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EXECUTIVE SUMMARY
Leadership transition over
The 2013 National People’s Congress saw the Xi Jinping administration begin to take shape as China’s long leadership transition finally concluded. Key personnel and structures are now in place. While there were few concrete policy outcomes, Xi Jinping and Li Keqiang ended the Congress with hints about their government’s future policy direction.
Top appointments
Senior appointments largely followed the script, particularly the appointments of Xi Jinping, Li Keqiang, Zhang Dejiang and Yu Zhengsheng to their respective government positions. Li Yuanchao’s appointment as vice president surprised some and broke with recent tradition as Li is not a member of the Standing Committee. Li’s appointment restores some of the factional balance at the top, given his close affiliation with Hu Jintao.
Key ministers
The appointment of the vice premiers and state councilors also went broadly as expected, and the retention of 15 of 25 ministers sent a strong message of stability. Many of the new faces were at key ministries, including the National Development and Reform Commission (NDRC), Commerce, Finance and the National Health and Family Commission. These appointments will be vital to shaping the policy environment affecting foreign companies.
Government reorganization
The widely anticipated government reorganization was less dramatic than many expected and many anticipated changes failed to materialize. NDRC and MOST emerged unscathed and there was no creation of new super-ministries for energy, culture or finance. The changes that did take place – especially the abolition of the Ministry of Railways and a newly strengthened food safety organization – seemed to reflect public pressures, an increasingly important feature of politics in today’s China.
Wen’s final work report
Wen Jiabao delivered his final work report on a predictable note, laying out conservative targets for growth, inflation and money supply for 2013 and emphasizing policy priorities closely in line with those of recent years. The absence of specific policy initiatives was appropriate for this swansong speech.
Policy direction
While the NPC itself did not produce significant policy initiatives, Xi and Li used the last day of the Congress to hint at the future direction of their administration. Xi reiterated his rhetoric about “national rejuvenation” and the “Chinese dream,” suggesting an elevated role for nationalism in his administration. Li Keqiang hinted at a policy program consisting of increased market economic reforms, a pledge to maintain or increase levels of social spending, anti-corruption, urbanization and reform of China’s re-education through labor system.
Implications for foreign business
Foreign enterprises now know the shape of the government they will face for the next five years. Xi has moved quickly to consolidate his authority. While policy continuity in the short-term seems likely, Xi and Li’s comments suggest considerable room for policy change in the coming months. The contours of those changes may become more evident as we approach the Party’s Third Plenum in the fall. Public expectations run high, especially on corruption and pollution, and many policy-makers believe that change is needed to sustain economic growth. Finally, the tone of Xi’s rhetoric highlights the continuing dangers that nationalism poses to foreign enterprises in China. Foreign enterprises should prepare to adjust their engagement and advocacy strategies as well as their crisis management procedures to reflect these changing realities.
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WHAT IS THE NPC AND WHO ARE ITS
DELEGATES?
The NPC is China’s “rubber stamp” parliament, with just under 3,000 delegates. It is nominally China’s highest political institution and meets each spring at the same time as the Chinese People’s Consultative Congress (CPPCC), an advisory body of some 2,200 members.
These “two meetings” (liang hui) are carefully scripted and staged, but nevertheless mark a key point in China’s political calendar where the Party leadership lays out themes for the year ahead, confirms key government appointments and approves the annual government work report and budget. The meetings also provide an important networking opportunity for aspiring officials and offer the Party the opportunity to legitimize itself under the guise of political pluralism.
As well as representatives from the Party, the central government, the military and China’s provinces, the NPC includes many of China’s wealthiest business people. According to research conducted by the Hurun report, China’s NPC includes 31 USD billionaires and the CPPCC includes another 52.
THE 2013 NPC: TRANSITION OVER,
HARD WORK BEGINS
The 2013 National People’s Congress (NPC)
marked the end of the six-month leadership
transition process which began in November with
the Party Congress. The tripartite reins of power
– party, military and government – have now
officially moved to Xi Jinping.
