January 2012 China [623496]

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China

The ins and outs of the
Chinese government

„ The Party leads
In China, the key decision maker is the Communist Party of China (CPC) and its
economic policies are carried out by the State Council. Although constitutionally,
the National People’s Congress (NPC) is the highest authority, in reality, it largely
follows the will of the Party. Within t he CPC, the most powerful authority is the
Politburo Standing Committee which currently comprises nine members. This is
why it is important to watch the new members coming in Oct as they may have a major influence over China’s reform program, thus the market’s medium to long term outlook (
Year-ahead: To reform or not to reform , Jan 2).
How the top party leaders are selected
By procedure, the two-thousand or so party delegates to the Party’s National
Congress held once every five years sele ct the members of the all-important
CPC Central Committee, which in turn, ch ooses the members of the Politburo and
its Standing Committee. It is generally unde rstood that leaders at the top control
the selection of the delegates thus, the outcome of Congress largely. As a result,
a few hundred people, through their allegiance to certain factions within the Party,
have important inputs into the selection process and this is where the power of
various interest groups comes from by our assessment.
How major party decisions are made
The experiences of the Culture Revolution have made the Party wary of power
concentration in a single person. As a result, collective leadership is the rule. In
practice, it means that all major issues are decided by majority vo te at the relevant
party committees with an emphasis on consensus building. While this reduces the risk of repeating a Cultural Revolution, important reforms with clear winners and
losers tend to be difficult to implement unless during a crisis when consensus is
easier to form.
How party decisions are carried out
This is arguably the most hotly debated area, covering key issues including how
to introduce checks-and-balances within the party under a one-party system, the
proper role of the party in the day-to -day management of the government and the
proper role of the government in the day-to-day management of the economy,
including SOEs’. The outcome of the third issue is probably the most important for
the market’s medium term outlook in our opinion.
The central vs. local government dynamics
The central government’s power has grown since 1994 after the last round of tax
reform. This means that, once a consensus is reached at the top, tough decisions
can be implemented at the local government level (for example, the property
crackdown). This may also suggest that there may not be consensus yet on the rollout pace of the social housing program at this stage in our view.

Equity Strategy

Investment Strategy | China
17 January 2012

David Cui >> +852 2536 6477
Strategist
Merrill Lynch (Hong Kong)
david.cui@baml.com
Tracy Tian, CFA >> +852 2161 7632
Strategist
Merrill Lynch (Hong Kong)
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Zhen Wei >> +852 2161 7507
Strategist
Merrill Lynch (Hong Kong)
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30 Aug 2011, '' Who’s who in the news
media ''
11 Oct 2011, '' A short history of
government interventions in the stock
market ''
1 Mar 2011, '' March 2011: National
People’s Congress ''
18 Nov 2010, '' A short history of inflation &
market ''

Unauthorized redistribution of this report is prohibited.
This report is intended for
emel_celik@ml.com.

2
China
17 January 2012

Contents
The Party leads 3
The Party 8
The State 15
The Legislature 25
CPPCC 27
Major meetings/conferences 29
Appendix – Common acronyms 30

China
17 January 2012

3
The Party leads
In China, the key decision maker is t he CPC and its economic policies are carried
out by the State Council. Although cons titution wise, the NPC is the highest
authority in China, in reality, it largely be nds to the will of the Party. Within the
CPC, the most powerful authority is the Politburo Standing Committee ( 政治局常
委会) which currently comprises nine member s. We believe that the composition
of the new Standing Committee, likely to be announced in Oct 2012 at the 18th
National Congress of the CPC, may heavily influence China’s reform progress
over the next few years, thus the big trends in the market ( Year-ahead: To reform
or not to reform , Jan 2).
This report aims to provide an overview of the Chinese government, including its
key divisions and their functions, so in vestors can have a better understanding of
the ins and outs of the decision making pr ocess in China. While we have primarily
focused on describing the structure of the central government, including the Party,
the State and the Legislature, the local government’s function units largely mirror
those of the central government.
This report can be read in conjunction with our other primer on China: Who’s who
in the news media , 30 Aug 2011.
How top party leaders in China are selected
During the most part of the CPC’s tenure in China, they were chosen by the
paramount leader of the day after perhaps consulting a handful of other party
elders. However, after the strong men passed on the baton, nowadays top leaders are selected likely by a compromise among two or three powerful factions.
So, rather than a few elders making the decisions, more likely a few hundred
people now have important input into the se lection process. This likely means that
various interest groups may exert signific ant influence on who can go to the top.
The overall direction of political reforms in China is to establish a clear procedure
to elect party leaders by a broad spectrum of party members so the leaders’
decisions can reflect better the will of the party overall. However, it remains to be
seen whether such initiatives can succeed, and if they are successful, how long it
will take for meaningful results to show up.
The preparation work for the upcoming 18
th Party Congress in Oct 2012 is a case
in point. There is some progress, albeit small:
„ The number of delegates will expand ma rginally from 2,220 at the 2007 17th
Party Congress to 2,270 this year (1, 545 at the 12th, 1,936 at the 13th, 2,035
at the 14th, 2,048 at the 15th and 2,120 at the 16th).
„ When using the mandatory contested-election ( 差额选举 , vs. single-
candidate election or 等额选举 ) to elect delegates to the Congress, the
number of candidates should be at least 15% more than the number of
eligible delegates (above 15% mostly at the 17th vs. about 10% at the 16th).
At the 17th Party Congress, the cand idate-to-elected ratio for the pre-
selection of members of the all-impor tant Central Committee and the Central
Discipline Inspection Commission was above 108%. We are not aware of the target, if any, for the 18
th Congress.
„ Under normal circumstances, workers (vs. farmers or government officials for this matter) should account for at least 10% of total delegates from city, region or province level districts. The CPC is the ultimate decision maker in

China with its Politburo Standing Committee the key decision making body.

Top leaders used to be chosen by the
paramount leader of the day.
However, the party is trying to
incorporate a limi ted democratic
selection process in recent times.

China
17 January 2012
4 „ The delegates selected from the rank and file among candidates from city,
region or province level districts or fr om Beijing domiciled candidates out of
the centrally controlled SOEs should be no less than 32% of the total (vs.
30% at the 17th). This means that the number of delegates from the officials
pool out of these areas should be le ss than 68% (down from 70% at the 17th).
These delegates will elect members of the new-session Central Committee and
the Central Discipline Inspection Commission of the CPC when the 18th Party
Congress opens later this year. The C entral Committee members will in turn
select the Politburo members and the members of its Standing Committee.
According to CPC’s Constitution ( 党章), the Central Committee is the highest
authority of the party. In reality and fo r practical purposes, its Standing Committee
appears to make most of the important decisions day-to-day. Only under
exceptional circumstances, an emergency full vote of the Central Committee is
called. The current Central Committee has 204 full members and 167 alternate
members, largely comprised of top offici als within the party, the State Council,
NPC, CPPCC, military, gover nment institutions that r eport directly to the State
Council, and CPC’s provincial heads. Although any alliance by definition shifts
continuously, there are some often-report ed real or perceived interest groups
within the Central Committee, e.g. SO Es vs. private entrepreneurs, financial
institutions vs. other sector s, coastal areas vs. inland areas, and central officials
vs. local officials.
Although the selection process appears botto m-up driven, top-down instruction is
still far more influential by our assessmen t. For a start, selection criteria are set
from the top. Moreover, top leaders colle ctively can veto any delegate via the
Delegate Qualification Inspection Commission ( 代表资格审查委员会 ) before the
Congress officially opens.
By the way, when selecting senior leaders (provincial leaders, ministers or above),
there seems to have been an unwritten gui deline: at the time of assuming their
responsibility, they should be less t han 65 years of age; for CPC standing
committees at the local government le vel, any new member must be below 58
years old.
How major party decisions are made
The Culture Revolution experience has made the party very wary of power being
concentrated in a single person. The key term of the current decision making style within the party is called democratic centralism ( 民主集中制 ), which loosely
means collective leadership.
In practice and based on the Party’s Consti tution, it means that all major issues,
including those involving important party policies and personnel issues, should be
discussed and decided upon by the relevant Party committees, largely by majority
vote and with an emphasis on consensus building. For example, when making a major decision, if members of the relev ant party committee cannot reach a clear
majority vote, the constitution encourage s the committee to suspend the decision
pending further research and investigat ion unless it’s an urgent matter; if
members still cannot reach a consensu s decision at the next session, the
committee should seek arbitration from its superior committee.
This decision making process, while making a repeat of a Cultural Revolution less
likely, means that important reforms wi th clear winners and losers tend to be
difficult to pursue unless during a crisis when consensus is easier to form. This Nevertheless, as it stands now, party
factions and interest groups are the most influential.
To avoid repeating a “Cultural
Revolution”, the party is emphasizing collective leadership.
This may mean that tough reforms are
more difficult to implement.

