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Although there has been considerable reform of China's economic model -- from a centrally-planned economy to a market-oriented one -- the same is far less true true of the PRC's political system. The Chinese Communist Party (CCP) still dominates the entire political apparatus, and its leaders make all major policy decisions. Party members hold most senior government positions at all levels of administration. Ultimate authority rests with the 22 members of the CCP Politburo and, in particular, its seven-member Standing Committee. Ministries and lower-level counterparts implement policy on a day-to-day basis, and China's parliament, the National People's Congress (NPC), reviews and approves legislation and nominees for government offices. Many provincial governments -- especially those in fast-growing coastal regions -- actively adapt central government policy decisions to suit local needs. Senior leaders generally agree on the need for further economic reform, but stability is still a paramount concern, and there remain differences within the leadership over the content, pace, and goals of reform.

The September 1997 15th Communist Party Congress enhanced the power of Party General Secretary Jiang Zemin and endorsed policies to restructure, close, or privatize the bulk of China's state-owned enterprises. These policies were affirmed in March 1998 during the first annual session of the Ninth NPC, which also passed a sweeping reform of China's government apparatus. The number of ministries and commissions was reduced from 40 to 29, and by the end of the year the number of central government civil servants had been cut approximately in half. The plan called for similar reductions in lower levels of government within three years. The March 1998 session of the NPC also approved Zhu Rongji's appointment as Premier and former Premier Li Peng's as Chairman of the NPC's Standing Committee. At its March 1999 session, the NPC approved revisions to bring the Constitution in line with principles approved at the 15th CCP Congress, including the legitimation of private enterprise and the importance of rule of law.

China faces a growing disconnect between the demands of its reforming economy and society and a political system that is largely ill-suited to meet their needs. The yawning disparities between urban and rural incomes, a large "floating population" of itinerant workers, and corruption are chief potential threats to stability. So far, none has prompted the kind of mass protest movement that erupted in Beijing in the spring of 1989. The central authorities prefer to minimize tensions through the implementation of pragmatic policies, and they recognize that moves to reduce personal and economic freedoms would harm China's long-term interests. Nonetheless, the national leadership would respond forcefully if confronted with what it regarded as another serious threat to its monopoly on political power. An unexpected, day-long sit-in by approximately 10,000 quasi-religious cultists outside the Zhongnanhai leadership compound in downtown Beijing on April 25, 1999, offered a dramatic example of the sorts of challenges likely to confront the CCP as China continues to open and become more pluralistic.

Political relations with the U.S. deteriorated following the accidental bombing of the Chinese Embassy in Belgrade, Yugoslavia, in May 1999. A survey of several dozen U.S. firms in China conducted by the Embassy two weeks after the bombing revealed little impact on business relations. Although the bilateral relationship will not fully recover until the incident is laid to rest, many bilateral technical and other substantive exchanges continue between the U.S. and Chinese governments.

Product Pricing and Customer Service

Most Chinese consumers are sensitive to price and will usually choose the less expensive product unless they can be swayed by better after-sales service or clearly better product quality. For larger purchases, attractive financing that lowers the effective price is offered by Japanese, European and other foreign governments companies of these countries respectively, and may make some U.S. products less competitive.

Foreign companies are normally not permitted to directly provide after-sales service and customer support for their products sold into China. FIEs can provide such services on products that they manufacture in-country. Foreign firms some times engage authorized Chinese entities to provide service, often on a contractual basis, or to establish service centers jointly that can provide both spare parts and after-sales service. American companies complain that such arrangements give them inadequate control over the quality of customer service and result in the loss of customer confidence. Some companies opt to provide regular servicing from bases outside of China, such as Hong Kong. American firms, with the support of the U.S. government, are pressing for relaxation of these restrictions.


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