In keeping with the NPC’s limited role in policy-
making, the meeting produced little in terms of
concrete policy outcomes. Nonetheless, the
announcement of high-level government
appointments and the results of the government
reorganization will alter the regulatory and
stakeholder environment faced by many
businesses in China. Most notably, closing
remarks by Xi Jinping and Li Keqiang provided
hints at the direction of their newly consolidated
regime, with Xi emphasizing nationalism as a
unifying theme and Li laying out the case for a
greater reliance on market forces in the Chinese
economy.
XI JINPING’S ADMINISTRATION: OLD AND NEW FACES
The mysteries about who will constitute Xi’s government leadership team are now resolved. There
were few surprises at the top, although ministerial appointments involved several interesting moves
directly relevant to foreign businesses.
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TOP LEADERS
Senior assignments largely followed the script, particularly the appointments of Xi Jinping, Li
Keqiang, Zhang Dejiang and Yu Zhengsheng to their respective government positions, although Li
Yuanchao’s appointments as vice president surprised many and broke with recent tradition.
Xi consoliates his grip: Xi’s assumption of the presidential title, even if a foregone
conclusion, marks a further step in his consolidation of power and leaves him with a tighter
grip on the Party, governmental and military levers of power than Hu Jintao enjoyed until
several years into his administration.
Li Yuanchao as vice president: Li’s appointment as vice president runs contrary to recent
convention that the vice president is usually a Standing Committee member, but there have
been such exceptions in the past. Despite rumors of a scandal-linked career setback in 2012,
the appointment appears to signal Li’s strong chances of promotion to the Standing
Committee in 2017. Li’s appointment also restores some of the factional balance at the top of
Chinese politics, given his close affiliation with Hu Jintao. Li now ranks 8th in the official
hierarchy.
VICE PREMIERS
The line-up of vice premiers, each of whom is responsible for coordinating the work of several
ministries within given policy portfolios, was also in line with most people’s expectations. To date,
there have been no official announcements made about the portfolios held by each vice premier, but
we offer some educated guesses based on their backgrounds.
Zhang Gaoli, the executive vice premier and viewed as a strongly establishment figure, is
expected to assume the finance portfolio previously held by Wang Qishan.
Liu Yandong will likely retain her previous responsibilities for education, science and culture,
while also taking on health.
The reform oriented Wang Yang’s portfolio is not yet clear, but there is speculation that he
may receive the agriculture brief.
Ma Kai, former head of the NDRC, might take on a broad economics portfolio (potentially
including NDRC, MOFCOM and SAIC), making him one of the most influential individuals
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affecting the macro-environment for foreign businesses in China. Among the still unassigned
portfolios are telecommunications and state assets.
STATE COUNCILORS
Few of the state councilor portfolios have direct implications for foreign businesses, with their focus
on internal and external security and the administration of the State Council. However, Wang Yong’s
potential appointments to the industry and transportation portfolio (including MIIT and the Ministry of
Transport) given his background in the aerospace industry may be significant. In his previous role as
the head of China’s state-owned enterprise regulator, the state-owned Assets Supervision and
Administration Commission (SASAC), Wang earned a reputation as a staunch defender of the
interests of the state’s role in the Chinese economy. This could present challenges for foreign
multinationals in terms of continued support for the policy indigenous innovation and other tools for
economic protectionism.
MINISTERS
The retention of 15 of 25 ministers in their current positions sent a strong message of stability.
Among the news faces are several of particular importance to the foreign business community:
NDRC: Xu Shaoshi takes over as head of the powerful NDRC; as a former minister of land
and resources with close links to Wen Jiabao, his appointment may reflect Li Keqiang’s
attention to urbanization as a key economic driver and core policy aim. Xu is from Zhejiang
province and studied hydrogeology.
MOFCOM: Gao Hucheng, China’s chief trade negotiator since 2010, and a vice minister
since 2003, was made minister of commerce, a post usually given to rising provincial chiefs.
Gao has significant international experience, having studied abroad, worked in industry and
as a diplomat in Africa. He has a doctorate in sociology from the University of Paris and is a
fluent French speaker.
