Foreign businesses operating in China need to understand the implications of the recent Fourth Plenary Session of the Central Committee of the Communist Party of China (CCCPC). The gathering of the most senior members of the Communist Party took place amid a deepening crackdown on corruption and enforcement of the Anti-Monopoly Law and focused significantly on judicial reform. In this note, we highlight key implications for foreign businesses, explain the nuances and provide context for the Plenary’s decisions. For more information please contact our Beijing office: http://www.brunswickgroup.com/contact-us/beijing/

1. A Review of the
Fourth Plenary
Launching judicial reform and continuing
the purification of the Party
November, 2014

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Overview
Foreign businesses operating in China need to understand the implications of the recent Fourth Plenary Session of
the Central Committee of the Communist Party of China (CCCPC). The gathering of the most senior members of
the Communist Party took place amid a deepening crackdown on corruption and enforcement of the Anti-Monopoly
Law and focused significantly on judicial reform.
The full text of the “Decision on Several Important Issues Regarding the All-Around Promotion of Ruling the State According
to the Law”, and the accompanying explanation by Xi Jinping, Party Secretary General and President of China,
provided an overview of reforms intended to strengthen the rule of law in China, ensure better governance, support
sustainable economic growth and address societal grievances. It marks another important cornerstone in Xi Jinping’s
reform agenda while simultaneously reasserting the Party’s central authority and acknowledging the need to shore up
the Party’s legitimacy.
The Decision continues a range of measures implemented over the last two years that push the Party to lead by
example—and strips away a “do as I say, not as I do” approach. The first two years of the Xi administration have seen
a consolidation of power and the launch of critical initiatives to reform behaviour.
In this note, we highlight key implications for foreign businesses, explain the nuances and provide context for the
Plenary’s decisions.

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Key implications for business
The Chinese leadership’s stated goal to
set the governance of the country on a
more rules-based and market-oriented
path could be good for foreign business
in the long run. A more predictable
and efficient operating environment
would favour well-managed companies
that understand and can adapt to the
new operating environment and the
expectations being placed on those
that wish to operate in China—be they
foreign or domestic companies.
However, the path will not be smooth
and multinationals in China need to
work with authorities to help them
strengthen the regulatory environment
rather than be seen as criticising
the process from the side-lines. It
is more vital than ever that foreign
companies in China think about what
is keeping the leadership awake at
night and demonstrate a clear value
proposition to authorities. Resting on
the laurels of past contributions will
be a risky strategy for MNCs who now
need to think about how to help the
government enhance its reform goals.
■■ A more clearly regulated
environment should mean less
interference from government
and local interest groups
for companies but a much
greater need for corporate
responsibility. Companies must
ensure their internal compliance
systems are robust enough to
withstand a much higher degree
of scrutiny from authorities as the
government focuses on fighting
corruption.
■■ Investment approvals will
be streamlined as ministerial
review is delegated to a local
level. Reforms will be further
decentralised to provide local
government more discretionary
power to approve local investment
projects, cutting red tape and making
local engagement easier.
In a loosening of restrictions on
foreign investment, the National
Development and Reform
Commission released an updated
draft foreign investment catalogue
on 4th November for comment.
The proposed update would reduce
the number of sectors that limit
foreign investment from 79 to
35 thereby removing or reducing
restrictions on areas such as financial
services, oil refining, premium
spirits, and real estate. A key focus
is on opening up manufacturing and
services, and using the liberalisation
to reinvigorate industries with
overcapacity and outdated
technology. The announcement
continues China’s gradual opening
and doesn’t satisfy those wishing to
move to a negative list approach.
The draft details 349 sectors
that explicitly encourage foreign
investment.
■■ With a new set of operating
norms increasingly governing
doing business in China,
personal connections (guanxi)
are less important than they
were, and the rise of a new set of
interest groups from state owned
enterprises to entrepreneurs
and foreign investors means the
government is managing a more
complex and competitive operating
environment.
■■ The big caveat to all of
the above is that domestic
objectives and pressures trump
foreign investors’ interests.
Those objectives and pressures are
far reaching—from the desire to
adjust the economic growth model
while maintain economic growth
and managing pollution to tackling
social welfare challenges, addressing
societal and geographic imbalances,
and managing the migration of 100
million people to urban areas over
the next five years. While policies
and actions by the authorities will
on occasion be geared to support
domestic interests at the expense of
foreign interests, the authorities are
clear that targeted foreign investment
and opening up remain important
components of long term economic
success.
In sum, China’s ambitious reform goals
are positive for the country’s development,
but will undoubtedly continue to present
challenges and bumps for those on
the ground. The reforms are part of a
continuing evolution that will require those
operating in China to build an engagement
model matched for the journey China is on
over the coming years.

