Revised work rules reduce State Council to an ‘office’ of the Xi leadership; Xi prepares to ‘rectify’ the anti-corruption authorities

  1   Revised work rules reduce State Council to an ‘office’ of the Xi leadership

On March 24, the PRC State Council published an amended version of its work rules (國務院工作規則) that was approved at the State Council’s first plenary meeting on March 17.

The work rules were last updated in 2018. Notable changes in the 2023 edition include:

• The “general principles” section of the 2023 work rules calls for adherence to “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era,” Xi’s political theories after the 20th Party Congress, and “Party Central with Comrade Xi Jinping at the core” in guiding the State Council’s work. Meanwhile, previous guiding principles like Marxism-Leninism and the political thought of Xi’s predecessors (Mao Zedong Thought, Deng Xiaoping Theory, Jiang Zemin’s “three represents,” and Hu Jintao’s “scientific outlook on development”) were removed from the work rules.
• The 2018 work rules call for the State Council to “govern for the people, carry out administration according to the law, seek truth from facts, be democratic and open, and show pragmatism and integrity” were replaced with urging the State Council to uphold Xi’s “Two Establishes,” “Four Consciousnesses,” “Four Self-confidences,” “Two Safeguards,” and other political slogans in the 2023 edition.
• The 2018 work rules’ four chapters on the “Responsibilities of Constituent Members,” “Comprehensive and Correct Performance of Government Functions,” “Implementation of Scientific and Democratic Decision-making,” and “Promotion of Open Government Affairs,” were merged and simplified into two chapters in the 2023 edition titled, “Composition of Members and Government Functions” and “Working Principles.”
• A reference to government decentralization (“deepen administrative simplification and decentralization, combine decentralization and management, optimize service reforms, and comprehensively improve government efficiency”) in the 2018 edition was removed and changed to “adhere to the general work tone of seeking progress while maintaining stability, coordinate development and security, give full play to the decisive role of the markets in resource allocation, play better the role of government, and promote better combination of effective markets and responsible government.”
• A part in the 2018 edition about how the State Council should be “consulted in advance” in matters “involving public rights, matters of high social concern, etc.” was removed and changed to “major decisions, major issues, and important situations are to be reported in a timely manner to Party Central.”
• The 2023 edition added a part about “strengthening digital government construction, promoting process optimization and model innovation, and continuously improving the effectiveness of government.”
• The 2023 edition reduced the number of articles in the section on “Practicing Scientific Democratic Decision-making” from five to three. One of the deleted articles noted that “public participation, expert argumentation, risk assessment, legality review, and group discussion decisions are legal procedures for major decision-making” and such a process “enhances the transparency of public policy formulation and public participation.” The other deleted article noted that “major planning,” “major policy measures,” and the “management of important affairs” were to be “discussed and decided by State Council plenary meetings or State Council executive meetings.”
• The 2023 edition completely eliminated the section on “Promoting Openness in Government Affairs.”
• The 2023 edition removed articles about “Administration Reconsideration” and “Work Responsibility System” from the “Supervision System” section. An article on “Society and Public Opinion Supervision” had a part about “announcing significant issues to the public and dealing with the results” removed and changed to “respond to societal concerns in a timely manner.”
  The 2023 edition added an article on “Establishing a State Council Study System” on special study sessions. The premier will “determine the study session theme” and the focus of those sessions, which will be held every two months, is “implementing General Secretary Xi Jinping’s important speeches, instructions, and requirements, as well as the decisions and deployments of Party Central and the State Council.”
• The chapters “Work Discipline” and “Integrity and Style Construction” in the 2018 edition were changed to “Work Implementation” and “Work Discipline and Self-construction” in the 2023 edition.
• The “Work Implementation” chapter contained the articles, “The State Council should consciously align itself with benchmarks, and resolutely implement the major decisions and deployments of Party Central and the important instructions of General Secretary Xi Jinping,” as well as “ensure the smooth flow of Party Central’s orders and prohibitions.”
• The “Work Discipline and Self-construction” chapter contained an article requiring the State Council and its departments to “strengthen and improve research and investigation” and “promote the trend of research and investigation.”
• The “Work Discipline and Self-construction” chapter contained another article requiring the State Council and its departments to “report to Party Central for instructions” concerning matters of “major guidelines and policies,” “major principles and issues,” and “matters under the centralized and unified management of Party Central, etc.” In contrast, the 2018 edition required the reporting of “major situations to the State Council in a timely manner.”
• A part in the 2018 edition about how relevant members of the State Council “shall not have any speech or behavior that contradicts the decisions of the State Council” was changed to “shall not have any speech or behavior that contradicts the decisions of Party Central and the State Council.”