Finance: Lou Jiwei returns to his home base, having served as vice minister of finance for
10 years before assuming charge of China’s sovereign wealth fund. Lou worked closely with
former premier Zhu Rongji and has a reputation for being pro-reform. Zhou Xiaochuan’s
retention as head of the People’s Bank of China, despite having reached the official
retirement age of 65 for government ministers, was notable.
Health: Li Bin’s appointment as chair of the newly created Health and Family Commission
taps into her previous background at the National Population and Family Planning
Commission and work on health care issues at the provincial level in Jilin and Anhui. She
has a doctorate in economics.
Foreign Affairs: Wang Yi, a highly experienced diplomat who has experience dealing with
many of China’s most difficult foreign policy areas, was appointed minister of foreign affairs.
Wang is a former Chinese ambassador to Japan and previously served as head of the State
Council’s Taiwan Affairs Office, as well as having represented China in the Six-Party Talks
with North Korea.
GOVERNMENT RESTRUCTURING: INCREMENTAL TINKERING
In addition to the leadership appointments, the greatest expectations surrounding the 2013 NPC
concerned possible changes to China’s government structure, the State Council. Changes were
modest when compared to the last round of restructuring in 2008, when five ministries were
restructured and one was eliminated. In fact, the final results were more notable for what they
omitted than what they included.
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STATE COUNCIL REFORM: WHAT DIDN’T CHANGE?
NDRC unchanged: Despite rumors that its role in micro-economic decision-making would be curtailed, China’s primary economic planning organization, the National Development and Reform Commission (NDRC), emerged from the reforms unscathed and in fact took on additional responsibilities for the policy aspect of family planning and regulating electrical power use.
MOST remains intact: Despite rumors that the Ministry of Science and Technology (MOST), the primary architect of China’s controversial indigenous innovation policies, would be abolished, the Ministry survived this round of reforms.
No new super ministries: Despite anticipation that the State Council would create several new super ministries – such as for the energy, financial, and cultural sectors – none of these materialized.
WHAT CHANGED?
Long-expected change:
Ministry of Railways dissolved: After many previous attempts, the Ministry of Railways
(MOR) has finally been relegated to the dustbin of China’s bureaucratic history. The Ministry
has long been a world to its own, with its huge employee base and budget. MOR’s
regulatory functions now rest with the Ministry of Transportation (MOT) and commercial
operations move to a newly established China Railway Corporation. The changes reflect
widespread anger at MOR’s notorious corruption and role in the 2011 Wenzhou train crash,
but also represent the longer-term normalization of China’s transportation bureaucracy under
the management of an over-arching Ministry of Transport, just as was the case when the
Civil Aviation Administration of China (CAAC) was moved under MOT’s supervision in 2008.
Bureaucratic tidying up:
Strengthening food safety: The creation
of a General Administration of Food and
Drugs, a new ministerial-level
organization, represents the government’s
determination to centralize and improve
management of an issue that has aroused
strong public indignation – an unsafe food
supply. The new General Administration
replaces the old vice-ministerial level
State Food and Drug Administration
(SFDA) and takes on food safety
functions from the Ministry of Agriculture
(MOA), General Administration of Quality
Supervision, Inspection and Quarantine
(AQSIQ), and State Administration for
Industry and Commerce (SAIC).
Merging health and family authorities:
A newly-created National Health and
Family Planning Commission will combine
the former Ministry of Health (MOH), the
State Administration for Traditional
Chinese Medicine, and the majority of the National Population and Family Planning
Commission’s (NPFPC)’s functions. The move reflects the increasingly complementary role
of these various entities, which led to calls for a merger.
Combining media regulators: A new General Administration of Press, Publishing, Radio,
Film and Television combines the former functions of the Sate Administration of Radio, Film
and Television (SARFT) and the General Administration of Press and Publishing (GAPP).
Expanding the National Energy Administration: The NPC approved a slightly enhanced
National Energy Bureau (now incorporating the responsibilities of the State Electricity
Regulatory Commission) which continues to work under NDRC.