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Recent context
China’s leadership team has noted
since the 18th Party Congress two
years ago that the country faces
a range of new and formidable
challenges as it seeks to build a
“moderately prosperous society”
and realise the “Chinese Dream”.
The Decision re-invokes a phrase
used over the last two years that
the leadership team is no longer
“crossing the river by feeling the
stones”, as the traditional proverb
goes, but is instead in an area of
deep water where the stones can no
longer be felt.
Many of the objectives outlined
in the Decision are positive steps
forward for improving governance
in China and aim to provide a
framework to support the next
phase of the country’s development
and its continuing reform agenda.
China watchers with a long memory,
however, will note the promise of
judicial reform at multiple points in
the history of the People’s Republic,
and the subsequent disappointments.
While we remain cautiously
optimistic, the months ahead will
give important signals whether the
promise of judicial reform laid out
during this Plenum genuinely ushers
in a new legal framework.
Ultimately the judicial reform
proposed does not fundamentally
change the role or position of the
Party. The decision clearly notes that
the Party and the CPC leadership
remain the fundamental guarantee of
the rule of law. Legal reform aims
to strengthen the legitimacy of the
Party by overhauling the courts and
instilling greater faith in a judiciary
that has, as Xi Jinping noted, been
“dogged by unfair trials and corrupt
judges”. Xi also noted that “the
judicial system is the last line of defence
for social justice” and “if it fails, people
will widely question (the country’s ability
to realise) social justice, and stability will
be hard to maintain”.
Key highlights from the
Plenary include:
■■ The Decision highlights confidence
that judicial reform will not only
benefit the Party’s position, but is
critical to both its legitimacy and
sustained growth.
■■ The rule of law outlined in the
judicial reform agenda differs from
a Western view of separation of
powers, and instead aims to improve
the way the Party uses its power.
■■ Judicial reform will enable the Party
to continue to tackle vested interests
and bad behaviours that undermine
the future stable growth of the
country.
■■ Initiatives launched over the last
two years by the Xi administration
will continue, including the anti-corruption
campaign. Both foreign
and domestic companies operating
in China must consider this the new
norm and take it as a clear directive
from the authorities regarding
what is expected of companies and
individuals.
■■ Legal reform is a building block in a
wider reform framework that began
in 2008 when Xi Jinping and Premier
Li Keqiang were members of the
Politburo Standing Committee of the
17th Party Congress.
■■ CPC Plenary sessions are designed
to set overarching goals or
“mission statements” that are then
implemented at the government
level. As a result there is a natural
absence of the execution detail.