  Backdrop

The revised State Council work rules follow the exit of so-called “Tuanpai” (“Communist Youth League faction”) senior officials at the 20th Party Congress and the 2023 Two Sessions and their replacement by Xi loyalists or technocrats.

The work rules adjustments were also made after Party Central and the State Council issued a Party and state institutional reform plan on March 16 that firmly established the CCP’s leadership over the state government.

  Our take

1. The new State Council work rules further affirm Xi Jinping and Party Central’s paramount authority over the state government. Just as how Li Qiang is serving as Xi’s “secretary” or “office manager” instead of a powerful premier who has greater leeway to pursue his agenda for the economy, the State Council has been reduced to being an administrative office (習辦) of Party Central and the Xi leadership.

2. The parts in the new State Council work rules concerning “stability maintenance,” improving government effectiveness, reporting major issues to Party Central, and adhering to Xi, as well as the removal of parts pertaining to “decentralization,” “democracy,” “openness,” and “transparency,” hint at the seriousness of the various crises the regime currently faces.

In his first term, Xi Jinping, as other post-Mao leaders, “tolerated” (or appeared to tolerate) a degree of “intra-Party democracy” and “openness,” given that the regime’s internal and external problems, though severe, were not nearly as dire. Xi had also barely begun consolidating power and was still trying to push through the more “liberal” market-oriented reforms outlined at the Third Plenum of the 18th Central Committee.

Xi’s “tolerance,” however, backfired as factional enemies blocked the successful implementation of his reforms and launched a “financial coup” against him in 2015. Meanwhile, Li Keqiang’s efforts at “financial innovation” and the financial system Xi inherited from his predecessors resulted in the “disorderly expansion of capital” and threatened to significantly increase Xi and the CCP’s political risks (see Ant Group’s abortive IPO). Further, Xi believes that things are not going well for the regime because lower-ranking officials are not properly implementing his policies (“orders not leaving Zhongnanhai”), a phenomenon that can be partly attributed to the “decentralized” nature of the Party-state parallel system of governance.

To deal with those problems, Xi proceeded to centralize power to a very high degree, restore the Party’s paramount position over the state government, and promote strongman authoritarian rule over “intra-Party democracy” and the “collective leadership.” The recent State Council institutional reforms and work rules are the logical outcome of Xi’s push for greater control, his effort to undo the problems of having a state government with some “autonomy” from the Party apparatus, and his attempt to reverse the bad policies of his predecessors.

International observers have condemned Xi Jinping’s latest move at extreme power consolidation and strengthening authoritarianism in the PRC. Meanwhile, Xi likely believes that his move is absolutely necessary if the CCP is to survive the “great changes unseen in a century” in China and the world, and emerge from the chaos in a position of dominance. Put another way, Xi sees the regime’s present problems as existential; at the same time, he thinks that opportunities abound amid global turbulence, and hence that the CCP can better capitalize on opportunities and deal with problems should he take more control and enjoy more effective governance. We believe, however, that the systemic deficiencies of the CCP authoritarian dictatorship will prevent Xi from solving his governance issues or mitigating the regime’s existential problems simply by centralizing power to an even higher degree.

3. Xi removing Marxism-Leninism and political theories of his predecessors from the “general principles” section of the 2023 State Council work rules while leaving only his political theories in place could have deeper political significance than what it seems upon first reading.

At a glance, Xi appears to be making absolutely sure that the State Council will only follow the agenda and theories of “Party Central with Comrade Xi Jinping at the core.” State government officials should not be “confused” into pursuing elements of “reform and opening up” as adhered to by Deng Xiaoping, Jiang Zemin, and Hu Jintao; going to Maoist extremes by referring to “Mao Zedong Thought”; or even drawing “inspiration” from classical Marxism-Leninism (see more on this below), which must be distinguished from the CCP’s “Sinicized” Marxism.

