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What is the Plenum?

The Plenum is a meeting of the Communist Partys Central Committee, and typically happens once per
year. Following each plenum, the party releases the outcomes of the meeting through policy documents,
most notably the decision document containing its policy directives.

Chinas Fourth Plenum: Using Law Enforcement to Get a Grip

When Xi Jinping ascended to the Chairmanship of the Chinese Communist Party and Presidency of China
in 2012, he was handed a party and country on the tipping point of crisis. Chinas economy, reliant on
capital investment and heavy industry, was finally running out of steam after 30 years of incredible growth.
At the same time, the party faced a crisis of legitimacy among the Chinese people, who were fed up with
a corrupt, inefficient government and lower quality of life compared to other countries. If he didnt move
quickly, Xis two big problems threatened to destabilize the country and remove the Party from power.
A strong leader, Xi consolidated power and began an ambitious reform program, which was announced
one year ago at the Third Plenum. Those reforms were mainly for the economy, aiming to ensure
domestic stability and global competitiveness, which would in turn solidify the partys continued
legitimacy. At this years Fourth Plenum (October 20-23), the first plenum ever to focus on law, Xi pushed
through a far-reaching blueprint of legal reforms. If implemented, these reforms would mean significantly
more uniform and professional law and order nationwide and add to Xis ongoing campaign to reign
in the out-of-control corruption and government waste and abuse of power that have so damaged the
partys legitimacy in the eyes of its people.

Impact on Business
The legal reforms outlined in the Fourth Plenum Decision, the policy document released following the
meeting, will overall have a positive impact on the business environment in China and are a positive
sign for foreign companies. In order to understand the extent of this impact, its critical to understand
the Chinese governments goals for its reform plan. When the central government set about developing
its legal reforms, its main goal was finding a way to increase its legitimacy with its citizens and further
propel its economy by reforming the legal system. China does not intend to adopt a Western-style
rule of law, which would give the law supremacy over the party. Nor does the legal reform mean that
foreign companies can expect new Chinese commercial laws to mirror those back home. As China has
modernized and sought its place among world leaders, it has resolutely chosen its own path, which often
deviates significantly from Western norms. Chinese-style rule of law is no different.
Marx said that the law is a tool of the ruling class to exert its will over the ruled; the Chinese Communist
Party has always and will continue to use the law as a tool. The key to this set of legal reforms is that Xi
has just redefined who is in the ruling class, and therefore, above the law. His message to lower-level
officials and citizens over the past year, through the historically wide-ranging anti-corruption campaign
and now these legal reforms, could not be more clear: you are no longer above the law. At the same
time, Xi has stopped short of advocating supreme rule-of-law. He often speaks of the duty of the party to

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rule with virtue and self-discipline, an indication that top-level, central government officials will continue
to stand somewhat outside the law, and to bend the law to fit the partys needs.
This duality in the legal reform has positive but complex implications for Chinas business environment.
The legal reform introduces an impressive array of measures that give the courts and the law power over
lower-level officials, which will make the overall business environment more fair and predictable. The
centerpiece is to create a court system free from extra-judicial interference, which has become a potent
force after years of domineering local interests and rampant corruption. Xis government lists multiple
tools for accomplishing this goal, including removing control over judicial appointments and court
financing from local governments, creating a professional judicial service with experienced lawyers and
trained judges, and compelling courts to accept filed cases through a docket system. In addition, the
decision proposes the creation of circuit courts that encompass multiple provinces as an added layer of
protection from local interference. If implemented, these measures mean that companies have a
much better chance of equitable treatment and access to legal recourse in the local jurisdictions where
they operate.
Over the past two decades, China has built up an extensive framework of laws and regulations.
The strongest advances in terms of legal enforcement and judicial precedent have surrounded private
property and commercial transactions. This is because the Chinese economy has been focused on
protecting producers and investors. The Fourth Plenum Decision seeks to take the next step by instating
the predictability, fair enforcement and transparency needed for a consumption-led economy that
protects consumers and entrepreneurs. This is vitally important as the Chinese model of state enterprises
and banks and infrastructure-led growth is running out of gas and must be supplanted with consumptionled growth based on urbanization. If these reforms are effectively implemented, they will help to facilitate
Chinas next stage of growth by creating a better business environment.
While we expect these reforms to lead to a better business environment overall, the fact remains that
Chinas highest leadership will continue to use the law as a tool to further domestic interests. Foreign
companies may continue to see unfavorable treatment reminiscent of this years antimonopoly campaign,
in which the antimonopoly law was applied heavily against foreign firms. Because China will not adopt
Western-oriented commercial laws or rule-of-law, Western companies can expect Chinas leadership to
continue pursuing policies that may be unfavorable to them, such as supporting development of national
champion companies through supportive policies or applying commercial laws in unexpected ways.

Decoding Chinese-Style Rule of Law

One of the conundrums of the Fourth Plenum Decision is that it would seemingly make the party
beholden to the constitution, stating that the crux of governing according to the law is governing
according to the constitution. This is the same constitution that guarantees freedom of speech,
assembly, and association and stipulates that the National Peoples Congress has the authority to recall
national leaders, including the president.
How can this be? As with the rest of the legal reform measures, the party may use language familiar to
Western audiences such as rule of law and constitutionalism, but it has retained a monopoly over

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the definition of these terms. How the party defines or declines to comment on various guarantees in
the constitution will be interesting to track, but for now, its clear that the renewed emphasis on the
constitution is a signal that the government is moving toward a more unified, rules-based system.
So, while China wont be adopting Western-style rule-of-law any time soon, the move toward equitable
law enforcement is a positive sign for foreign companies doing business with China. The development
of a culture where government officials accept the authority of laws and apply rules fairly will certainly be
positive for foreign business, as will a more professional, independent and transparent court system.
Reforms in China are always slow to gain traction and follow the principle of testing the waters. As
evident with most of Chinas reform efforts, the details are crucial in how legal reforms are actually
executed. Xi has long spoken of China as unswervingly following its own path, and this Ruling China
by Law Plenum does just that.

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