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Social rule of law with Chinese
characteristics
Constitution at the Centre
The role of China’s Constitution
received a significant boost from the
Fourth Plenum, which positioned
it at the centre of judicial reform.
The Constitution is deemed the
foundation of judicial reform and
the Decision stresses that to govern
successfully according to the law, it
is first critical to govern according to
the Constitution.
The Decision calls on all those
within China to consider the
Constitution a fundamental principal
that must be upheld. In the future
all officials elected or appointed
by the National People’s Congress
(including ministerial ranked
officials, ambassadors, etc) will be
required to openly swear allegiance
to the Constitution—this is the first
time officials have had to make any
acknowledgement or commitment
to the Constitution. The oath
represents an acknowledgment by
officials that they can be held to
account for breaches.
By putting the Constitution at the
centre, the leadership is giving tacit
support to rights stipulated in the
Constitution—including political
rights, freedom of speech, and of
association.
The Party above the Centre
Yet, if the Constitution is at the
centre, the Party remains above it.
The Decision is crystal clear that
the leadership of the Party remains
paramount to the future of China.
“The CPC leadership is the fundamental
guarantee of the rule of law, and the
Constitution is the fundamental law”,
said Xi Jinping.
References to the Party typically
precede mentions of the rule of law
when they appear in the Decision,
highlighting the critical role of the
Party. The Decision aims to achieve
alignment of the rule of law with the
interests and vision of the Party—
thereby removing future possible
conflict. However, the Decision also
calls on the Party to be held to a
higher standard than State laws, that
all levels of government must persist
in conducting their work in line with
the rule of law, and that any violation
must be dealt with firmly.
The Party’s Legitimacy
By declaring the judicial system
to be the “last line of defence of
social justice”, and adding “that if
it fails people will widely question
the country’s ability to realise
social justice, and stability will be
hard to maintain”, Xi once again
acknowledged that the citizen’s
interests have a significant impact
upon the decisions of the Party and
that ultimately addressing societal
interests are critical to shoring up
the legitimacy of the Party.

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Supporting Previous Goals
and Initiatives
Many of the statements in the
Decision support initiatives and
goals announced during previous
plenary gatherings held over the last
two years, including:
■■ Market Forces: Enhancing laws to
protect the commercial environment,
such as contracts, property rights,
and fair competition, is critical to
ensuring that the market can play
a decisive role in the allocation of
resources and control the role of
government even better.
■■ Innovation: Enhancing intellectual
property laws to support innovation
and the commercialisation of
innovation.
■■ Corruption: Creating effective
legal mechanisms so that no one
“dares to be corrupt, can be corrupt,
or wants to be corrupt”. At the
same time, perfecting the criminal
law system to punish corruption and
bribery—and to broaden the scope
of criminal bribery from assets to
other forms of illegal enticement.
■■ Environment: Implementing
laws to protect the environment
and substantially raise the cost
of violating the law—including
in relation to soil, water, air and
maritime pollution.
The Judicial Reform
Agenda
The Decision specifies a range
of judicial reforms from the
separation of judicial powers and
responsibilities to policy turf battles,
legal experience and awareness, and
enforcement. We have drawn out
some of the more significant judicial
reforms below.
Separation of Powers,
Independence of the Courts
Judicial reform requires separating
powers and responsibilities and also
breaking conflicts of interest. Only
with bold and firm actions can the
authorities ensure the independence
of the courts, eliminate local
manipulation, and monitor and
punish intervention in court cases
by senior officials. Ultimately, the
Decision notes that where there is
power, there is responsibility and
that where there are rights, there are
obligations.
The Decision specifies that the
reform plan include “guarantees of
independence of courts and prosecutors”
to break the chokehold that local
vested interests have on courts
in their jurisdiction—including
incidents where local courts are
influenced by local authorities
to protect local businesses at the
expense of the wider economy and
environment.
To tackle this issue the Decision
references multiple actions. Two
important measures are designed
to break the power of local interest
groups on the judicial process. The
first is the establishment of a circuit
court system by the Supreme Court
to hear significant cases that cross
administrative regions. The second is
the establishment of People’s Courts
and People’s Procuratorate’s that
cross administrative districts (the
Procuratorate is a legal supervisory
system that is responsible for
ensuring conformity of legality and
to make sure that executive, judicial
and local legislative bodies operate
in accordance with national laws and
regulations). Additional measures
include establishing the regular
rotation of personnel; creating a new
promotion evaluation system for
judges and prosecutors; removing
the power of the courts to refuse
to hear cases they don’t want to
judge, and strengthening the role of
people’s assessors (common citizens
without a legal background selected
to evaluate cases together with
legally qualified judges), bringing
the courts a step closer to an Anglo-
American jury system.
In addition, the Decision calls for
breaking the connection between
the generation of income and the
issuance of penalties, separating
judicial administrative management
of the Courts and the Procuratorate,
and separating adjudication and
enforcement powers.

