Major Events and General Trends —— Review of China’s Political and Business Relations in 2017 (I)

Wu Hai, founder of Orange Crystal Hotel Group, published an open letter "To Keqiang: Good for Enterprises and Really Good for People" in March 2015, and then he was able to meet with the Prime Minister. However, at the beginning of 2018, Wu Hai bluntly said that many problems remained unchanged.　

It is an unspoken agreement for us to summarize the "major events" and "general trend" of political and business relations in the past year after the end of the two sessions of the National People’s Congress every year. Looking back on the past year, some lively topics at the beginning of the year gradually faded out of people’s sight, while others unexpectedly caused waves and even had the effect of listening to thunder in a silent place.

Without dramatic people and events, observing the political and business relations or business environment in China, it is not difficult to find some basic aspects that need long-term and stable tracking: system construction, principles and policies, anti-corruption, finance, real estate, taxation, personnel, investment promotion and investment, social stratum, and so on. The changes in many aspects have begun to challenge the classic concepts, inertial thinking and basic judgments that we used to analyze China’s politics and economy in the past decades. Many old analytical frameworks can’t keep up with the changes, and new conceptual systems are still in the process of being established.

What is more important is the "potential" behind these "things". Through the inventory, we found that although things are different, they are unstoppable. This trend can be summed up in one word, that is, "new era". General Secretary of the Supreme Leader once again stressed during the National People’s Congress this year: "For enterprises, building pro-Qing political and business relations is the Yangguan Avenue." Premier Li Keqiang also pointed out in this year’s "Government Work Report": "Optimizing the business environment means liberating productive forces, improving competitiveness, breaking down obstacles, getting rid of obstacles, building smooth roads, adding vitality to market players and increasing convenience for the people."

No matter how confused some specific events may make you, the announcement from the highest level clearly shows that when entering a new era, China’s new economy, which is in urgent need of a thorough transformation, must have a worthy new political and business relationship.. This year marks the 40th anniversary of reform and opening up, and the relationship between the state and the market has undergone earth-shaking changes. Looking back in another 40 years, another new state-market relationship will be born out of today’s dribs and drabs.

1. The 19th National Congress of the Communist Party of China has set a roadmap for development in the new era, and improving the business environment has become a new consensus.

The report of the 19th National Congress of the Communist Party of China reiterated "building a pro-fresh political and business relationship", but what is more important than this is the road map of "Socialism with Chinese characteristics’s new era" after "drawing a blueprint to the end". China’s economy has changed from a high-speed growth stage to a high-quality development stage. The relationship between government and business shaped in the stage of "high-speed growth" is bound to face the transformation of "high-quality development" This new development concept takes supply-side structural reform as the main line, and all kinds of system construction and policy adjustment under this main line are bound to continue to profoundly shape all aspects of new political and business relations.

There is no word "business environment" in the report of the 19th National Congress of the Communist Party of China, but the repeated emphasis of high-level officials on different occasions in the past year still shows the importance and urgency of this topic. For example, in June, Premier Li Keqiang pointed out at the national teleconference on deepening the "streamline administration, delegate power, strengthen regulation and improve services" reform: "If compared horizontally, the ranking of China’s business environment lags behind not only developed economies, but also many developing countries. We should vigorously improve the construction of business environment, because’ business environment is productivity!’ In July, General Secretary of the Supreme Leader stressed at the 16th meeting of the Central Financial and Economic Leading Group that it is necessary to "create a stable, fair, transparent and predictable business environment" and "speed up the construction of systems and regulations, and improve the business environment and innovation environment". In September, "Opinions of the Central Committee of the Communist Party of China and the State Council on Creating a Healthy Growth Environment for Entrepreneurs, Promoting Excellent Entrepreneurship and Giving Full Play to the Role of Entrepreneurs" was officially published. This is the first time that the central government has defined the status and value of entrepreneurship with special documents.

Under the influence of these documents and speeches, improving the business environment has also become a new fashion in local political discourse. After the discourse narrative of GDP championship faded out, how to promote economic development by improving the soft power of business environment has become a new round of "institutional innovation".