China
17 January 2012

5explains why reforms in China over the past few decades tend to largely fall into
the camp of the so-called incremental-portion-reforms ( 增量改革 ), i.e. any major
change in policy tends to only apply to incremental changes in the future and not affect existing benefit-distribution too much. A good example is the tax reform in
1994 when the then vice Premier ZHU Rong ji tried to centralize tax collection.
The central government had to give local governments significant concessions so
that the local governments wouldn’t be en titled to less tax at the time of the
reform compared to what they were collecting then.
How decisions are executed
CPC doctrine calls for the party to lead everything in China ( 党领导一切 ). This
means that party organizations are the mo st powerful in all areas and no major
reform can be achieved without the party’s backing. This is probably one of the
reasons why the privatization program in the late 1990s sailed through while new
market opening measures by the government in 2005 largely stalled ( Year-ahead:
To reform or not to reform , Jan 2).
As a result, we pay the most attention to leadership changes at CPC, followed by
those at the government, then NPC and CPP CC. By the way, key officials in all
these domains are party members and they often move across organizations or
assume dual roles. For example, the Premier, being the head of the government,
is a member of the Standing Committee of CPC Politburo; a governor in province
A may become the party secretary of prov ince B; or a local party secretary may
move to head the local NPC. Power transfer generally occurs at the lower level
first, i.e. first at the county level, then to the municipal, provincial and the central
level. By the end of Nov 2011, 13 provinces had seen new leaders being appointed although the national party congress won’t open until probably Oct 2012.
Despite the commonly accepted party doctri ne, there has been considerable soul
searching, even within the party, on how its power should be exercised. There are
debates on at least three levels: how to introduce checks-and-ba lances within the
party under a one-party system; the proper role of the party in the day-to-day
management of the government ( 党政分工 ); and the proper role of the
government in the day-to-day management of the economy, including SOEs’ role
(政企分工 ).
Under the current setting, especially at the local government level, power is
largely in the local party secretary’s hands . In theory, the local party congress is
designated with formulating policies and ensuring their proper execution while the
local CPC committee ( 党委会 ) and its standing committee ( 常委会 ) are tasked
with these policies’ implementation. Howeve r, in practice, the local party secretary
often formulates policies, executes them and checks the results ( 一把手负责制 ).
Local Discipline Inspection Commission actually reports to the local party
secretary. This is why it is difficult to uncover corruption at the local level and
more often than not, any uncovering needs higher authority to get involved. There are pilot tests here and there to make t he local CPC committee more powerful or
to elect local party secretaries by popular votes. But the progress has been slow and tangible results, few and far between so far.
On the relationship between the party and the government, it seems to us that the
party has decided to remain in tight control, at least for the time being. In 1980s,
DENG Xiaoping pointed out that there we re still many drawbacks in the party and
government system, the most serious problem being that there was no separation While the party’s leadership role is
unchallenged, there has been considerable soul searching, even within
the party, on how its power should be
exercised.

China
17 January 2012
6 between the Party and the government. In 1986, Deng raised the idea of a
“separation between the Party and the go vernment” for the first time and then
clearly defined the concept at the 13th Party Congress in Oct 1987. Not
coincidently, managers were given full responsibility over SOEs’ day-to-day
operations in 1986 with the party secretar ies at the SOEs assuming a back-seat
role. However, at the 16th Party Congress in Nov 2002, JIANG Zemin no longer
included the term “separation” in his speech; rather, the focus of the Party was shifted to reforming and improving the it s leadership and governing methods over
the government.
Perhaps the most important issue for us as investors is the government’s role in
the day-to-day running of the economy, including how to correctly position SOEs.
There has been fierce debate since at least 2004 about the “the State advances,
the private sector retreats ( 国进民退 )” phenomenon in the economy. If the
government decides to revise the course, it may cause a major sell-off in the
market initially although we believe this should help the economy in the long term.
Another seeming consensus is that the gov ernment should shift its role from a
builder of industrial base and infrastructure to a service provider to the general
public. We have touched on both topics in our year-ahead report,
To reform or not
to reform , Jan 2.
The central vs. local government dynamics
Given the vast size of the country, it’s not surprising that most of the decisions in
China, particularly those related to the economy, are made at the local
government level ( The visible hand – A reform roadmap & what it means , 23 Jul
2010). As such, the central vs. local government dynamics is critical for us to understand the economy and the market.
Just like any major organizat ion, there are two grids r unning through the Chinese
government: the function line ( 条条, e.g. the central gove rnment and its various
ministries residing in Beijing) and the geographic line ( 块块, e.g. the numerous
local governments).
At the central government le vel, the top economic decision maker is the Politburo
Standing Committee. It seeks advice from Central Leading Group on Financial
and Economic Affairs ( 中央财经领导小组 ), who acts as a coordinator among the
related ministries/organizations. The Committee’s order is passed to the
Secretariat of the CPC Central Committee ( 中央书记处 ) to add more details and
to be communicated to the government. T he State Council leads the execution of
these policies, during which, NPC’s Fi nancial and Economic Affairs Committee
and CPPCC’s Economic Committee may provide consultation. CPC’s Central Committee and the State Council toget her hosts the Central Economic Work
Conference ( 中央经济工作会议 ) normally in early to mid December, which will lay
out the framework for next year’s econom ic policies. Sequentially, next March,
NPC and CPPCC will have their annual meetings, when the State Council will report its plans to seek their approval (from NPC) and advice (from CPPCC),
largely ceremonial at this stage.
The structure at the local government level largely follows that at the central. We
can use a typical provincial government to illustrate the point: there is a local CPC
standing committee (the party) to make key decisions, a governor (the
government) to be responsible for executi on (as mentioned earlier, the local party
secretary is often closely involved with the execution), and the local branches of
NPC and CPPCC to approve and consult. In mo st cases, the local party secretary Perhaps the most important debate for us

as investors is the party/government’s
role in the economy.
The central vs. local government
dynamics also plays an important role in
policy execution.

China
17 January 2012

7is a member of the CPC’s Central Commi ttee and takes orders from the Politburo.
The provincial CPC standing committee usually has 11 to 15 members with the
governor, who reports to the State C ouncil, being a key member. The heads of
local NPC and CPPCC report to their central committee respectively. The structure generally applies to the municipal and county government as well.
One way to view the history of the Chin ese economy is through the lens of central
vs. local government “power struggle”, i.e. between the central government’s
desire to incentivize local officials and its concern of things runn ing out of control.
On balance, when economy is running well, the central government tends to
delegate more decision powers to the local officials; when things are not going
well, for example during a monetary tight ening period to control an overheating,
the central government tends to assume mo re control. A major exception is what
happened during the last global financial cr isis that broke out in 2008 – for a few
quarters, the local governments were essent ially given a free hand to spend. The
economy is still paying a price for it in our opinion (
Four systematic risks &
potential for financial market turmoil , 01 Oct 2011). At a risk of over simplifying,
local governments tend to be more aggressive in pursuing growth, not the least
because local officials were rewarded for strong local economic performance, while central government tends to be more conservative and bureaucratic.
There are mainly two ways that the centra l government uses to control the local
governments: via the appoin tment of provincial level leaders and through the
control of financial resources. It’s our impression that, since 1994 (i.e. after the
tax reform mentioned earlier), power of the central government has been
ascending. There are obvious benefits to this – it seems to us that as long as
there is broad consensus at the central government on certain polices, things get
done although they may be at the local governments’ expenses. A good example
is the crackdown on a property bubble over the past two years or so (
Seven
market driven themes in 2011 , 3 Jan 2011). On the other hand, the central
government needs to be aware that it does n’t dampen local officials’ enthusiasm
by taking too much a share of local taxes fr om certain regions for re-distribution to
other regions or self consumption. In this light, how local officials are assessed for
promotion is becoming increasingly critic al, especially given the economy’s needs
to re-balance ( The visible hand – A reform roadmap & what it means , 23 Jul
2010).
That said, there are certain areas that the central government has a much tighter
control over, e.g. the banki ng sector with key personnel of the major SOE banks
appointed by the central government, t han others, e.g. how local governments
spend their money. That’s wh y loan quota is generally a fairly effective tightening
tool ( A short history of inflation & market , 18 Nov 2010) and perhaps one of the
major reasons why social housing proves so difficult to build ( The dark side of
subsidized housing , 01 Feb 2011). Moreover, if t he interests of the central
government and local governments are alig ned, e.g. business tax to VAT reform
or any tax cuts, things can get done quickly; on the other hand, if they are not, e.g.
the real estate tax, implementation can be a lot more difficult.
There have been rounds of de-
centralization and re-centralization over the decades.
Over the past decade and a half, the
major trend is for re-centralization with some noticeable consequences.