Going below the surface interpretation, Xi’s move appears to be the continuation of a gradual and official process to downplay and marginalize his predecessors and their political legacy that began with his “historical resolution” unveiled at the Sixth Plenum of the 19th Central Committee in November 2021. Party insider information obtained by Chinese dissidents around the time of the Sixth Plenum also noted that Xi originally sought to denounce the “major political mistakes during the Jiang Zemin leadership” and Jiang’s “incorrect political line,” but was met with major opposition within the Party elite. At the 20th Party Congress in October 2022, Xi would note in his work report that his predecessors were responsible for “a number of prominent issues and problems — some of which had been building for years and others which were just emerging,” and that those issues and problems demand “urgent action.” And the propaganda for Jiang Zemin’s death contained messaging that reflected Xi’s displeasure at his chief factional rival and predecessor.

From the factional struggle perspective, Xi is seeking to more completely marginalize his predecessors and their political legacy to better establish his own “quan wei” (authority and prestige) and lay the groundwork to move against their associates and supporters who are still at large and are resisting the Xi leadership. This is consistent with our analysis that Xi is planning another round of intense purges after the Two Sessions; the remnant Jiang faction and its supporters will likely find themselves in Xi’s crosshairs.

Xi scrubbing Marxism-Leninism from the “general principles” that guide the state government also leaves the door open for him to “abandon the CCP and its ideology when forced by ever-worsening circumstances to choose between preserving the regime and saving himself,” as we wrote earlier. Contrary to popular impressions, Xi is not necessarily a dyed-in-the-wool communist and might conceivably discard the Party, its ideology, or both should the circumstances so compel him. The odds of Xi doing the unthinkable will go up as factional struggle and other serious crises plaguing the regime increasingly come to a head.

Finally, Xi allowing only his political theories to “guide” the State Council leaves him solely accountable for the regime’s successes and failures going forward. This move comes with immense political risk, as it provides Xi with a “quan wei” boost, but at the cost of him holding all political liability should things turn south for the regime.

  What’s next

The Xi leadership could release more propaganda that downplays and marginalizes his predecessors and their political legacy, while concurrently issuing propaganda that props up Xi Jinping as the “savior” of the Party and the country. Anti-corruption investigations are also set to intensify.

  2   Xi prepares to ‘rectify’ the anti-corruption authorities

March 22
The CCP anti-corruption authorities held a mobilization and deployment meeting for provincial supervision and inspection teams via video conference, according to a report on the website of the Central Commission for Discipline Inspection and the National Supervisory Commission. The relevant persons in charge of all provincial education and rectification leading groups were in attendance.

The report announced the following personnel arrangements:

• Sun Xinyang, deputy Party secretary of the CCDI and deputy director of the NSC, would serve as deputy head of the National Discipline Inspection and Supervision Cadre Team Education and Reorganization Leading Group (全國紀檢監察幹部隊伍教育整頓; henceforth referred to as “NDISCTER leading group”) and director of the leading group’s office.
• Zhao Shiyong, member of the CCDI Standing Committee, member of the NSC, and head of the CCDI and NSC’s organization department, would serve as NDISCTER leading group member and deputy director of the leading group’s office.
• Xu Luode, member of the CCDI Standing Committee and NSC member, would serve as a member of the NDISCTER leading group and supervision and inspection team leader of the leading group’s office.

The meeting requested that the upcoming “education and rectification” campaign “focus on cultivating political loyalty, weeding out black sheep, improving the strict control system, and enhancing struggle skills.”

March 23 to March 25
A seminar on implementing “Xi Jinping Thought” and the spirit of the 20th Party Congress for members of the 20th CCDI was held in Beijing. Official mainland media reported that 168 officials participated in the seminar, including members of the 20th CCDI and vice ministerial-rank CCDI inspectors who were not 20th CCDI members, sub ministerial-rank anti-corruption cadres, and key persons in charge of anti-corruption departments, offices, bureaus, and directly affiliated work units.