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Accountability and
Consequence
The Decision stipulates a range of
measures to ensure accountability
– from policymakers to legal
professionals. Problems in
administration and law enforcement
such as failure to enforce the law or
bending the law for personal gain
will be strictly dealt with, Xi said.
The document calls for the
establishment of a mechanism to
ensure that policymakers are held
accountable for their actions (or
lack of action) for life. Where grave
mistakes in policymaking are made
or if there is a long-term delay in the
making of policies that causes major
damage, then those involved must be
investigated and held accountable.
Those in the legal industry who
violate the law will be prohibited
from practicing in the future.
Judicial personnel who are dismissed
due to violations of the legal
framework and lawyers who have
had their licenses revoked will be
prohibited from working in the
industry for life. If the actions
constitute a crime, then they will be
prosecuted to the full extent of the
law.
During a meeting of the National
People’s Standing Committee held a
few days after the close of the Fourth
Plenum, the committee dismissed
six lawmakers and accepted the
resignation of three additional
lawmakers. Those dismissed are
facing allegations of bribery and
violations of the law. A total of 27
lawmakers (mostly government
officials) have been dismissed on
corruption allegations since the 12th
National People’s Congress began in
March 2013.
These expulsions follow comments
early in the administration that the
Party leadership had changed an
unwritten rule that current and
former members of the Politburo
Standing Committee were
immune from prosecution. Zhou
Yongkang, the former domestic
security chief, is the first Politburo
Standing Committee member to
face investigation since reform and
opening up began in the late 1970s.
Many had expected the Fourth
Plenum to confirm Zhou’s
expulsion from the Party,
signalling an important step
forward in his investigation and
ultimate prosecution. The formal
investigation into Zhou announced
in July this year indicates that his
expulsion is merely a matter of time.
If Zhou faces trial, his punishment
will send a clear signal from the
leadership that the highest levels
of the Party can be subject to the
country’s laws, and that crimes can
be prosecuted years after they are
committed.
More senior officials are likely to fall
under the investigator’s searchlight.
In a speech, Wang Qishan, a member
of the Politburo Standing Committee
and head of the Central Commission
for Discipline Investigation (CCDI),
said that China’s war on corruption
“will never end” and that the Party
“cannot loose” reinforcing that those
operating in China must consider
this to be a new operating norm.
He said the sweeping crackdown
had also won widespread public
support adding that “the CPC is a
political organisation with a sacred
mission” to build a stronger and more
prosperous country.
Changing engrained behaviour
requires resolve. Over the last two
years Wang Qishan has expanded the
CCDI and been unrelenting in the
pursuit of corruption at all levels
within the Party. Investigators have
also taken their search overseas
with the launch of Operation Fox
Hunt to bring those who’ve fled the
country due to corruption home for
prosecution. The message is clear:
no one is immune from prosecution
regardless of rank or location.
Criminal Cases
The authorities will also seek to
enhance the management of criminal
proceedings—including improving
the system for the admittance of
guilt and acceptance of punishment.
Defending Public Interests
Prosecutors may be allowed to
institute public interest litigation to
combat government abuse of power
or nonfeasance—for example in
cases of environmental pollution
or public land disputes. This would
enable the filing of litigation by
those who were previously deemed
as having no standing to sue the
government. If this measure is
adopted, prosecutors would serve
as a new check and balance against
government action, and it would
require government representatives
to appear in court.
Increasing Professionalism
The Plenary’s Decision calls for
greater professionalism of the court
system, including new rules for
gathering evidence and witness
testimony. Courts will have to
allow greater public scrutiny of their
judgements and should hire qualified

