Authorities release five-year plan to strengthen rule of law
Calls for greater law enforcement across a range of sectors
China released a five-year blueprint calling for greater regulation of vast parts of the economy, providing a sweeping framework for the broader crackdown on key industries that has left investors reeling.
The document, jointly issued late Wednesday by the State Council and the Communist Party’s Central Committee, said authorities would “actively” work on legislation in areas including national security, technology and monopolies. Law enforcement will be strengthened in sectors ranging from food and drugs to big data and artificial intelligence, the document said.
“The people’s growing need for a better life has put forward new and higher requirements for the construction of a government under the rule of law,” it said. “It must be based on the overall situation, take a long-term view, make up for shortcomings, forge ahead, and promote the construction of a government under the rule of law to a new level in the new era.”
Investors have been seeking to make sense of a regulatory onslaught in recent weeks that has roiled markets, particularly after authorities banned profits in the $100 billion after-school tutoring sector. Over the past year Chinese authorities have launched anti-monopoly probes into some of the nation’s largest tech companies such as Alibaba Group Holding Ltd., while also implementing new rules for cybersecurity reviews on foreign listings that have created problems for Didi Global Inc.
“We can’t draw too much insight about enforcement and the potential shape of crackdowns from one document or another,” said Graham Webster, who leads the DigiChina project at the Stanford University Cyber Policy Center. “Much depends on what bureaucrats and their higher-ups land on in terms of priorities month after month.”
The outline released Wednesday is an update of an earlier plan that ended in 2020. In an explanatory Q&A, officials responsible for the document highlighted modernization of national governance, the need to build digital governance by law and increasing the public’s overall level of satisfaction.
Key points include:
- “Actively promote legislation” in areas such as national security, technological innovation, public health, culture and education, ethnic religion, biosecurity, ecological civilization, risk prevention, anti-monopoly, and foreign-related issues
- “Intensify law enforcement in key areas related to the vital interests of the people” including food and medicine, public health, natural resources, ecological environment, safety production, labor security, urban management, transportation, financial services, education and training.
- Ensure “healthy development of new business forms” with “good laws and good governance” related to digital economy, Internet finance, artificial intelligence, big data, cloud computing and other related legal systems
- Strengthen the execution of administrative decision-making: “Once a major administrative decision has been made, it shall not be arbitrarily changed or suspended without legal procedures.”
- Use the internet and big data in law enforcement: “Strengthen the construction of the national ‘Internet + supervision’ system, and realize the integration and aggregation of all aspects of supervision platform data by the end of 2022.”
- Promote openness in government affairs: “Adhere to openness as the normal, non-openness as the exception, and have the government become more open and transparent to win more understanding.”
While many of the sectors are consistent with what has been announced previously, the addition of food and drugs was new and would make investors nervous until new regulations are defined, according to Gary Dugan, chief executive officer at the Global CIO Office.
‘Long Time for Investors to Fret’
“A five-year term to the crackdown at least gives definition to the time extent of the regulatory reset,” he said. “However, it will be a long time for investors to fret about pending changes.”
Investors have been dumping shares of sectors that receive criticism in state media, from digital gaming and e-cigarettes to property and baby formula. Alcohol-related stocks were the latest to take a hit on Tuesday, falling after the Communist Party’s anti-graft watchdog called for a reduction of business drinking after a sexual assault case involving Alibaba employees.
China’s banking and insurance watchdog ordered companies and local agencies to curb improper marketing and pricing practices, and step up user privacy protection, according to a notice seen by Bloomberg News. It encouraged companies to address these issues voluntarily and said those that failed to comply would face “severe punishment.”
Some analysts welcomed the blueprint as an attempt by Chinese authorities to help investors understand the motives behind the regulatory push.
”The State Council’s statement provides a guiding context to interpret current regulatory thrusts,” said Michael Norris, an analyst with Shanghai-based consultancy AgencyChina. “In our view, investor concerns are driven less by proposed regulations’ substance, and more by cadence and communication. We view this announcement as doing a better job telegraphing future regulatory hotspots.”
— With assistance by Colum Murphy, Lucille Liu, Amanda Wang, Li Liu, Jing Li, and Charlie Zhu