CCDI head Li Xi delivered a speech during the seminar’s opening ceremony. In his speech, Li repeatedly stressed the need for officials to adhere to “Xi Jinping Thought,” implement the spirit of the 20th Party Congress, and uphold Xi’s political slogans like the “Two Establishes.” Li also urged officials to “deeply comprehend” the “importance, urgency, and necessity” of carrying out the “education and rectification of the national discipline inspection and supervision team” and build a “loyal, clean, and responsible ‘invincible army’ (鐵軍) that dares to struggle and is good at struggling.”

March 27
The CCP announced the targets of the first round of anti-corruption inspections of the 20th Central Committee.

A total of 30 central-owned enterprises would be probed, including those dealing with nuclear programs, aerospace, defense, asset management, energy, and food:

1. China National Nuclear Corporation
2. China Aerospace Science and Technology Corporation
3. China Aerospace Science and Industry Corporation
4. Aviation Industry Corporation of China
5. China State Shipbuilding Corporation
6. China North Industries Group Co. Ltd.
7. China South Industries Group Corporation
8. China Electronics Technology Group Corporation
9. Aero Engine Corporation of China
10. China Rong Tong Asset Management Group Co. Ltd.
11. China National Petroleum Corporation
12. China Petrochemical Corporation
13. China National Offshore Oil Corporation
14. China Oil and Gas Pipeline Network Corporation
15. State Grid Corporation of China
16. China Southern Power Grid Corporation
17. China Huaneng Group
18. China Datang Corporation
19. China Huadian Corporation
20. State Power Investment Corporation
21. China Three Gorges Corporation
22. China Energy Investment Corporation
23. China Telecom
24. China Unicom
25. China Mobile
26. China Satellite Network Group Co. Ltd.
27. China Electronics Corporation
28. Sinochem Holdings Co. Ltd.
29. China Oil and Foodstuffs Corporation
30. China Grain Reserves Group Limited

Five central financial enterprises would be targeted in a “look back” reinvestigation effort, including China Investment Corporation, China Development Bank, Agricultural Development Bank of China, China Everbright Group, and People’s Insurance Company of China.

Finally, mobile inspection groups would be sent to the Party group of the General Administration of Sport.

  Backdrop

At a national discipline inspection and supervision cadres education and rectification mobilization and deployment meeting on Feb. 24, CCDI head Li Xi instructed discipline inspection and supervision organs at all levels to “resolutely implement” the work deployment of the 20th CCDI’s second plenary session.

Li also told those organs to “educate and rectify” discipline inspection and supervision cadres, including resolutely investigating and dealing with “two-faced people” and “darkness under the lamp” (燈下黑, or corruption in anti-corruption agencies) using the “most distinctive attitude, the most powerful measures, and the most decisive action.” Also, the organs should forge an “invincible army (鐵軍) of discipline inspection and supervision cadres” who are “loyal, honest and responsible, and dare to struggle and are good at struggling.”

  Our take

1. The CCP’s effort to press ahead with anti-corruption investigations and “rectifications” affirm our assessment of dynamics in Party elite politics after the 20th Party Congress. At the time, many China watchers believed that Xi Jinping would curb or end the anti-corruption campaign in his third term and beyond, as they assumed that Xi had already eliminated all political rivals and was totally dominant in the regime.

We analyzed that Xi still had some ways to go in cleansing the regime of the lingering influence of his factional enemies and would step up rectification efforts after the 20th Party Congress. In particular, we noted that former anti-corruption chief and Jiang faction associate Zhao Leji had displayed flashes of “publicly complying but privately defying” (陽奉陰違) Xi during his second term, and the Xi leadership produced less impressive anti-corruption results under Zhao.

We also analyzed that Xi ally Li Xi was likely picked to succeed Zhao Leji to “pick up the pace” of the anti-corruption campaign after the latter’s relative “inactivity” (不作爲) over the past five years. The Xi leadership is likely looking to target lingering Jiang faction presence and other opposing interest groups in the provinces, in government (political and legal affairs apparatus, intelligence apparatus, financial system, etc.), as well as in the financial sector and other problematic industries (see here and here).