Coordinating maritime law enforcement: The State Oceanic Administration will expand its
functions to include maritime law enforcement in order to strengthen coordination and reduce
the potential for bureaucratic miscommunication in this sensitive area. Supervision was
previously split between the Ministry of Agriculture (fisheries), the Ministry of Public Security
and the General Administration of Customs.
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WEN’S LAST WORK REPORT: CONTINUITY DESPITE GROWING
CHALLENGES
In his final work report as premier, Wen
Jiabao enumerated China’s growing list of
challenges, including corruption, urbanization,
population shifts, environmental pollution,
wealth disparities and health challenges. He
reiterated his now famous 2007 remarks
about China’s current growth model,
describing it as “unbalanced, uncoordinated
and unsustainable.”
While the work report identified some of
China’s most fundamental structural
problems, the targets and policy goals put forward by Wen showed remarkable continuity with
reports delivered in previous years.
Similar targets. The report’s key targets reflect the government’s ongoing effort to shift
toward consumption-led growth, improve the quality of investment, upgrade the industrial
base, and move away from an investment-led, growth-at-all-costs model:
Growth: 7.5 percent growth target for 2013 (the same as in 2012)
Inflation: 3.5 percent inflation rate, a drop from last year’s 4 percent
M2 money supply: 13 percent growth, the lowest in a decade
Similar policy goals. As with the numeric targets, the policy goals laid out in the work report
largely reiterate established policy goals. The report roughly divides the main goals of 2013
into three categories:
Improve the growth model: Expand domestic demand by increasing consumption;
optimize investments in key sectors; upgrade and restructure industries; promote
strategic emerging industries; expand services sector; modernize agricultural sector;
spur urbanization.
Address social problems: Improve environmental protection, promote balanced
development between regions, increase employment, improve the social security
system, reform the healthcare system, accelerate reform of household registration
system, adhere to basic population policy, improve food and drug safety, tighten
regulation on real-estate market, develop education, and advance the cultural sector.
Deepen financial reform: Reform financial and tax systems, improve the banking,
insurance and securities markets, reform the income distribution system, reform the
interest rate system, make the RMB exchange rate more market-based.
While some commentators had expected significant policy announcements on the property market,
reform of China’s household registration (hukou) system or China’s re-education through labor
system (laojiao), Wen did not lay out concrete measures in any of these areas. Perhaps reflecting
the fact that this was the work report of the outgoing premier, Wen’s report is notable in that it does
not introduce any new reform programs that could ostensibly reflect policy priorities of the new
administration. Indeed, hints at the substantive policy direction to be taken by the new administration
did not come until Xi Jinping and Li Keqiang addressed NPC delegates and journalists respectively
on the final day of the Congress, discussed in more detail below.
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ANOTHER HARMONIOUS BUDGET: CONTINUITY IN SPENDING
PRIORITIES
The 2013 budget also represented significant continuity with previous years, with a focus on
increasing domestic demand and raising living standards. Two of the three increases that exceed
the 11 percent mark (the target GDP growth rate plus target inflation rate) are those that relate
directly to social programs – namely, health care and social security/employment:
Health care: Poised to grow a dramatic 28 percent as China continues with major reforms
and improves access in rural areas.
Environmental protection: An increase of 18.8 percent aimed to address one of China’s
most pressing domestic problems. Pollution has become one of the most common causes of
social protest, meaning this spending increase is also a way for the government to show its
responsiveness to popular opinion.
Defense: Much was made in the international media of China’s projected 10.7 percent
increase, but this amount actually represents a drop from last year’s 11.2 percent increase.
In both cases, the budget item reflects only part of China’s total defense spending.
ONLINE DISCUSSION: CITIZENS AND DELEGATES IN SOCIAL MEDIA
As the use of social media grows in China, so does the number of voices commenting on the NPC.
Chinese citizens increasingly use the government gathering in Beijing to discuss and debate on
Weibo (China’s Twitter) the key issues facing the country. Despite online censorship, these online
discussions are significantly more vigorous than those which take place inside the conference halls.
Corruption: One of the most discussed Weibo topics was Xi and Li’s efforts to eradicate
government corruption. Weibo users posted several recommendations, including making
government salaries public and limiting the relatives of government officials from business
dealings.