China
17 January 2012
8 The Party
The Communist Party of China (CPC) is the ruling political party in China with
more than 80mn members today. The high est governing body of the CPC is its
National Congress ( 中国共产党全国代表大会 ) which meets once every five years
to elect the members of the powerful C entral Committee and mark changes of the
party’s top leaders. The current Cent ral Committee near the end of its term
determines the number of delegates to the next National Congress and the
procedure governing their election. T he last National Congress, the 17th, was held
in Oct 2007 and attended by 2,213 party members selected largely from senior officials and the rank-and-file party members. The next congress, the 18
th, will
likely be held during the fall of 2012 (Oct/Nov).
Over the past two decades or so, even-number party congresses generally
marked a major leadership transfer, e.g. from Mr. JIANG to Mr. HU at the 16th
Congress in 2002, while the odd-number congresses promoted senior party members in preparation for the transfer five years hence, e.g. Mr. XI/LI in 2007 at
the 17
th in 2007 to get ready to assume leadership roles in 2012 at the 18th.
The key organizations of the CPC are su mmarized in Chart 1. There are two
organizations that report directly to the Congress: the Central Committee ( 中央委
员会) and the Central Discipline Inspection Commission ( 中央纪律检查委员会 ).
On balance, the Politburo Standing Committee of the Central Committee ( 中央政
治局常务委员会 ) is the most powerful decision maker for the CPC.

17 January 2012

China
9Chart 1: Key CPC organizations
General Secretary of
Central Committee
中央委员总书记
Central Committee
中央委员会
Politburo
中央政治局The Secretariat of the CPC
Central Committee
中央书记处
National Congress of CPC
中国共产党全国代表大会
Central Military
Commission
中央军事委员会
Central Commission for
Discipline Inspection
中央纪律检查委员会Other commissions and leading groups
The Office of the Foreign Affairs Leading
Group
中央外事领导小组办公室
Central Leading Group for Party Building Work
中央党的建设工作领导小组
Central Leading Group on Financial and
Economic Affairs
中央财经领导小组
Central Rural Work Leading Group
中央农村工作领导小组
OthersOther central organizations
General Office of the CPC Central Committee
中共中央办公厅
The Central Politics and Law Committee
中央政法委
The Policy Research Office of the CPC Central
Committee
中央政策研究室
The United Front Work Department
中共中央统战部
Deparment of Publicity
中共中央宣传部
Department of Organization
中共中央组织部
International Department
中央对外联络部
International Communication Office
中央对外宣传办公室
OthersOrganizations under the CPC Central
Committee
Politburo Standing Committee
中央政治局常务委员会
Source: Xinhua News Agency, BofA Merrill Lynch Global Research

China
17 January 2012
10 Decision making bodies/procedures
According to the CPC Constitution ( 中国共产党党章 ), the day-to-day decision
power of the party is vested in the Politburo Standing Committee ( 中央政治局常务
委员会 ) and day-to-day central party affairs are administrated by the Secretariat
of the CPC Central Committee ( 中共中央书记处 ) under the joint leadership of the
Politburo ( 中央政治局 ) and its standing committee. T he General Secretary of the
CPC Central Committee ( 中央委员会总书记 ), who is in charge of the Secretariat,
is responsible to convene ( 召集) Politburo and Politburo Standing Committee
meetings but not preside over ( 主持) them. This is designed to prevent power
being too concentrated in any single person’s hands.
Based on the constitution, all major issues including those on important party
policies and personnel issues should be discussed and decided upon by the relevant Party committees, largely by majority vote with an emphasis on consensus building. This is so called the principle of collective leadership. For
example, when making a major decision, if members of the relevant party
committee cannot reach a clear majority vote, the constitution encourages the committee to suspend the decision pendi ng further research and investigation
unless it’s an urgent matter; if members still cannot reach a consensus decision
at the next session, the committee should seek arbitration from its superior
committee.
For the election of party members to the Congress and various committees, the
constitution allows two options: 1) a pre-election to narrow down the candidates, followed by a formal election; or 2) for the party to select candidates numbering more than the roles to be filled and then allow members to elect those who they think are most qualified ( 差额选举 ). Most of the party pos itions are filled via the
second method.
Central Committee ( 中央委员 会)
It’s one of the two party organizations that directly report to the National Congress
of the CPC.
Between the National Congresses, the Central Committee acts on the Congress’
behalf and meets periodically (often once a ye ar but more frequently from time to
time). Such a meeting is referred to as “the yyth plenary session of the xxth
Central Committee” (“xx 届yy中全会 ’). Major policy changes can be announced
during these sessions. For example, the Dec 1978 3rd plenary session of the 11th
Central Committee ( 十一届三中全会 ) steered China onto its economic reform
path. The one just concluded on 18th Oct 2011, the 6th plenary session of the 17th
Central Committee ( 十七届六中全会 ), announced the party’s intention to promote
spiritual civilization with socialist characters.
Only members of the Central Committee ar e eligible to become a member of the
Politburo and the Politburo Standing Co mmittee. The head of the Committee, the
General Secretary, is also the head of the CPC. The Polit buro, the Standing
Committee and the General Secretary are elected by the Central Committee at
the plenary session.
The current Central Committee has 204 fu ll members and 167 alternate members,
comprised of top officials within the party, the State Council, NPC, CPPCC,
military, government institut ions that report directly to the State Council, and
CPC’s provincial heads.

China
17 January 2012

11Qiushi (求是) and People’ Daily ( 人民日报 ), which also publishes Securities Times
(证券时报 ) and Global Times ( 环球时报 ). For an overview of the important media
outlets in China, please see Who’s who in the news media , Aug 30.
The Politburo ( 中央政治局 )
It reports to the Central Committee.
Between the plenary sessions of the C entral Committee, the Politburo and its
Standing Committee act on the Committee’s behalf. Its members meet once a
month with agendas set by the General Secretary.
Only members of the Politburo are eligib le to become a member of the Politburo
Standing Committee.
Among the current 25 members, nine are in the Politburo Standing Committee;
four are the heads of other key CPC organizations; five are key members of the
State Council; five are party secretaries of important regions in China (Beijing,
Chongqing, Guangdong, Shanghai and Tianjin) and two are senior officials of
NPC and CPPCC.
The Politburo Standing Committee
(中央政治局常务委员会 )
It reports to the Central Committee.
The Standing Committee appears to be the mo st important decision maker for the
CPC presently. It acts on the Politburo’s beha lf when the latter is not in session.
Over the years, the Standing Committee’s membership varied between five and
nine (currently nine). The makeup of th is committee is closely watched for clues
to governing philosophies and potential policy directions. The members probably meet every one or two weeks at least.
The current nine members, ranked by seni ority within the party hierarchy, are:
„ Mr. HU Jintao, the General Secr etary of the Central Committee
„ Mr. WU Bangguo, the head of the NPC
„ Mr. WEN Jiabao, the Premier
„ Mr. JIA Qinglin, the head of the CPPCC
„ Mr. LI Changchun, the head of the Spiritual Civilization Steering Committee
of the CPC Central Committee (中央精神文明建设指导委员会 )
„ Mr. XI Jinping, the Vice President of China, a Vice Chairman of the CPC
Central Military Commission ( 中共中央军事委员会 ), the head of the Central
Communist Party School ( 中央党校 )
„ Mr. LI Keqiang, a Vice Premier
„ Mr. HE Guoqiang, the head of t he Central Commission for Discipline
Inspection of CPC ( 中央纪律检查委员会 )
„ Mr. ZHOU Yongkang, the head of the Central Politics and Law Committee of
CPC (中央政法委 )

