China’s National People’s Congress

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China’s 13th National People’s Congress (NPC) convened for its Third Plenum in Beijing alongside the advisory Chinese People’s Political Consultative Conference in the annual “Two Sessions” on May 22 after a delay of two and one-half months because of COVID-19 concerns.  Despite the impact of the disease which killed several thousand citizens and continues to disrupt ordinary life in some parts of the country, the hosting and messaging of the Two Sessions conveyed a sense of triumphalism based on China’s success in the battle against COVID-19.  The victory against COVID-19 was heralded as signifying the correctness of Communist Party rule led by Xi Jinping, now increasingly referred to as Leader or Commander rather than his official titles of Party General Secretary, President, and Chairman of the Party’s Central Military Commission.  

The NPC featured several major actions with respect to the economy and with respect to Hong Kong and foreign policy more broadly.  On the economic front, the sharp 6.8% decline in GDP during Q1 led the government to omit the customary annual target for GDP growth in Premier Li Keqiang’s annual government work report, forcing a postponement in meeting Xi’s target of doubling the economy by 2020.  Many central bankers and economists in China have long argued for doing away with the annual target because it tempts local officials at every level to exaggerate their jurisdiction’s economic performance, creating a false picture of the overall state of the economy and fostering corruption, while also incentivizing investment in infrastructure which has become increasingly less efficient.  

With the annual GDP growth target omitted, the focus for domestic policy shifted to the maintenance of stability on the so-called six fronts (employment, financial sector, foreign trade, foreign investment, domestic investment, and expectations) in the so-called six areas (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) in order to realize Xi’s goals of eliminating extreme poverty by 2020 and making China a moderately prosperous society by 2035.  The welcome to foreign investment, governed since the start of the year by the new Foreign Investment Law, is expressly welcomed to support economic growth and indirectly to reduce foreign opposition to Chinese policies at home and abroad. 

But rather than simply pump more money into infrastructure with much of the benefit going to large state-owned enterprises, a new package of stimulus measures amounting to 4 trillion yuan (US$ 560 billion) consists of reductions in taxes and government fees, interest rates on loans, utility charges and social insurance contributions.  These measures are intended to stimulate business activity, including by the private sector, in contrast to past practice which heavily emphasized increasingly less productive investment in physical infrastructure.  The government nevertheless projects an annual fiscal budget deficit of 3.6% for 2020, higher than the longstanding ceiling of 3%.    

Legislative action included enactment of China’s long-mooted first Civil Code which in particular provides for more robust privacy protection against companies and other persons, as well as against government misuse.  The Civil Code will not, however, dramatically alter the distinctive feature of Chinese privacy law, namely, wide government access to personal information.  Another peculiar feature is the mandatory 30-day waiting period before a divorce petition can be addressed by the court, presumably to deter hasty divorces and encourage spouses to stay together and raise more children to alleviate China’s coming demographic crisis of becoming old before becoming rich with too few young people to support the economy and the military.

The military budget is targeted for an increase of 6.6%, a slower rate of growth than in recent years but nevertheless a rate of growth faster than that of the economy as a whole.

The NPC also adopted a broad legislative agenda with a major focus on improving the public health system and healthcare generally in response to the shortcomings revealed in the response to COVID-19.  In its annual work report delivered by Li Zhanshu, Chairman of the NPC Standing Committee, the NPC plans to:

(i) focus on improving the people’s livelihood and safety and prioritize legislation, particularly in the field of public health, by revising the Wildlife Protection Law, the Law on the Prevention and Control of Infectious Diseases, the Frontier Health and Quarantine Law, and the Emergency Response Law, and formulating the Social Assistance Law and the War Veterans Security Law;

(ii) to spur higher-quality development, the NPC will formulate the Yangtze River Protection Law, the Rural Rejuvenation Promotion Law, the Futures Law, and the Hainan Free Trade Port Law, and revise the Patent Law.  In a related vein to accelerate China’s transition to an innovation-based economy and enhance its national defense capability, the Ministry of Science and Technology on the eve of the Two Sessions announced plans to establish more than 200 new national keypoint laboratories in frontier areas of science and technology, including in collaboration with academic institutions and corporate enterprises, to increase the total number to 700;

(iii) in the area of national security and social governance, the NPC will formulate the Biosecurity Law, the Personal Information Protection Law, and the Data Security Law, adopt the 11th Amendment to the Criminal Law, and amend the Administrative Penalty Law and the People’s Armed Police Law;

(iv) to accelerate the construction of a legal system with extraterritorial reach in particular sectors, formulate the Export Control Law, amend the Anti-Money Laundering Law, the People’s Bank of China Law, the Commercial Bank Law, and the Insurance Law; and

(v) to improve the so-called ownership and governance by the people, amend the Organic Law and Rules of Procedure of the NPC, the Election Law, and the National Flag Law.

The NPC’s most controversial action from an international perspective was the adoption by virtually unanimous vote of the Decision on Establishing and Improving the Legal System and Enforcement Mechanisms for the Hong Kong Special Administrative Region (HKSAR) to Safeguard National Security (the Decision).  The Decision authorizes the NPC’s Standing Committee to amend Annex III to the Basic Law of the HKSAR to include a national security law that is expected to be a counterpart to the National Security Law in Mainland China.  While Article 23 of the Basic Law calls for the adoption of a Hong Kong national security law, it also stipulates that the HKSAR’s government, not the NPC, is to adopt the law; the NPC had never before attempted to impose the law upon Hong Kong by including it in Annex III.  Hong Kong’s failure to enact an extradition law last year because of popular opposition to the possibility of extradition to the Mainland and the ensuing social turmoil evidently exhausted the remaining patience of Xi and the Party leadership in the ability of the HKSAR government to enact such legislation on its own.  The Standing Committee’s decision to impose a national security law on Hong Kong effectively disempowers the HKSAR government’s autonomy with respect to national security which is very broadly defined under the Mainland’s own National Security Law.  Other provisions of the Decision, including the requirement that the administrative, legislative and judicial organs in Hong Kong enforce the law, threaten to render the separation of powers in Hong Kong a nullity with respect to the subject matter of the Decision which is likely to be widely construed. 

The Decision led Secretary of State Pompeo on May 28 in his 2020 Hong Kong Policy Act Report to Congress to “no longer certify that Hong Kong continues to warrant such differential treatment [from Mainland China] under U.S. law” and President Trump in turn to announce on May 29 that the United States government will suspend recognition of Hong Kong’s separate autonomous status within China as had originally been provided under sections 205 and 301 of the United States-Hong Kong Policy Act of 1992 and to treat Hong Kong thereafter like Mainland China as a whole with respect to United States law.  The Decision also led the foreign ministers of Canada, the United Kingdom, Australia and the United States to issue a joint statement on May 28 reiterating their deep concern over the Decision which they held to be “in direct conflict with [China’s] international obligations under the principles of the legally-binding, UN-registered Sino-British Joint Declaration [of 1984].”  Although several leading members of the Hong Kong business community have stated their support for the Decision, the impact of the Decision and how it is implemented by the NPC and subsequently in Hong Kong remains to be seen.   

Although the Two Sessions did not focus on foreign policy, several other actions indicated a more truculent Chinese foreign policy.  The official military budget was increased by 6.6% which, while a lower rate of increase than in recent years, is nevertheless higher than the expected growth of the economy.  Premier Li omitted the adjective “peaceful” in his first references with respect to China’s intention to reunify Taiwan with the Mainland.  General Li Zuocheng, Chief of the People’s Liberation Army’s General Staff Department and member of the Party’s Central Military Commission, made a rare public threat of force to reunify Taiwan.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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