The central government clearly pointed out that mega-cities such as Beijing, Shanghai, Guangzhou and Shenzhen should take the lead in intensifying the reform of the business environment. Shanghai proposed to "build a new highland for business environment by benchmarking international standards", Guangzhou promoted the business environment ruled by law as a new business card of the city, and Tianjin Municipal Committee shouted out the concept of "industry first, entrepreneurs first" in the document. The reform of "running at most once" in Zhejiang has attracted much attention, and Liaoning has also set up a business environment construction supervision bureau … However,The real problem is how to implement these documents and slogans, and how to really change the traditional incentive mechanism in the past..

Wu Hai, the founder of Orange Crystal Hotel Group, who was able to meet with the Prime Minister in 2015 for publishing an open letter "To Keqiang: Good for Enterprises Can Really Be Good for People", did not go to Zhongnanhai again last year, but in early 2018, many problems remained unchanged. His new article "Write another letter" in his WeChat account still tells the true feelings of many entrepreneurs.

Second, severely rectify financial chaos, and financial security has risen to the level of national security.

Since Xu Xiang was arrested in 2015, the turmoil in the financial market seems to be closely related to the entertainment effect. The reason is probably because once the lid is opened even a little, it is often impressed by the drama plot. In the shopping mall, the China Insurance Regulatory Commission imposed administrative punishment on the illegal case of Qianhai Life Insurance, Zhao Wei and his wife were punished, Wang Yincheng, president of China People’s Insurance Group, was censored, and Xiao Jianhua, the actual controller of tomorrow’s department, was "invited back" to the mainland; Officially, Yang Jiacai, Assistant Chairman of the China Banking Regulatory Commission, and Xiang Junbo, Chairman of the China Insurance Regulatory Commission, fell in the epicenter of the financial system earthquake. The most shocking effect is Anbang, whose final takeover shocked many people.

If you only dwell on these dazzling news or "secrets", you may ignore the real key behind it. After all, what we can know about those secrets is always just the tip of the iceberg, but the national strategy is in black and white. Less than three hours after the Central Commission for Discipline Inspection released the news that Xiang Junbo had been censored (2: 30 pm on April 9), the Chinese government website published Premier Li Keqiang’s long speech at the Fifth Clean Government Work Conference in the State Council (March 21). When talking about "preventing financial risks and corruption", Li Keqiang stressed: "Corruption in the financial sector must be resolutely investigated and dealt with, hell to pay." "Severely crack down on illegal acts such as illegal bank credit granting, insider trading in the securities market and interest transfer, and insurance companies taking fees. Illegal acts such as individual supervisors and company executives stealing from themselves and colluding with financial tycoons inside and outside must be severely punished according to law."

Behind the rectification of financial chaos is the transformation of China’s economic development trend. "De-leveraging", as one of the main tasks set by the supply-side structural reform, is the established direction of the central government. Most of the capital puzzles that can be said or not are related to these three words. As Huang He, a reporter from a southern newspaper, pointed out in a wonderful article that was not published in the end, the cancer lies not in a specific enterprise, but in a "model", a model of how the expansion and distortion of the valuation system of the capital market create the myth of enterprise unbeaten but also bury major hidden dangers. It may remain to be seen whether banks, trusts, brokers, insurance and internet finance can continue to rely on financial "innovation" to lead a good life, but it is not only the change of public opinion, but also the structural change that "deviating from reality to emptiness" has become a street mouse that everyone shouts. Zhou Xiaochuan, former governor of the central bank, mentioned that China needs to be alert to the "Minsky moment" of asset value collapse, that is, to plan for hidden risks.

The tightening of financial supervision will make some capital have a stronger flight panic in the short term. As we will say in the next article, this problem has been contained by political means. After all, by 2017, financial security has risen to "an important part of national security"; For the business tycoons, the break of the political chain rather than the break of the capital chain is always the real life door. The question is, is the series of earthquakes in the financial sector in 2017 just a continuation of catching tigers since the stock market crash in 2015, or a new beginning?

Third, "irrational" overseas investment has been curbed, and foreign companies are planned to receive national treatment to protect investment.

Although the National People’s Congress in 2017 has already begun, until that summer, even many wealthy people who have experienced shopping malls did not realize that the wind direction of overseas investment has really changed, and it came so fast.