China
17 January 2012
12 The Secretariat of the CPC Central Committee
(中共中央书记处 )
The Secretariat reports jointly to the Politburo and its Standing Committee. The
General Secretary presides over the work of the Secretariat.
The Secretariat is the administrative bod y of the Politburo and the Politburo
Standing Committee. Its members are no minated by the Standing Committee and
are endorsed by the Central Committ ee in plenary session. One of the
Secretariat’s most important roles is to appoint senior officials in both the party
and the state. In recent year s, its leading secretary also holds the role of the head
of the Central Communist Party School.
The Secretariat currently has six secretarie s (ranked by seniority): Mr. XI Jinping,
Mr. LIU Yunshan (Politburo member, head of the CPC’s Department of Publicity),
Mr. LI Yuanchao (Politburo member, head of the CPC’s Department of
Organization), Mr. HE Yong (a deputy head of CPC’s Central Commission for
Discipline Inspection, Mr. LING Jihua (the head of the General Office of the CPC
Central Committee, or 中央办公厅 ), Mr. WANG Huning, the head of the Policy
Research Office of the CP C Central Committee, or 中央政策研究室 ).
General Office of the CPC Central Committee
(中共中央办公厅 )
The office reports to the Central Commi ttee. It provides administrative and
security support to members of the Cent ral Committee. The head of the office is
often promoted to important positions afterwards. Mr. WEN Jiabao, the current
Premier, and Mr. ZENG Qinghong, a fo rmer Vice President of China, both
serviced as the office head at one time. The current head is Mr. LING Jihua who
also services as a secretary at the Se cretariat of the CPC Central Committee.
The Central Military Commission of CPC
(中央军事委员会 )
It reports to the Central Committee and is th e top authority of the military force in
China. The commission currently has 12 members, including a chairman, Mr. Hu
Jintao, and three vice chairmen (Mr. XI Jinping, Mr. GUO Bo xiong and Mr. XU
Caihou). All of them are Politburo memb ers. The other members are generally
drawn from various branches of the armed force. One of the members, currently
the fifth ranked Mr. LIANG Guanglie, also serves as the defense minister.
The Central Commission for Discipline
Inspection of CPC ( 中央纪律检查委员会 )
It is the top authority within the CPC to crack down on corruption and non-
compliance of party rules by party mem bers. Just like a company has its audit
office reporting to its board (not managem ent), the Commission reports directly to
the National Party Congress and not the Central Committee. The Commission has jurisdiction only over CPC members. It has a counterpart at the State, the
Ministry of Supervision ( 监察部 ) to control non-compliant government officials.
Since 1993, the two institutions have be en working closely together with the
Commission taking the lead. The commission currently has 127 members,
comprised of a secretary, 8 deputy se cretaries, a standing committee of 19
members (including the 9 secretaries and deputy secretaries), and another 108
members. According to custom, the secret ary of the Commission is a member of
the Politburo Standing Committee. The curr ent secretary, Mr. Mr. HE Guoqiang,
is the 8
th ranked member of the Standing Committee.

China
17 January 2012

13The Central Politics and Law Committee of
CPC(中央政法委 )
It reports to the CPC’s Central Committ ee. The Committee is the top authority
within the CPC to manage public security issues. It supervises the works of five
important law and order institutions: Ministry of Public Security ( 公安部 ), Ministry
of State Security ( 国家安全部 ), Ministry of Justice ( 司法部 ), The Supreme
People’s Court ( 最高法院 ) and Supreme People’s Procuratorate ( 最高人民检察院 ).
The Ministry of Public Security runs the armed police force which is responsible
for handling major social unrest in China. The Committee currently has 12 members with its head, Mr. ZHOU Yongkang, as the 9
th ranked member of the
Politburo Standing Committee.
The Policy Research Office of the CPC Central
Committee ( 中央政策研究室 )
It reports to the Politburo and services as the think tank of the CPC – it’s
responsible for formulating ideas such as Three Represents and Harmonious
Society. The office has 10 branches and it tracks economic, political and social
issues, conducts research on future policies, and prepares speeches and documents for top leaders. The head of t he office often works as an important
counselor to top leaders in the party. T here are media reports that the current
head, Mr. WANG Huning, is a candidat e to be promoted to the Politburo Standing
Committee at the 18
th National Congress.
The United Front Work Department
(中共中央统战部 )
It reports to the CPC Central Committee. The Department works with State Ethnic
Affairs Commission ( 国家民委 ) to manage relations with non-Communist Party
entities including democratic parties, minorities, religious organizations and
oversea Chinese. It also works with Depa rtment of Publicit y to promote party
policies and visions.
Department of Publicity ( 中共中央宣传部 )
It reports to the CPC Central Committee. It is in charge of ideology-related work as well as publicity. It has a direct leadership role in the media sector in China. For example, it works with the State Ad ministration of Radio, Film and Television
(SARFT) and the General Administra tion of Press and Publication (GAPP) to
control media licenses. The chief editors of major media outlets regularly attend
the weekly meetings held by the department to receive instructions. Sometimes
the department even provides detailed gui deline to media organizations on how
to report certain sensitive issues. Its mouthpieces are Guangming Daily ( 经济日报 )
and Economic Daily ( 经济日报 ), who also publishes Securities Daily ( 证券日报 ).
Department of Organization ( 中共中央组织部 )
It reports to the CPC Central Committee. It’s tasked with CPC’s personnel issues,
thus considered one of the most import ant and powerful departments both within
the CPC and the government. There are medi a reports that the current head, Mr.
LI Yuanchao, is a candidate to be promot ed to the Politburo Standing Committee
at the 18th National Congress. The day-to -day affairs of the department are run
by the Central Leading Group for Party Building Work ( 中央党的建设工作领导小
组), currently headed by Mr. XI Jinping , Mr. HE Guoqiang and Mr. LI Yuanchao.

China
17 January 2012
14 The office of the Foreign Affairs Leading Group
(中央外事办公室 )
It serves the Foreign Affairs Leading Group ( 中央外事工作领导小组 ), the key
decision making body for foreign affairs within the party. The Leading Group
reports to the Politburo directly and currently has 16 members, including one
head, one deputy head and 14 members drawn from various departments of the CPC Central Committee, the CPC Centra l Military Commission and the State
Council. Usually the President and the Vice President serve as the head and
deputy head of the group respectively.
International Communication Office
(中央对外宣传办公室 )
The office is also called the State Council Information Office ( 国务院新闻办公室 ).
It reports to the CPC Central Committee an d the State Council jointly. It assists
the Committee and the State Council to introduce a broad range of topics,
including policies, economic and social developments and Chinese history, to the
world via media reports, news conferences, books and videos.
Central Leading Group on Financial and
Economic Affairs ( 中央财经领导小组 )
The group reports to the Politburo. It c oordinates economic related works among
various ministries and organizations. Headed by Premier Wen, its key members
include the four vice premiers, the head of NDRC, MOF, PBOC, SASAC, CSRC and CIRC.
Central Rural Work Leading Group
(中央农村工作领导小组 )
The group reports to the Politburo. It coordinates policy research and
implementation of rural issues, including agric ulture, water facility, logistics, social
security and rural area housing construction. It is headed by the vice premier in charge of agriculture, currently Mr. HUI Liangyu.

China
17 January 2012

15The State
Constitution wise, the highest authority in China is the National People’s
Congress (NPC). The executive arm of t he NPC is the State Council, headed by
the Premier. The State Counc il’s day-to-day affairs are coordinated by its General
Office, headed by a secretary-general who is usually also a st ate councilor. The
State Council normally comprises of the Prem ier, vice premiers, state councilors,
ministers, heads of the commissions, t he head of the National Audit Office and
the secretary-general of t he General Office. Chart 2 sh ows the structure of the
State Council and its key divisions.
Premier/Vice Premiers ( 国务院总理/副总理)
The Premier, as the head of the State Council, le ads the government to
implement policies set by the NPC. In practice, he takes orders from the Politburo’s standing committee.
The four vice premiers all have their spec ific areas of responsibilities. The first
vice premier is usually the acting Premie r when the Premier travels overseas. He
is also normally the designated successo r to the Premier. Both the Premier and
the first vice premier are members of t he Politburo’s Standing Committee, and the
other three vice premiers are members of the Politburo. The current Premier and vice premiers are:
„ Mr. WEN Jiabao: the Premier
„ Mr. LI Keqiang: the first vice premier. Key responsibilities: reform, prices,
fiscal matters, statistics and healthcare (including food safety)
„ Mr. HUI Liangyu: vice premier. Key responsibilities: agriculture (including
forestry and water facilities), ethnic and religious issues
„ Mr. ZHANG Dejiang: vice premier. Key responsibilities: industrial production, telecommunication, energy and transportation
„ Mr. WANG Qishan: vice premier. Key responsibilities: finance (including financial system reform), trading, Ch ina Customs, tourism, and quality
inspection.
The major mouthpiece for the State Council is Xinhua News Agency ( 新华社 ),
who also publishes Outlook ( 瞭望), Economic Information ( 经济参考报 ), China
Securities Journal ( 中国证券报 ), and Shanghai Securities News ( 上海证券报 ).
There are reports that Mr. ZHANG Deji ang and Mr. WANG Qishan are candidates
for membership to the next Politburo Standing Committee.