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Pollution: Another hot topic during the session was China’s environmental problems, with
extremely negative commentary from netizens about government capacity to solve the
problems. As one Weibo user noted: “the Chinese government’s investment of billions of
RMB has had no impact, most likely due to local government and companies…evading
environmental supervision.”
Delegates engage with social media: NPC delegates also got in on the act. It is only two
years since the first NPC delegate created a Weibo account to discuss issues affecting
Chinese citizens. Today, 171 NPC delegates and 217 CPPCC delegates have Weibo
accounts. Several of the delegates used this platform to bring the debates within the hall to
Chinese citizens and to express their own opinions about the issues facing China today. For
example, NPC delegate and former National Bureau of Statistics official, He Keng, with more
than 200 thousand followers, expressed his support for lowering taxes on the poor and
raising them on the rich.
XI AND LI SET MOOD MUSIC FOR THE NEW ADMINISTRATION
The final day of the NPC saw Xi Jinping and Li
Keqiang hint at the future policy orientation of the
new administration. Between them, they took the
first steps towards adding flesh to some of the
reformist rhetoric and symbolism which have
characterized the early months of the
administration, including Xi’s decision to use his
first trip outside of Beijing to replicate Deng
Xiaoping’s “Southern tour” which reignited
economic reform in the early 1990s and the
vigorous anti-corruption campaign he has
spearheaded with Wang Qishan, China’s new
anti-corruption czar.
XI JINPING’S “CHINESE DREAM”
Since taking office, Xi Jinping has spoken prominently about what he calls the “Chinese dream,”
which he describes as the “great revival of the Chinese nation.” Xi made these themes the focal
point of his keynote speech at the closing of the NPC on March 17, in which he emphasized the
need to follow a “Chinese road” and to maintain “Chinese spirit” and “Chinese power.”
The Chinese dream has few concrete policy implications at this stage, although it demonstrates Xi’s
desire to continue using nationalism as a core part of the Party’s legitimacy, given the idea’s explicit
association with “national rejuvenation.” It is also consistent with what many have seen as the tough
stance his administration has taken so far on foreign affairs, especially issues relating to China’s
territorial integrity.
Whether the Chinese dream becomes a defining theme of the Xi administration, or is merely an
attempt to gain legitimacy by “wrapping himself in the flag,” remains to be seen. However, foreign
companies should monitor this rhetoric given the way that nationalism has been used as a tool
against foreign businesses in the past to deflect domestic criticism of the regime. It has also been
used as an excuse for restrictions on foreign investment, the uneven enforcement of regulations,
and introduction of indigenous innovation policies.
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LI KEQIANG’S EMERGING AGENDA
Li Keqiang’s first press conference as premier,
held on the last day of the NPC, allowed him to
elaborate on the many calls for reform he has
made in the months since the November Party
Congress. In general, Li was clear about his
determination to promote a reformist policy
agenda, fully aware that this will generate
opposition among powerful vested interests. “We
have no alternative,” he said, “reform is about the
destiny of our nation.”
While Li laid out few specific policy measures, his
remarks hinted at the potential for substantial policy change in a wide range of areas:
Market-oriented reform: Li spoke clearly about the need for an increased role for market
forces in China’s development and the importance of “curbing government power.” In this
spirit, Li pledged to cut bureaucratic obstacles to business by cutting the number of
government approval by at least a third. He also spoke of the importance of allowing private
capital greater access to the financial, energy and railway industries, fiscal budget reform,
international currency reform, as well as reform of income distribution.
Anti-corruption: Li highlighted the fight against corruption by calling for “establishing an
anti-corruption mechanism,” echoing previous comments by both Xi Jinping and Wang
Qishan about the incoming government’s focus on anti-corruption efforts. Li emphasized the
importance of creating a “transparent environment” as a vital part of anti-corruption efforts.
Ring-fencing social spending: Li promised to maintain or increase levels of social
spending, even at times of fiscal austerity, stating that spending cuts in other areas may be
necessary to meet this target.