At first, only some specific transactions fell through, but soon there was an official announcement. In July, a spokesman for the National Development and Reform Commission said that relevant departments would continue to pay attention to the irrational foreign investment risks of real estate, hotels, cinemas and sports clubs, and suggested that relevant enterprises act cautiously. Behind this speech is the investment pattern of "ice and fire": the growth rate of domestic private investment has declined, but the growth rate of foreign investment has been extremely strong. According to the "Special Report on Cross-border M&A of China Enterprises in 2017" released in June, the amount of overseas investment M&A transactions of China enterprises increased by 148% in 2016. HNA, Anbang and Wanda have become the "head sheep" of this wave of overseas investment and mergers and acquisitions. Economist Yu Yongding’s team even pointed out that in recent years, China is likely to have a serious capital flight, which will lead to the deterioration of China’s capital depletion.

The statement made by the National Development and Reform Commission was followed by the Thunder policies of the central bank, the Ministry of Commerce, the State Administration of Foreign Exchange and other departments, as well as various invisible pressures. As Wang Jianlin, chairman of Wanda Group, explained, the real question is not whether these enterprises can solve the financing problem through technical means, but whether they can bear the political consequences of "becoming an unruly company". Subsequently, Wanda Group transferred its more than 70 hotels at a discount, but Wanda is not the only company that needs to abide by the rules. By the beginning of 2018, the relevant departments declared that "the foreign direct investment of domestic enterprises has gradually returned to rationality". According to the statistics of the Ministry of Commerce, the foreign direct investment of non-financial enterprises in 2017 was US$ 120.1 billion, which was 29.4% lower than that in 2016, which was basically the same as that in 2015. In fact, there was an irrational growth in 2016.

In addition to "gradually establishing a long-term mechanism for overseas investment management",How to make overseas capital feel more at ease in China also tests the sincerity of governments at all levels in building an international business environment.. "Speeding up the construction of a new open economic system", listing foreign-funded enterprises in China and continuing to safeguard free trade are on the central agenda, but how foreign-funded enterprises really implement national treatment needs continuous follow-up by laws and policies. In 2017, the performance of various free trade zones and development zones across the country was very happy. The old "routine" of "all-inclusive political and business relations" that has been tried and tested in the process of attracting investment in various places faces challenges not only from the profound changes in the mainland labor market, population structure and class structure, but also from the changes in the international trade environment.

Fourth, the reaffirmation of major property rights cases triggered a shock, and the construction of a business environment ruled by law released a positive signal.

Gu Chujun, the former chairman of Guangdong Kelon Electric Appliance Co., Ltd., was detained in August 2005. In 2008, he was sentenced to 10 years in prison for false registration and misappropriation of funds. He was released from prison in September 2012.

On December 28th, 2017, the Supreme People’s Court announced that the people’s court will retry three major cases involving property rights: Zhang Wenzhong (former chairman of Wumei Holding Group Co., Ltd.), Gu Chujun (former chairman of Guangdong Kelon Electric Appliance Co., Ltd.) and Li Meilan (wife of Xu Ronghua, former director of Jiangsu Shepherd Group).

This news has stirred up a thousand waves, which shows that the business environment, especially the rule of law environment, is highly related to the life and death of enterprises. On the second day after the news was released, Gu Chujun, who had been running around in 2012, told the media: "Thank you for this situation." In March 2018, Zhang Wenzhong read a letter expressing gratitude in an open forum.

This "situation" isIt is urgent to protect the personal rights, property rights and personality rights of entrepreneurs..

"Accelerating the establishment of a long-term mechanism for the equal protection of economic property rights of all forms of ownership according to law" put forward by the Central Committee of the Communist Party of China and the State Council is related to the protection of entrepreneurship and market expectations. The central government and the political and legal departments have intensively promulgated a series of relevant documents, including Opinions of the Supreme People’s Procuratorate on Giving Full Play to Procuratorial Functions to Guarantee and Promote the Healthy Development of Non-public Economy in accordance with the Law (released in March 2016), Opinions of the Central Committee of the Communist Party of China and the State Council on Improving the Property Rights Protection System to Protect Property Rights in accordance with the Law (released in November 2016) and Opinions of the Supreme People’s Court on Providing Judicial Protection for Improving the Business Environment (released in August 2017).