17 January 2012

China
16
Chart 2: The State Council organizations
General Office of the State Council
国务院办公厅
Ministries and Commissions under the State Council
国务院组成部门Special organization directly under the State Council
国务院直属特设机构
Ministr y of Forei gn Affairs 外交部
Ministr y of National Defense 国防部
National Develo pment and Reform Commission 发改委
Ministr y of Education 教育部
Ministr y of Science and Technolo gy 科技部
Ministr y of Industr y and Information Technolo gy 工信部 General Administration of Customs 海关总署 *
State Ethnic Affairs Commission 国家民委 State Administration of Taxation 国税局
Ministr y of Public Securit y 公安部 State Administration for Industr y and Commerce 工商行政管理总局 *
Ministr y of State Securit y 安全部 General Administration of Qualit y Supervision, Ins pection and Quarantine 质检局
Ministr y of Su pervision 监察部 State Administration of Radio, Film and Television 广电总局 *
Ministr y of Civil Affairs 民政部 General Administration of Press and Publication 新闻出版总署 *
Ministr y of Justice 司法部 General Administration of S port 体育局
Ministr y of Finance 财政部 State Administration of Work Safet y 安全生产监督管理总局 *
Ministr y of Human Resources and Social Securit y 人保部 National Bureau of Statistics 统计局
Ministr y of Land and Resources 国土部 State Forestr y Administration 林业局
Ministr y of Environmental Protection 环保部 State Intellectual Pro perty Office 知识产权局
Ministr y of Housin g and Urban-Rural Develo pment 住建部 National Tourism Administration 旅游局
Ministr y of Trans port 交通部 State Administration for Reli gious Affairs 宗教事务局
Ministr y of Railwa y 铁道部 Counsellors' Office of the State Council 国务院参事室
Ministr y of Water Resources 水利部 Government Offices Administration of the State Council 机关事务管理局
Ministr y of Agriculture 农业部 National Bureau of Corru ption Prevention 防腐局
Ministr y of Commerce 商务部
Ministr y of Culture 文化部
Ministr y of Health 卫生部
National Po pulation and Famil y Plannin g Commission 计生委
People's Bank of China 人民银行
National Audit Office 审计署 Overseas Chinese Affairs Office of the State Council 国侨办
Hong Kong and Macao Affairs Office of the State Council 港澳办
Legislative Affairs Office of the State Council 法制办
Research Office of the State Council 国务院研究室
Administrations and Bureaus under the Ministries & Commissions
国务院部委管理的国家局
State Bureau for Letters and Calls 信访局
State Administration of Grain 粮食局
National Ener gy Administration 能源局 Xinhua News A gency 新华社
State Administration of Science , Technolo gy and Industr y for National Defense 国防科工局 Chinese Academ y of Sciences 中科院
State Tobacco Mono poly Administration 烟草局 Chinese Academ y of Social Sciences 社科院
State Administration of Forei gn Experts Affairs 外国专家局 Chinese Academ y of En gineerin g 工程院
State Bureau of Civil Servants 公务员局 Develo pment Research Center of the State Council 国务院发展研究中心
State Oceanic Administration 海洋局 Chinese Academ y of Governace 行政学院
National Administration of Surve ying, Mapping and Geoinformation 测绘局 China Earth quake Administration 地震局
Civil Aviation Administration of China 民航局 China Meteorolo gical Administration 气象局
State Post Bureau 邮政局 China Bankin g Regulator y Commission 银监会
State Administration of Cultural Herita ge 文物局 China Securities Re gulator y Commission 证监会
State Food and Dru g Administration 药管局 China Insurance Re gulator y Commission 保监会
State Administration of Traditional Chinese Medicine 中医药管理局 State Electricit y Regulator y Commission 电监会
State Administration of Forei gn Exchan ge 外管局 National Council for Social Securit y Fund 社保基金理事会
State Administration of Coal Mine Safet y 煤矿安全监察局 National Natural Science Foundation 自然科学基金委员会Institutions directly under the State Council
国务院直属事单位Organizations directly under the State Council
国务院直属机构
Administrative offices under the State Council
国务院办事机构State-owned Assets Supervision and Administration Commission of the State Council
国资委

Source: Xinhua News Agency, BofA Merrill Lynch Global Research

China
17 January 2012

17State Councilors ( 国务院国务委员 )
The councilors report directly to the Prem ier. They are often current or former
heads of key ministries/organizations in the State Council and they support the
Premier in areas where they have special expertise. In many ways, they act as
vice premiers but with a lower rank – unlike vice premiers, they are not always members of the Politburo.
Currently there are five state councilors:
„ MS. LIU Yandong: a vice chairman of Chinese People's Political Consultative
Conference (CPPCC, 全国政协 ). Key responsibilities: education, technology,
culture, sports, coordination with Hongkong and Macau
„ Mr. LIANG Guanglie: a Marshal, a memb er of the CPC Central Military
Commission, Minister of National Defense
„ Mr. MA Kai: ex-head of NDRC, the current head of General Office of the
State Council. Key responsibilities: economic issues
„ Mr. MENG Jianzhu: Minister of Public Security
„ Mr. DAI Bingguo: ex-deputy minister of Foreign Affairs. Key responsibilities:
foreign affairs
There are reports that Ms . LIU Yandong is a candidate for membership to the
next Politburo Standing Committee.
General Office of the State Council
(国务院办公厅 )
The General Office supports t he State Council leaders in administrative issues,
such as policy issuance, communication with ministries/local governments, and
meeting arrangement. Theref ore, all policies issued by the Office are actually
from the State Council leaders.
The office is headed by Mr. MA Kai, the secretary-general ( 秘书长 ) and a State
Councilor. It currently has ten deputy heads ( 副秘书长 ), 43 high-level officials,
and 465 employees. Many deputy heads ar e dedicated helpers of senior State
Council leaders: Ms. JIANG Xiaojuan – Premier WEN Jiabao, Mr. YOU Quan –
vice premier LI Keqiang, Mr. ZHANG Yong – vice premier HUI Liangyu, Mr. XIAO
Yaqing – vice premier ZHANG Dejiang, Mr. BI Jingquan – vice premier WANG Qishan, Mr. XIANG Zhaolun – State Councilor LIU Yandong, Mr. WANG
Yongqing – State Councilor MENG Jianzhu.
Development Research Center of the State
Council ( 国务院发展研究中心 )
It’s the State Council’s think tank. It is a leading policy research and consulting
institution comprised of well known econom ists and high-profile industry experts.
In the past, its recommendations have often been adopted by the government
ultimately.
General Administration of Customs ( 海关总署 )
It works with Ministry of Commerce (MOC) to supervise and manage imports and
exports of goods and services. It is also in charge of immigration control,
import/export related tax collection, smugg ling control and participate in port
management.

China
17 January 2012
18 General Administration of Press and
Publication ( 新闻出版总署 )
It regulates news and all print and Internet publications in China. It grants
publication licenses for periodicals and books.
It works closely with Ministry of Culture and the State Administration of Radio,
Film and Television (SARFT) to regulate media and entertainment businesses in
China, including both content production and distribution over TV, radio, print and
internet media and for movie and events. The three organizations’ roles intertwine. For example, GAPP supervises an internet company’s news portal service, SARFT oversees its online video business, and Ministry of Culture monitors its
online gaming part.
General Administration of Quality Supervision,
Inspection and Quarantine ( 国家质量监督检验检
疫总局 )
It is in charge of national quality in spections, entry/exit quarantine, and import-
export food safety inspection. Usually it works with General Administration of
Customs for import and export businesses. For example when importing goods, a
firm should first get a food safety certific ate from the General Administration, and
then send the documents to General Ad ministration of Customs to apply for
customs clearance; Ministry of Agriculture (MOA) is also involved when importing
agricultural products e.g. soybeans.
National Audit Office ( 国家审计署 )
It audits budget implementation, revenues and expenditures for the State Council
and government institutions at various le vels, state-owned financial institutions,
and state-owned enterprises and projects . It holds the National Audit Working
Conference ( 全国审计工作会议 ) every year to publish the results.
National Bureau of Statistics ( 国家统计局 )
It is responsible for statistics collection and analysis, and economic accounting in
China. It verifies, approves, administrates and publishes basic national statistics periodically including GDP, CPI and PPI. It also helps to conduct Population Census ( 人口普查 ) every 10 years and Economic Census ( 经济普查 ) every 5
years focusing on secondary and tertiary industries.
National Development and Reform Commission
(国家发展和改革委员会 )
The commission (NDRC) is widely consider ed the top government organ to run
the economy. Some even refer to it as the junior State Council because it's a
general purpose organization, i.e. coveri ng many sectors, and it focuses on policy
implementation. Its head is often promot ed to be a vice premier or a state
councilor given his/her rich experience in general management. The Commission
leads and coordinates China’s five-year planning.
It currently has 28 departments and the key ones are:
„ Department of Policy Studies ( 政策研究室 ): its research arm. The head also
serves as the NDRC spokesperson