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lawyers as judges where possible.
Currently, many judges have limited
legal education so this reform will
take some years to filter through the
system.
However, the Decision does
specify that new rules will monitor
intervention in court cases by senior
Party and government officials,
record wrongdoing and hold them
responsible. It notes that officials
will be explicitly banned from asking
judicial departments to breach their
duty and judicial departments will
be forbidden from following such
orders. Those who breach these
regulations will be held accountable.
Transparency,
Building Trust
The Decision calls for moving
forward with more open trials
and the publication of legal
rulings. Over the last two years
the authorities have started to
publish the transcripts of prominent
high-profile cases in near real-time—
including in relation to trials
involving both Chinese and foreign
nationals. This openness marks a
move towards transparency and
more open forms of communication
in other areas of government.
Even the once secret Communist
Party’s Central Discipline
Commission has not only set up a
website to disclose information, but
also invited foreign journalists to
visit its offices and is establishing a
procedure to handle whistleblowers.
While the level of transparency still
falls far short of Western standards,
China is demonstrating an intention
to transition to a new era of more
open government. As Xi has said,
the public should have the ability to
scrutinise the use of power and “cage
the power” of authorities.
Role of the Media
Over the last two years the
authorities have launched new
campaigns to tighten the traditional
and social media environment. One
campaign that has focused on the
spread of rumour and the reporting
of rumour as news has sparked
criticism that it is a tool to restrict
citizens’ rights and to control public
opinion. The Decision adds to
the restraint placed on the media
environment with a requirement to
standardise reporting of legal cases
and prevent public opinion from
influencing judicial fairness.
Achieving Judicial Change
– Building Awareness
A critical challenge for the judicial
reform agenda is the need to boost
legal skills and expand public
awareness.
To increase understanding and
appreciation of the importance of
rule of law across the country, the
authorities will introduce rule of
law education into the compulsory
education system, with special
content for primary and secondary
schools. The authorities have
marked 4th December as National
Constitution Day and will launch
a separate programme to educate
citizens about the Constitution. The
education drive mirrors a broader
campaign to ensure that Party
officials follow the law through
study sessions, along with the time-honoured
practice of criticism and
self-criticism.

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Political backgrounder
The Communist Party
of China
The Communist Party of China
(“CPC”) was founded in 1921
and today has a membership of
approximately 82.6 million citizens
including government officials,
military officers, state owned
enterprise workers, private business
people, farmers and students.
Membership has grown from less
than 40 million members at the
12th Party Congress in 1982 to
66 million ten-years ago when Hu
Jintao and Wen Jiabao took the
helm of the Party at the 16th Party
Congress. Over the last decade
more than 17 million members were
added.
Central Committee of the
Communist Party of China
The Central Committee of the
Communist Party of China
(“CCCPC”) is responsible for
managing the Party’s affairs for a
five-year term. As of the 18th Party
Congress, the Central Committee
is composed of 205 permanent
members and 171 alternate
members; 184 new members were
introduced in to the 18th Party
Congress. Permanent and alternate
members were elected during the
18th Party Congress meeting that
concluded on 14th November,
2012 by the delegates who attended
the Party Congress. Appointees
to the top Party and government
positions, including the leaders of
China’s provinces, are drawn from
the members that make up the
Central Committee. One of the key
functions performed by the Central
Committee is electing the Politburo
(currently 25 people) and in turn
the Politburo’s Standing Committee
(currently seven people).
Fourth Plenary Session
of the 18th CPC Central
Committee
The Central Committee (中国共
产党中央委员会), considered
the highest ranked organ within the
Party, holds plenary sessions that
gather all members of the CCCPC
and special guests to discuss and
approve major policy decisions.
Fourth Plenary Session
of the 18th CPC Central
Committee
Date:
20th October to 23rd October,
2014
Participants:
199 Central Committee members
and 164 Alternate Central
Committee members
Politburo and the Standing
Committee
The CCCPC is led by the 25-person
Political Bureau or “Politburo” (中
国共产党中央政治局) and the
seven-person Standing Committee
which sits at the top of the Politburo.
The CCCPC is responsible for
appointing the General Secretary,
members of the Politburo, the
Standing Committee, and members
of the Central Military Commission.

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