In August 2017, the Supreme People’s Court issued a judicial interpretation of the company law (IV); In January 2018, the Notice of the Supreme People’s Court on Giving Full Play to the Judicial Function to Create a Good Legal Environment for Entrepreneurs’ Innovation and Entrepreneurship was issued. In March 2017, the Fifth Session of the Twelfth National People’s Congress passed the General Principles of Civil Law, which took a big step towards the completion of the compilation of the Civil Code; In the report of the 19th National Congress of the Communist Party of China, the word "personality right" was first written into the document of the Party Congress.

The above changes are a positive signal to all people, including entrepreneurs.

The rule of law has become the forefront of business environment construction, and strengthening judicial protection of human rights and property rights is the starting point. Various places have followed suit. For example, in 2017, Guangzhou formulated the "Overall Work Plan for Improving the Legalized Business Environment in Guangzhou". In addition, there are the rapid development of big data justice, the great development of credit system construction, legal document disclosure, intelligent trial and other fields, and the exploration of establishing Hangzhou Internet Court. The political and legal departments have become one of the most skilled departments in mastering cloud computing, big data, blockchain and artificial intelligence. This is not only of industrial significance, but also has more political and social effects worth discussing.

5. Fresh blood is injected into the change of the Federation of Industry and Commerce, and the representatives of the two associations "alternate between the old and the new"

Many media have noticed the changes in the composition of entrepreneurs’ representatives and members at this year’s National People’s Congress.

The first is the sharp decrease in the number of people. According to the data, the number of billionaires attending the 13th National People’s Congress and a meeting in Chinese People’s Political Consultative Conference this year is 153, of which 79 are deputies to the NPC and 74 are members of the Chinese People’s Political Consultative Conference, a total of 56 fewer than the 12th session. Secondly, structural changes. The number of people in the Internet industry has surpassed that in the real estate industry, and some former real estate tycoons are no longer re-elected.

Some media interpret this phenomenon as the decline of the status of private entrepreneurs. But in our view, it better reflects the current social stratum structure and economic structure in China. From a technical point of view, the nomination of deputies to the National People’s Congress and the National People’s Congress must go through the "comprehensive evaluation" of relevant departments, and economic and financial resources have never been the only criterion. Entrepreneurs on this new list should have gone through layers of inspections in terms of ideological status, political performance, social responsibility and even law-abiding integrity.

It is also worth observing, in addition to which entrepreneurs will be invited to participate in the forum in Zhongnanhai, there are also changes in the Federation of Industry and Commerce at all levels. The three candidates, the new chairman of the All-China Federation of Industry and Commerce, the party secretary and the deputy secretary, all have the leadership background of central enterprises. In addition, entrepreneurs who are part-time vice-chairmen of the All-China Federation of Industry and Commerce (11) and vice-chairmen of the China Chamber of Commerce (14) are not all in the forefront of the rich list, and entrepreneurs from emerging industries and integration of defense and civilian technologies industries have replaced the bosses from the real estate industry. The change of age structure is also very obvious.With the departure of some flag figures in the early days of reform and opening up (such as Mr. Lu Guanqiu, a Zhejiang entrepreneur), the "successors" of the new generation of private economy are destined to assume more important historical responsibilities..

The replacement of old and new is not only reflected in the top rich, but also includes huge small and micro business owners. The Fifth National Congress of Individual Workers held in January 2018 showed the activity and growth of individual industrial and commercial households. The survey on the activity of small and micro enterprises conducted by China Association of Self-employed Workers shows that the annual activity of newly established small and micro enterprises in China is around 70%. As of March 2018, the total number of various market entities in China exceeded 100 million (including more than 31 million enterprises), an increase of more than 70% in five years. Behind this blowout growth is the great changes in the composition of individual and private economic entities in China.

The number of young entrepreneurs who have never had any working experience in the system, have no political background and have higher academic qualifications has increased greatly. How they will inherit, learn and shape the new interaction model between politics and business is an issue that needs continuous attention. (to be continued)