2. The launch of the “education and rectification” campaign against anti-corruption cadres follows a pattern of Xi allies “rectifying” the political and legal affairs apparatus shortly after they are installed in key leadership positions.

For instance, Xi ally Zhao Kezhi launched a three-year campaign to “sweep black” and “eliminate evil” that targeted corrupt public security officials in early 2018, or a few months after he was appointed public security minister at the 19th Party Congress. Later, the appointment of Xi ally Wang Xiaohong as vice minister of public security in charge of daily work (essentially helping Zhao Kezhi manage public security operations) in April 2020 eventually led to the high-profile downfall of the “Sun Lijun political gang” and increased rectification efforts in the public security system.

The Xi leadership also launched an “education and rectification” campaign targeting the political and legal affairs apparatus starting in July 2020, or about three months after Wang’s promotion to a more prominent position in the public security system. Now an “education and rectification” effort aimed at the anti-corruption authorities is underway following the appointment of Li Xi as CCDI head.

3. The Xi leadership likely feels the need to “educate and rectify” the anti-corruption authorities now because it is preparing to carry out a more thorough and significant rectification effort further down the road. As such, Xi must ensure that anti-corruption officials are totally loyal to him and dare not “publicly comply but privately defy” like their former boss Zhao Kezhi. Xi has urgent need for the anti-corruption apparatus to be fully loyal and obedient if he is ultimately aiming to denounce Jiang Zemin and completely eliminate the Jiang faction remnant as a threat to his rule.

  What’s next

The “education and rectification” of the anti-corruption authorities could lead to the downfall of senior anti-corruption officials in the next few months. Concurrently, the anti-corruption authorities could intensify efforts to investigate central-owned enterprises and the financial sector, which could lead to the purge of “big tigers.”

  3   PRC’s risks to compound further even as global crises present ‘opportunities’ for the CCP

The CCP has been promoting the narrative of “the East is Rising, the West is in Decline” (東升西降) since at least the 2008 global financial crisis. Recent problems in the United States and Europe appear to affirm that narrative, including:

• The U.S. economy appears to be headed for a recession in 2023. Economists see the odds of a U.S. economic downturn over the next 12 months at 65 percent, according to a Bloomberg survey. DoubleLine Capital CEO Jeffrey Gundlach also told CNBC that a U.S. recession will start in “a few months.”
• A banking crisis is emerging in the U.S. and Europe as banks struggle with raising interest rates and other problems. Silicon Valley Bank and Signature Bank collapsed in the U.S., while Credit Suisse was taken over by UBS in Switzerland. Meanwhile, Deutsche Bank’s shares fell as much as 15 percent over contagion fears before rallying and some of America’s biggest banks injected $30 billion in deposits to rescue First Republic Bank.
• Various U.S. financial problems, including a potential credit crunch and a higher risk of junk bond defaults (Goldman Sachs upgraded its junk bond default forecast to 4 percent from 2.8 percent).
• Mounting social instability in the U.S. stemming from the worsening economic and financial situation, political and ideological hyperpolarization, and increasing distrust in government.
• Growing social instability in Europe over various governance issues, including pension bill protests in France and crippling transport strikes in Germany.
• Signs of stalemate in the Russia-Ukraine conflict. Ukrainian president Volodymyr Zelensky told Yomiuri Shimbun that they “do not have ammunition” and the “situation in the East is not good.” Meanwhile, The Wall Street Journal reported that the Russian economy is facing long-term problems.

  US reaches ‘anti-CCP’ consensus

Despite the fracturing of American society, there is growing consensus on countering the CCP threat in Washington. Notable recent incidents include:

