China Cuts Red Tape, Seeks to Better Engage with Business Community

Posted by Written by Alexander Chipman Koty Reading Time: 4 minutes

China will continue to cut administrative red tape with an eye to improve the country’s business environment in 2019, the State Council recently announced.

At a meeting chaired by Premier Li Keqiang on February 20, the government put “high importance” on streamlining government administration, delegating powers, enhancing oversight, and providing better services, according to a release from the State Council.

More immediately, the government will cut 25 administrative approval items and reform the review system for construction projects.

Further, the government has pledged to better communicate and seek input from the business community, industry groups, and chambers of commerce when formulating and implementing policy.

Streamlining administrative approvals

According to the State Council, the government will minimize micromanagement as a basis for its reforms; it will instead delegate administrative powers and reduce the number of items needed for reviews.

In terms of immediate measures, the State Council said that it would cut 25 administrative approval items, including the pre-approval of corporate names prior to businesses registration and the preliminary review of domestically-produced medicines.

China will delegate a number of administrative approval items to lower-level government departments to make processes more efficient and less prone to bureaucratic bottlenecks.

Speeding up review process for construction projects

In addition, China will begin to implement a nationwide pilot program to review construction projects.

Construction projects will be reviewed by multiple government departments and agencies, but only one department will act as the lead agency.

Authorities aim to halve the review period for construction projects to 120 work days within the first half of the year as a result of the pilot program.

This is similar to last year’s “One Window, One Form” reform, which simplified business registration by offering applicants a single point of contact to complete the process.

The pilot construction review program is an extension of policies released in May 2018. At the time, the State Council introduced the pilot construction review system in 16 regions, planning a nationwide policy roll-out in the first half of 2019 and the establishment of a unified national approval and management system by 2020.

Consulting the business community

At the same State Council meeting, Li promised to consult businesses, industry associations, chambers of commerce, and other business community representatives when drafting and implementing laws and regulations.

According to the read-out, governments should solicit opinions from the business community for feedback when formulating policy. They must also offer transitional periods to allow businesses to prepare for new regulations.

The pledge to consult the business community should be welcomed by private enterprises in China.

China’s policymaking and implementation process is highly opaque and businesses are often blindsided by new laws and regulations.

Besides the scramble to comply with new regulations at little notice, the content of such regulations often lack adequate industry input, leading to suboptimal regulations that can have unexpected side effects.

In some cases, like in the Cybersecurity Law or the new Foreign Investment Law, the language is so broad that businesses are unsure of what concrete steps they need to take to comply.

A recent example of China’s opaque policymaking and regulatory process is the treatment of the country’s enormous gaming industry.

After responsibility for gaming regulation was moved from one department to another, the industry was paralyzed by a freeze in licensing, causing massive losses for companies like Tencent. Once regulators began to process applications again, they faced such a large backlog that they reportedly asked local authorities to stop submitting new requests.

Ultimately, China’s pledge to better consult the business community may not be very effective in practice, as the pronouncement does not contain any binding processes or requirements for governments to follow.

Many private businesses and foreign investors are skeptical of such promises, given that the Chinese Communist Party is widely considered to have extended their reach into the private sector in recent years.

Are deeper reforms coming?

Over the past several years, Li has led an effort to reform China’s business environment by cutting bureaucratic red tape, reducing administrative overlap, and simplifying application and registration procedures.

This campaign bore fruit last year as China moved up 32 spots in the World Bank’s ease of doing business rankings, coming in at 46th overall.

Despite this progress, Li signaled at the State Council meeting that he is not yet content with the pace of the progress.

“Our reform to transform government functions affects the vested interests of government departments,” Li said. “However, administrative streamlining is a must, as excessive and cumbersome reviewing requirements would drive up institutional transaction costs and dampen market vitality.”

As China’s economy slows, the government sees reducing bureaucratic costs and hurdles as an important aspect in stimulating the economy around the edges.

At last year’s Two Sessions meetings, Li said “Streamlining administration is as important as tax cuts in stimulating market vitality as we tackle the current downward economic pressure. The key task for the government is to foster a better business environment to energize all market players.”

At the time of that quote, China was already facing a slowing economy, and the US-China trade war had not yet materialized. Now that China’s economy is showing more signs of weakness and the trade war drags on, the country will need to take on more ambitious measures.

This year’s Two Sessions meetings will take place the first week of March, where legislative priorities for 2019-2020 will be announced. So far China’s leadership appears committed to making it easier to do business in the country; what remains an open question is whether deeper structural reforms will follow.

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