China
17 January 2012

19„ Department of Development Planning ( 发展规划司 ): regional development
and coordination
„ Department of National Economy ( 国民经济综合司 ): coordination among
industries
„ Department of Employment and Income Distribution ( 就业和收入分配司 ):
employment, human resources, income distribution and social security
issues
„ Department of Price ( 价格司 ): price monitoring and intervention
„ Department of Price Supervision ( 价格监督检查与反垄断局 ): price
supervision and inspection
NDRC also runs the National Energy Administration.
National Population and Family Planning
Commission ( 国家人口和计划生育委员会 )
As the top authority of family planning policy, it develops population development
strategy with Ministry of Human Resources and Social Security (MOHRSS).
Ministry of Agriculture ( 农业部 )
The Ministry (MOA) is responsible for agric ulture, forestry and fishing. It forecasts
the supply & demand of agricultural prod ucts in China and assesses the impact of
natural disasters. On food safety issues, MOA works closely with other ministries.
For example, when investigating the melamine scandal, MOA worked on dairy
farms, Ministry of Industry and Information Technology (MIIT) on dairy processors,
Ministry of Commerce (MOC) on dairy dist ributors, Ministry of Health (MOH) on
melamine addictive and human impact, and Ministry of Public Security on criminal activities. The ministry also works closely with MOHRSS on migrant workers related issues (as it provides forecast on the labor force needed by agriculture); with MOC on supervising the fertilizer industry; and with the State Grain
Administration ( 国家粮食局 , a division of NDRC) to manage grain distribution.
Ministry of Civil Affairs ( 民政部 )
It is in charge of disaster relief, social relief, charity work, and support to elderly or
disabled people. It looks after the welfares of low income groups in both urban and rural areas. The ministry is also involved in administrative division adjustments such as mergers of cities. It focuses on special events (e.g. natural
disasters) and specific groups (e.g. di sabled people) while MOHURSS serves the
general public on a day-to-day basis. As the authority of charity work, it grants
licenses to charity organizations and recognizes corporate donations for tax
deduction purpose.
Ministry of Commerce ( 商务部 )
A key ministry in economic area, the ministry (MOC) is responsible for both
domestic and foreign trade & investment, in cluding an active role in maintaining
import/export tax scheme, regulating comp etition and industry consolidation.
MOC needs to coordinate with other minist ries on trade issues. For example, to
cut import duty on luxury goods, it needs to reach agreement with the General
Customs and Ministry of Fina nce (MOF, or the treasury).

China
17 January 2012
20 Ministry of Culture ( 文化部 )
Together with GAPP and SARFT, it manages China’s media and entertainment
business. It is the authority overseeing internet gaming.
Ministry of Education ( 教育部 )
Responsible for education related issues on all levels, both private and public. All
education institutions must register with it.

Ministry of Environmental Protection
(环境保护部 )
The ministry (MOEP) is in charge of po llution prevention, investigation and
damage control. Most manufacturers need an approval from the ministry or its
local branches before they can start oper ation. For pollution incidents, the
ministry will investigate the issue, penalize the culprit, and coordinate to clean
them up. Companies must obtain its approv al before they can raise funds in the
stock market. It is also the authority on carbon trade and resources recycling. The
ministry’s influence has risen significantly after it gained ministerial status (with its
own independent source of funding) in 2008.
Ministry of Finance ( 财政部 )
The Ministry (MOF) is the treasury of the Chinese government. It is also the
ultimate holder of the state owned banks in China via its control of Huijin.
Although SASAC controls large SOE non-fi nancial companies, MOF’s opinion is
still important for major assets transactions. It works closely with State Administration of Taxation (SAT) on tax related issues, including the real estate
tax and resources tax reforms.
Ministry of Foreign Affairs ( 外交部 )
In addition to foreign affairs, it often wo rks together with MOC on issues related to
China’s foreign trade & investment, and PBOC on Rmb exchange.
Ministry of Health ( 卫生部 )
Responsible for the country’s healthcar e issues, the ministry (MOH) manages
China’s drug makers, distributors and health care service providers. It also leads
China’s healthcare reforms including the promotion of the Essential Drug list
(EDL). For social securi ty coverage, MOH works closely with MOHRSS and MOA
on the basic healthcare insurance coverage in urban/rural areas. One of MOH’s
branches is the State Food an d Drug Administration (SFDA, 国家食品药品监管局 ),
responsible for food & drug safety in China. For example, SFDA led the
investigation of the melamine incident, and is currently working on restriction of
antibiotics usage. Another branch is t he State Administration of Traditional
Chinese Medicine ( 国家中医药管理局 ).
Ministry of Housing and Urban-Rural
Development ( 住房和城乡建设部 )
The ministry (MOHURD) is responsible for property (commercial & social)
development and construction. It works closely with Ministry of Land Resources (MOLR) on land supply and MOF on the gover nment’s social housing project. It is
the one that implemented the home purchase restriction (HPR) and required local
governments to control local housing/rental prices. Although the ministry is
responsible for most civil facilities, the c onstruction of transportation infrastructure
is under the control of Ministry of Rail way (MOR) and Ministry of Transport (MOT).

China
17 January 2012

21Ministry of Human Resources and Social
Security ( 人力资源和社会保障部 )
Other than reporting to the State Council, the ministry (MOHRSS) also reports to
the CPC’s Organization Department due to its responsibility in managing civil
servants (many are party members). The mi nister and a vice minister are deputy
heads of the Organization Department. This is similar to the joint work between Ministry of Supervision ( 监察部 ) and CPC’s Commission for Discipline Inspection.
MOHRSS is the authority in China on labor, wage and social security issues. It is
one of the key ministries on migrant worker and minimum wage issues. A vice minister of MOHRSS also serves as the vice chairman of All China Federation of
Trade Unions ( 中华全国总工会 ), the main driver of collective bargaining in China.
Ministry of Industry and Information
Technology ( 工业和信息化部 )
The ministry (MIIT) regulates most manufacturing and telecom/technology
industries in China. It tends to fo cus on the production side while MOC,
distribution. MIIT generally regulates an industry by formulating industry policies
and standards, e.g. definiti on of new energy cars, communicating with industry
players via industry associations or dire ct dialogues. It’s also a key promoter of
China’s strategic industries , including three network integration, cloud computing,
and the Sensor Net ( A primer on China’s seven strategic industries , Jan 17).
Ministry of Justice ( 司法部 )
It manages prisons and detention centers. As part of the law and order organ in
China, it works close with the Supreme Cour t, the Ministry of Public Security, and
the Supreme Procuratorate.
Ministry of Land and Resources ( 国土资源部 )
The ministry (MOLR) controls China’s land supply in both urban and rural areas. For example, if a local government wants to convert a piece of arable land into
commercial land, it must obtain an approval from the ministry. MOLR prepares a
blacklist of developers for CBRC and CSRC to restrict their fund raising activities
if they are found hoarding land. As the aut hority of mining rights, it grants permits
for exploration and mining activities, e.g. t he mining quota of rare earth. It is also
in charge of marine resources. The State Oceanic Administration, which
investigated the recent oil leakage case in the Bohai Bay, reports to the ministry.
Ministry of National Defense ( 国防部 )
The Ministry reports jointly to the St ate Council and the CPC Central Military
Commission. In general, it is considered a representative office of the Central
Military Commission in the State Counc il. Its current minister, Mr. LIANG
Guanglie, is a member of the Commission.
Ministry of Public Security ( 公安部 )
The ministry reports jointly to the St ate Council and CPC’s Central Politics and
Law Committee. It runs China’s police force, including the armed police, and is responsible for public security issues within China and along the border. Many ministries maintain a police force, including MOR, MOT, Civil Aviation Administration of China (CAAC, 民航局 ), State Forestry Administration ( 林业局 ),
and the Anti-smuggling Bureau within General Administration of Customs.
However, these forces all report to the Ministry of Public Security as well.

China
17 January 2012
22 Ministry of Railway ( 铁道部 )
The ministry (MOR) is responsible for railway network planning, financing,
construction and operation. Due to histor ical reasons (being a key part of the
national defense system), the ministry is fairly independent, e.g. it has its own
police force and court system, and self sufficient with equipment production and railway construction. Recently, there have been discussions on merging MOR
into Ministry of Transport and/or spinning off its passenger/rail grid.
Ministry of Science and Technology ( 科技部 )
It is in charge of technology research and development. It participates in the
recognition of high-tech companies (impor tant as a recognition allows a company
to enjoy favorable tax treatment), and t he set-up of industry standards, such as
new energy cars and renewable energy.
Ministry of State Security ( 国家安全部 )
The ministry is in charge of foreign intelligence. It may participate in the investigation when a foreign investor pl ans to acquire crucial resources or
infrastructure in China.
Ministry of Supervision ( 监察部 )
It reports jointly to the State Council and CPC’s Commission for Discipline Inspection. Together with the Commission, the ministry supervises government officials at all levels. The dual system is based on the fact that many government
officials are CPC members, so neither organization can take action on its own.

