the re-establishment of the old ‘Special Branch’ as security police and the setting up of mainland security organs in Hong Kong; and a hint that the NSL will reopen the question of national education, which led to protests in 2012 (the decision of the NPC referred to the Chief Executive reporting on the ‘carrying out national security education’). The gap between the rhetoric of ‘One Country, Two Systems’ and its future reality appears to be growing. Clearly, Xi is no mood to risk further protests crossing his three red lines, which essentially boil down to the values virus spreading to the mainland. Meanwhile no one should underestimate the Greater Bay Area plan, important in itself, but also for its role in absorbing Hong Kong and making it by 2047 at the latest no different from other Chinese cities.

Taiwan featured moderately in the NPC reports.  But the absence of the word ‘peaceful’ in the WR’s reference to (re)unification caused a considerable, but unnecessary, fluttering in the dovecotes. Premier Li used ‘peaceful reunification’ in his press conference. More pertinently, in a speech at the symposium after the NPC to commemorate the 15th anniversary of the passing of the (Taiwan) Anti-Secession Law, Li Zhanshu, a member of the Politburo Standing Committee, used the expression 18 times. Forceful reunification is no more likely than it was before, but certainly Xi Jinping wants the fear and threat of invasion to be reinforced. That is part of the strategy aimed at breaking Taiwan’s will to resist.

Voting: a light on Xi Jinping’s political control

Voting at the NPC is rightly described as ‘rubber stamping’ (but note to journalists: please cease calling the NPC ‘China’s rubber stamp parliament’.  This is an insult to parliaments). Nevertheless it is a measure of the fear of opposing Xi that over the course of his rule, votes against, abstentions and failures to vote have fallen at every NPC (figures for 2013 and 2020 – intervening years decline in almost all cases):

Government work report:        145 – 4

NDRC report:           281 – 31

Ministry of Finance report:      636 – 55

SPC report:           723 - 92

SPP report:           606 - 75

NPC report:           211 - 11

HK national security law:        8 (of which 1 was opposing, 6 abstentions and 1 did not vote) 

This is a graphic illustration of the strengthening of Party control and discipline under Xi.

Some interesting (non-)trivia

The fun of reading NPC reports are the small eye-catching details. A few personal choices:

- The 2019 official population is now 1.40005 billion, an increase of 10 million over 2018.

- Pork production fell 21.3% in 2019. [Was African swine fever more prevalent than Covid-19?]

- 20,000 trains ran between China and Europe in 2019 [their containers would fit in 90 of today’s biggest ships]

- China will enrol 9.2m undergraduate students and 1.114 postgraduate students this year

- Corruption cases rose 50.6% and prosecutions 90% [SPP report]

- 10,000 new businesses opened each day in 2019. The target for 2020 is 20,000. [Li at his press conference. In the 2019 press conference he claimed a 30,000 daily total achieved, although his work report claimed 18,000.] 

Conclusion

The CCP legitimises its monopoly of power by claims of bringing prosperity, good governance and global respect. All politicians worldwide play down bad news on their watch. But for the CCP the stakes are higher: the system, not just the government, might fall. Hence the imperative to convince the people and the world that despite the ‘black swan’ of Covid-19 things are roughly on track. The political theatre of the ‘liang hui’ plays a big role in that. 

For China watchers it means that often the most informative part of CCP documents are the ‘problem pages’. Even these have shrunk under Xi. But the seven problem areas in the NDRC report are a good summary of the challenges facing China over the next year: falling internal and external demand; difficulties of small and medium sized enterprises; public health and emergency response systems; weak innovation; lack of progress in reform; risks in key sectors particularly finance; and deficiencies in social security systems.

That is a formidable agenda for Xi Jinping and the Communist Party.