Urbanization and agricultural modernization: Li reiterated his vision of urbanization, a
theme which has emerged as one of his top policy priorities since he officially emerged as
premier-in-waiting in November. He stated that “urbanization is not about building big
sprawling cities” and stressed that it must go “hand-in-hand with agricultural modernization.”
Food safety and the environment: Li placed a strong emphasis on quality-of-life issues as
a key part of economic development: “I want to fully upgrade the Chinese economy,
including providing clean drinking water, safe food and clean air.” In solving these problems,
Li emphasized the importance of openness, transparency, as well as media and public
supervision in forcing enterprises and the government to meet standards in these areas.
Reforming the re-education through labor system: Li also briefly alluded to reform of
China’s notorious “re-education through labor” system, stating that “it is being researched by
relevant departments and will possibly be released within this year”.
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IMPLICATIONS FOR FOREIGN BUSINESS
Power consolidated at the top: With assumption of the top party, military and government positions, Xi Jinping has moved faster than his two predecessors to consolidate his power. That means he is in a stronger position to engender policy change than his predecessor was at this stage in his term. But he also faces numerous challenges and entrenched interests.
Continued role of public pressure: The most notable restructuring changes were both related to highly sensitive issues with the Chinese public – corruption in the case of the Ministry of Railway’s abolition and food safety in the case of the strengthened food and drugs regulator. The fact that these two ministries were selected for reform illustrates how responsiveness to public demands has now become a hallmark of politics in China. This was also demonstrated by the low-key attire worn this year by many NPC delegates. Designer outfits and expensive watches were not the fashion this year.
Policy continuity, for now: No concrete reform programs have yet emerged despite strong reform-oriented symbolism from the incoming leadership. An emphasis on familiar themes suggests that foreign companies’ messaging for government outreach does not need to change dramatically at this stage. However, potential policy shifts in the coming months mean that MNCs should remain prepared to alter their messaging and reevaluate government partnership programs should government priorities shift.
Potential for economic reform in coming months: Xi and Li provided hints about the policy direction of the new administration during their closing day remarks. Li spelled out the possibility for substantial economic reform in the coming years. More details are likely to emerge quickly, either at the Party’s Third Plenum meeting this fall, or from NDRC, which is expected to issue a plan for economic reform before the end of 2013. Companies should monitor these policy developments closely in the coming months and assess their potential impact on their long-term growth plans in China.
Need to map out new stakeholders and revise engagement plans: Foreign MNCs should map out new stakeholders, including newly created or augmented organizations, as well as newly appointed personnel. This is especially important for companies directly affected by the changes to China’s ministerial structures, particularly in the transportation, food and agriculture, energy, healthcare and culture/media sectors. Companies should then seek to revise their 2013-2014 government engagement plans in line with changes to their stakeholder environment.
Potential for increased nationalism: While the concrete policy implications of Xi Jinping’s rhetoric about “national rejuvenation” and the “Chinese dream” are unclear at this time, his speeches have taken a more nationalistic tone than those of Hu Jintao. Foreign businesses should be aware of the increased risks that nationalism can pose, particularly in times of reputational crises or when domestic political crisis cause the government to seek scapegoats. Companies should ensure that their crisis management procedures provide contingencies for the risks that nationalism presents.
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ABOUT APCO WORLDWIDE
APCO Worldwide is an award-winning, independently-owned global consulting firm and leading
provider of government relations, stakeholder engagement and strategic communication services in
China. We have been serving clients’ interests in China since 1989. Today, our China team includes
more than 100 professionals from a diverse range of backgrounds, including business, government,
journalism, academia and civil society. We are based in well-established offices in Beijing, Shanghai
and Hong Kong.
As a political economy in transition, China is a complex, heavily regulated market that welcomes
foreign investment while being highly protective of its developing domestic industries and
transforming society. APCO Worldwide partners with clients through every aspect of their business
development strategies to help them navigate the Chinese context, optimize and protect their
investments, and maximize their returns.
APCO’s clients include multinational firms, leading Chinese companies, governments, chambers of
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For more information about APCO Worldwide in China, please contact:
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Phone: +86.21.5298.4668 Fax: +86.21.5298.4669 [email protected]
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