Ministry of Transport ( 交通运输部 )
It is responsible for the construction and operation of non-railway transportation
facilities, including ports, highway, waterway, airway and metro. It also supervises
their service providers. On toll roads, t he ministry monitors fee collection and
traffic volume. However, in many cases, local governments have a bigger say on toll fee scheme.
Ministry of Water Resources ( 水利部 )
The ministry is responsible for water resources protection, flood control and
drought relief. Given the frequent floods/dro ughts in China, the ministry’s work is
important to ensure food security for China. It supervises the construction and operation of irrigation system, including dam and hydro power plants.
People’s Bank of China ( 中国人民银行 )
It is China’s central bank. It is the only in stitution that has t he authority to control
money supply and loan quota, set interest rate and reserve requirement ratio (RRR), implement open market operati ons, and manage FX/gold reserves. One
of its divisions, the State Administ ration of Foreign Exchange (SAFE, 国家外汇管
理局) runs the RMB exchange rate scheme. Monetary Policy Department is
another important division of PBOC, re sponsible for formulating & adjusting
monetary policies and using different m onetary policy instruments and measures
to manage macroeconomic trends. The major mouthpiece for PBOC is Financial
News (金融时报 ).

China
17 January 2012

23State Administration for Industry & Commerce
(国家工商行政管理总局 )
The administration (SAIC) helps to oversee market transactions, business
registration, supervise food safety, and protect consumer interest. In general, all
businesses need to file their financial st atements with the relevant local SAIC
branch. Occasionally, published financia l data by listed companies may differ
significantly from their SAIC filings. Th is may serve as a warning signal of
accounting fraud ( Three common accounting frauds; three ways to find out , Jun
20).
State Administration of Radio Film and
Television ( 国家广播电影电视总局 )
The administration (SARFT) regulates the television, radio and film industries.
China Central Television (CCTV), China National Radio, China Radio
International, as well as other movie and television studios at all levels, are all
reporting to SARFT. It has been working with MIIT on the three-network integration initiative.
State Administration of Taxation ( 国家税务总局 )
It’s responsible for tax collection in China – tax usually accounts for over 85% of the government’s total in-budget fiscal in come. It also helps to draft tax law and
regulations, and measure the overall tax burden.
State Ethnic Affairs Commission
(国家民族事务委员会 )
It reports jointly to the State Council and the United Front Work Department. In
charge of ethnic affairs, the commission ha s an important role in the development
of western China and other border region s as many minority groups live there.
State-owned Assets Supervision and
Administration Commission of the State
Council ( 国务院国有资产监督管理委员会 )
It owns and manages stated owned enterprises (SOEs) except financial
institutions (which are owned by Huijin under MOF). It works with MOHRSS to regulate wages and remunerations of SOE t op executives. It is also responsible
for the evaluation of SOE executives.
Social Housing Project Coordination Group
(保障性安居住房工程协调小组 )
It coordinates the social housing program among various ministries. It is led by
MOHURD and participated by NDRC, MOF, Minist ry of Civil Affairs, State Ethnic
Affairs Commission, Ministry of Supervi sion, MOLR, MOEP, MOT, Ministry of
Water Resources, MOA, MOH, PBOC, NA O, State Forestry Administration,
CBRC, and the State Council Leading Gr oup Office of Poverty Alleviation and
Development. Mr. JIANG We ixin, minister of MOHURD, is the current group
leader. He is supported by three deputies: Mr. MU Hong (a deputy head of
NDRC), Mr. DING Xuedong (a vice minister of MOF) and Mr. LUO Pingfei (a vice
minister of Ministry of Civil Affairs).

China
17 January 2012
24 The State Council Leading Group of Poverty
Alleviation and Development
(国务院抚贫开发领导小组 )
It is currently led by Mr. HUI Liangyu, a vice premier. He is supported by one
deputy – Mr. FAN Xiaojian, ex-deputy mi nister of MOA. Other participating
organizations include the General Office of the State Council, PLA General
Political Department ( 总政治部 ), NDRC, MOF, MOA, PBOC, Ministry of Education,
MOST, State Ethnic Affairs Commission, Ministry of Civil Affairs, MOHRSS,
MOLR, MEP, MOT, MWR, MOC, Ministry of Culture, MOH, National Population
and Family Planning Commission, SARFT, NBS, State Forestry Administration
(林业局 ), ABC (农业银行 ), All China Federation of Supply and Marketing
Cooperatives ( 中华全国供销合作总社 ), ACFTU, Central Committee of China
Communist Youth League ( 团中央 ), All-China Women’s Federation ( 全国妇联 ),
and China Disabled Persons’ Federation ( 中国残联 ).
The Leading group for Western Region
Development of the State Council
(国务院西部地区开发领导小组 )
It coordinates the development in the wester n regions of China, including drafting
and the implement of development plans, promoting economic reform, speeding
up infrastructure construction, protecting ecological environment, adjusting
economic and industrial structure. It is headed by Premier Wen, supported by
vice premier LI Keqiang. There are 24 ministries and departments participating in
this leading group.
The Leading group for Promoting SMEs
Development of the State Council (国务院促进中小企业发展工作领导小组 )
It is currently headed by Mr. ZHANG Dejiang, a vice premier. He has three
deputies: Mr. MIAO Wei, MIIT minister; Mr. XIE Xu ren, MOF minister and Mr.
XIAO Yaqing, deputy General Secretary of the State Counc il. Participating
organizations include MIIT, NDRC, MO ST, MOF, MOHRSS, MOA, MOC, PBOC,
General Administration of Customs, SAT, SAIC, General Administration of Quality
Supervision, Inspection and Quarantine, NBS, CBRC, CSRC, China
Development Bank ( 国家开发银行 ), and All-China Federation of Industry &
Commerce ( 全国工商联 ).

China
17 January 2012

25The Legislature
The National People’s Congress ( 全国人民代表大会 ), or NPC, is the highest
authority in China according to the Constitution. Its main functions and powers
include making laws, delegating authorities, formulating policies, and supervising other government institutio ns. The congress is held once every year in Beijing
with about 3,000 delegates elected fr om various groups of the society.
When not in session, the NPC Standing Co mmittee is charged with running the
day-to-day affairs of the Congress. NPC has 9 special committees and they
report to the Standing Committee (Chart 3).
NPC Standing Committee
(全国人大常委会 )
It has the authority to modify legislation, thus acting as a de facto legislative body.
It can also interpret any Chinese laws, including the Constitution. The Standing
Committee conference is held once every two months. At these meetings, new
laws or revisions to existing laws are approved. Appointments or dismissals of ministers must also be approved at these meetings as well.
NPC Standing Committee is currently co mprised of 1 head, 13 deputy heads
(with one also serving as the General Secretary of the Standing Committee), and
161 other members. All the members are el ected for a term of five years, while
the head and deputy heads can serve no more than 2 consecutive terms.
Because of its special responsibility, none of the NPC Standing Committee
members can hold a position in any admini strative, judicial or procuratorial
institutions. The current head, Mr. WU Bangguo, ranks the second in the CPC
Politburo Standing Committee.
Education, Science, Culture and Public Health
Committee ( 全国人大教科文卫委员会 )
It currently is comprised of 1 head (Mr. BAI Keming), 12 deputy heads and 26
other members.
Environment Protection and Resources Conservation Committee
(全国人大环境与资源保护委员会 )
The Committee is currently comprise d of 1 head (Mr. WANG Guangtao), 16
deputy heads and 17 other members.
Financial and Economic Affairs Committee
(全国人大财政经济委员会 )
The Committee is currently comprised of 1 head (Mr. SHI Xiushi), 17 deputy
heads (including MS. WU Xiaoling, an ex-deputy governor of PBOC, Mr. HE Keng,
an ex-deputy head of NBS, and Mr. YI N Zhongqing), and 21 other members.
Law Committee ( 全国人大法律委员会 )
Compared to other committees, it’s more heavily involved with drafting and
reviewing laws. It is currently comprised of 1 head (Mr. HU Kangsheng), 8 deputy heads and 14 other members. Most of it s members are also the NPC Standing
Committee members.