• Both Democrat and Republican lawmakers grilled TikTok CEO Shou Zi Chew over the popular social media app’s ties to the CCP in a House of Representatives hearing on March 23. Lawmakers have also introduced several bills aimed at restricting or banning TikTok, although some commentators have warned that at least one of the bills has the potential to enable dangerous government overreach.
  On March 23, the House Select Committee on the Chinese Communist Party held its second hearing on the ongoing genocide of Uyghurs and other ethnic minorities in China.
  On March 27, the House unanimously passed the “PRC Is Not a Developing Country Act,” which directs the Secretary of State to ensure that China does not receive preferential treatment or assistance afforded to a developing country. The House also passed with near unanimity the “Stop Forced Organ Harvesting Act,” which sanctions anyone involved in organ harvesting and requires the U.S. government to issue annual reports on such activities taking place in foreign countries; the CCP was found to be engaging in the forced organ harvesting of prisoners of conscience, notably Falun Gong practitioners and Uyghur Muslims.
  On March 28, the Biden administration imposed new trade restrictions on five Chinese companies (Luopu Haishi Dingxin Electronic Technology Co, Moyu Haishi Electronic Technology Co, Pishan Haishi Yong’an Electronic Technology Co, Urumqi Haishi Xin’an Electronic Technology Co, and Yutian Haishi Meitian Electronic Technology Co Ltd) for aiding in the CCP’s persecution of the Uyghurs.

  EU wavers on China

Meanwhile, European nations are vacillating on the China issue.

On the one hand, some European governments have imposed restrictions on TikTok, are planning to limit their reliance on China for raw materials such as lithium, have set up a mechanism to penalize companies receiving subsidies from foreign countries that “distort” the internal market, banned products made with forced labor, and have agreed to adopt an anti-coercion instrument to retaliate against countries such as the PRC that use punitive measures to block imports from EU member states. Also, the leaders of Spain, France, and the EU Commission are traveling to Beijing to meet with Xi Jinping and reportedly attempt to convince him not to arm Russia.

On the other hand, European countries like Germany, France, and Spain could be tempted to strengthen relations with the PRC and support the CCP’s “peace plan” for Ukraine in exchange for economic benefits. Weakening domestic economies and the desire by European exporters to tap China’s “vast markets” are incentivizing European countries to be less hawkish on the CCP issue.

  Our take

1. The West’s various problems are likely part of the reason why Xi Jinping moved to further centralize power at the Two Sessions and is preparing another round of anti-corruption investigations to “rectify” the regime of lingering factional foes and disloyal elements (see items one and two in this newsletter).

Xi could have weighed that a distracted and embattled West that appears to more noticeably be on the “decline” would have less appetite for countering and “containing” the PRC, and may not sustain current efforts to do so. Such an assessment would give Xi confidence to go ahead with potentially destabilizing internal purges. Concurrently, Xi is getting the CCP ready to dominate by seizing opportunities that seem to be arising from “changes unseen in a hundred years” by more fully consolidating power so as to take reforms and the anti-corruption campaign into “deep water territory.”

2. The U.S. and the EU could moderate some of their efforts to counter and “contain” the PRC over the short term as they deal with domestic problems and look to Chinese markets for solutions amid the economic downturn. However, growing global awareness about the dangers posed by the CCP and its “revisionism” means that the West will not abandon its attempt to guard against and rein in the PRC over the long term.

The West could even find reasons to double down on “anti-Xi and anti-CCP” measures this year should various domestic problems take a turn for the worse. Politicians in the U.S. and Europe could step up PRC bashing to distract their respective populations from focusing on local issues; rising anti-CCP sentiment worldwide means that attacking the PRC is a “no lose” proposition.

Western countries could also lose hope in strengthening ties with China to rescue their respective economies as the PRC’s own economic and demographic problems greatly diminish the promise of its “vast markets.” The U.S. and its allies would have fewer qualms about standing up to China once the latter loses its “economic shield.”

Finally, the PRC’s unwillingness to distance itself from Russia as the conflict in Ukraine drags out makes it increasingly untenable politically for Western governments to maintain friendly ties with Beijing while offering little to no pushback. Western governments could find themselves having to sanction China for supporting Russia (even providing nonlethal aid) as they look to swing the tide of the Russia-Ukraine conflict in Ukraine’s favor and do more to stop Russian aggression.

  Get smart

Things may seem to be going somewhat better for China at the moment, but appearances are very deceptive given the CCP’s tight control over information about the regime. We have been constantly tracking signs that the PRC is facing serious crises at home and abroad, with Beijing having no good solutions to those crises given the deficiencies of the CCP authoritarian system.

Businesses, investors, and governments should expect things to worsen further in China and for the CCP authorities, and plan accordingly.