17 January 2012

China
26
Chart 3: NPC organizations
The National People's Congress
全国人民代表大会
NPC Standing Committee
全国人大常委会
NPC Chairmen's Council
委员长会议
Special Committees
专门委员会Working and Administrative Bodies of the Standing
Committee
工作和办事机构Credentials Committee
代表资格审查委员会
Ethnic Affairs Committee 民族委员会 General Office 办公厅
Law Committee 法律委员会 Legislative Affairs Commission 法制工作委员会
Internal and Judicial Affairs Committee 内务司法委员会 Budgetary Affairs Commission 预算工作委员会
Financial and Economic Affairs Committee 财政经济委员会
Forei gn Affairs Committee 外事委员会
Overseas Chinese Affairs Committee 华侨委员会 Special committee general office 专门委员会办事机构
Agriculture and Rural Affairs Committee 农业与农村委员会HK Special Administrative Region Basic Law
Committee 香港特别行政区基本法委员会
Macao Special Administrative Region Basic LawCommittee 澳门特别行政区基本法委员会
Environment Protection and Resources Conservation
CommitteeEducation, Science, Culture and Public Health Committee
科教文卫委员会

Source: Xinhua News Agency, BofA Merrill Lynch Global Research

China
17 January 2012

27CPPCC
The Chinese People’s Political Consultative Conference (CPPCC 政协全国委员会 )
is a political advisory body to the NPC a nd the State Council in China. It consists
of delegates from a broad range of politic al parties and organizations as well as
independent members, although the larges t and dominant party remains the CPC.
CPPCC Congress is held once every five ye ars, normally in conjunction with the
NPC. It also holds an annual plenary session, again around the same time as the
NPC plenary sessions (usually in early March).
When CPPCC is not in session, its Standing Committee is charged with running
the day-to-day affairs of the Congre ss. CPPCC has 9 special committees and
they report to the Standing Committee (Chart 4).
CPPCC members are often retired seni or officials from CPC and the State
Council, well-known industry experts from academic and research institutions and
universities, and high-level managers fr om large SOEs or private enterprises.
CPPCC Standing Committee ( 政协常务委员会 )
The Committee is currently comprised of 1 president (Mr. JIA Qinglin), 25 vice
presidents (including Mr. QIAN Yunlu, the General Secretary of the Committee)
and 272 other members. It’s been a usual practice for retired heads of HK and
Macau governments to serve as a vice president. Mr. JIA Qinglin is currently the forth ranked member of the Politburo Standing Committee.
Committee of Education, Science, Culture,
Health and Sports ( 政协科教文化体卫委员会 )
It is currently comprised of 1 head, 21 deputy heads, and 99 other members.
Committee of Population, Resources, and
Environment ( 政协人口资源环境委员会 )
It is currently comprised of 1 head, 19 de puty heads, and 64 other members.
Economic Committee ( 政协经济委员会 )
It is currently comprised of 1 head, 20 deputy heads, and 67 other members.

17 January 2012

China
28
Chart 4: CPPCC organizations
The Chinese People's Political Consultative Conference
中国人民政治协商会议全国委员会
CPPCC Standing Committee
政协常务委员会
CPPCC Chairmen's Council
主席会议
General Office
办公厅Special Committee
各专门委员会
Committee for Handlin g Proposals 提案委员会
Economic Committee 经济委员会
Social and Le gal Affairs Committee 社会和法制委员会
Ethnic and Reli gious Affairs Committee 民族和宗教委员会
Foreign Affairs Committee 外事委员会Population, Resource, and Environment Committee
人口资源环境委员会
Education, Science, Culture, Health and Sports Committee
科教文卫体委员会
HK, Macao and Taiwan Overseas Chinese Affairs Committee
港澳台侨委员会
Cultural, Historical Data and Learning Committee
文史和学习委员会

Source: Xinhua News Agency, BofA Merrill Lynch Global Research

China
17 January 2012

29Major meetings/conferences
There are four major annual conferences we consider important for investors to
follow.
Central Economic Work Conference
(中央经济工作会议 )
It’s held jointly by CPC Central Committ ee and the State Council, normally in
early Dec. The conference, participated by policy makers from central and
provincial-level governments, is China’ s highest-level economic meeting. It
normally sets the tone for macro policies in the following year. For example, the
tone set for 2012 in Dec 2011 was “prudent monetary, proactive fiscal”.
Central Rural Work Conference
(中央农村工作会议 )
It’s held jointly by CPC Central Committ ee and the State Council, normally around
late December or early January. The conf erence is China’s highest-level meeting
on rural issues, including food security and rural income.
National Conference on Food Production
(全国粮食生产电视电话会议 )
It’s held by the State Council, normally in Feb.

Central Water Conservancy Work Conference
(中央水利工作会议 )
It’s held jointly by CPC Central Committ ee and the State Council, normally in
early July. It’s considered the highest-level meeting on water conservancy related
works. During the 2011 meeting, the central government pledged to invest
Rmb4tr over 10 years on rural irrigation works to ensure grain supply security and fight drought & floods.

China
17 January 2012
30 Appendix – Common acronyms
Table 1: Common acronym
ACFTU= All China Federation of Trade Union
CAAC= Civil Aviation Administration of China
CBRC= China Banking Regulatory Commission
CIRC= China Insurance Regulatory Commission
CPC= Communist Party of China
CPPCC= Chinese People's Politic al consultative Conference
CSRC= China Securities Regulatory Commission
DRC= Development Research Center of State Council
GAPP= General Administrati on of Press and Publication
MIIT= Ministry of Industry and Information Technology
MOA= Ministry of Agriculture
MOC= Ministry of Commerce
MOEP= Ministry of En vironmental Protection
MOF= Ministry of Finance
MOLR= Ministry of Land and Resources
MOH= Ministry of Health MOHURD= Ministry of Housing and Urban/Rural Development
MOHRSS= Ministry of Human Re sources and Social Security
MOR= Ministry of Railway MOST= Ministry of Science and Technology
MOT= Ministry of Transport
MWR= Ministry of Water Resources NAO= National Audit Office
NBS= National Bureau of Statistics
NDRC= National Development and Reform Commission NEA= National Energy Administration
NPC= National People's Congress
PBOC= People's Bank of China PLA= People's Liberation Army
SAFE= State Administration of Foreign Exchange
SAG= State Administration of Grain SAIC= State Administration of Industry and Commerce
SARFT= State Administration of Radio, Film and Television
SASAC= State-owned Assets Supervisi on and Administration Commission
SAT= State Administration of Taxation
SFDA= State Food & Drug Administration
Source: BofA Merrill Lynch research

Link to Definitions
Macro
Click here for definitions of commonly used terms.

China
17 January 2012

31
Important Disclosures

FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Invest ment Rating and an Income Rating. VOLATILITY RISK
RATINGS , indicators of potential price fluctuation, are: A – Low, B – Medium and C – High. INVESTMENT RATINGS reflect the analyst’s assessment of
a stock’s: (i) absolute total return potential and (ii) attractiveness for investment relative to other stocks within its Coverage Cluster (defined below).
There are three investment ratings: 1 – Buy stocks are expected to have a total return of at least 10% and are the most attract ive stocks in the coverage
cluster; 2 – Neutral stocks are expected to remain flat or in crease in value and are less attractive than Buy rated stocks and 3 – Underperform stocks
are the least attractive stocks in a coverage cluster. Analysts assign investment ratings considering, among other things, the 0-12 month total return
expectation for a stock and the firm’s guidelines for ratings dispersions (shown in the table below). The current price objecti ve for a stock should be
referenced to better understand the total return expectation at any given time. The price objective reflects the analyst’s view of the potential price
appreciation (depreciation).
Investment rating Total return expectation (within 12-month peri od of date of initial rating) Ratings dispersion guidelines for coverage cluster*
Buy ≥ 10% ≤ 70%
Neutral ≥ 0% ≤ 30%
Underperform N/A ≥ 20%
* Ratings dispersions may vary from time to time where BofA Merrill Lynch Research believes it better reflects the investment p rospects of stocks in a Coverage Cluster.
INCOME RATINGS , indicators of potential cash dividends, are: 7 – same/higher (dividend considered to be secure), 8 – same/lower (dividend not
considered to be secure) and 9 – pays no cash dividend. Coverage Cluster is comprised of stocks covered by a singl e analyst or two or more analysts sharing
a common industry, sector, region or other classification(s). A stock’s coverage cluster is included in the most recent BofA Me rrill Lynch Comment referencing the
stock.

Due to the nature of strategic analysis, the issuers or securities recommended or discussed in this report are not continuously followed. Accordingly, investors
must regard this report as providing stand-alone analysis and should not expect continuing analysis or additional reports relat ing to such issuers and/or securities.
BofA Merrill Lynch Research personnel (including the analyst(s) responsible for this report) receive compensation based upon, a mong other factors, the overall
profitability of Bank of America Corporation, including profits derived from investment banking revenues.

China
17 January 2012
32
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China
17 January 2012

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