China’s third plenum: Few ‘bold’ moves in store but analysts watch for structural reforms


The Communist Party of China is about to hold its much-delayed third plenum, traditionally a time for unveiling major economic strategies for the next five to 10 years. The first of a six-part preview series looks at the likely measures in store as China doubles down on innovation and tech advancement to boost post-pandemic growth and tackle the US-led tech war.

Top officials of the Communist Party of China assemble next month for their much-anticipated third plenary session, traditionally an occasion to set out economic strategies for the next five to 10 years.

But few observers expect major directional shifts when the Central Committee meets this time around.

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This is because, unlike third “plenums” in the early years when factional differences needed to be ironed out before a final plan was announced, President Xi Jinping’s vision has already dominated China’s economic agenda for years.

The policy meeting is typically held every five years, about a year after each new Central Committee takes office.

The 370 or so members of the committee, chosen at each twice-a-decade national congress, include the party’s top decision-making Politburo, as well as ministers, provincial party secretaries, senior generals and heads of state-owned enterprises (SOEs). They usually gather for seven plenary sessions over the committee’s five-year term.

The third plenum has been a landmark event since 1978 – when paramount leader Deng Xiaoping set a closed and poverty-stricken China on the road to reform and, among other key decisions, allowed foreign businesses to operate in China.

It again made global headlines in the 1990s, when party leaders decided that loss-making SOEs would be allowed to go bankrupt. The same happened in 2013, a year after Xi became party secretary, when the plenum said the main objective of all reforms was to “let the market take the decisive role in allocating resources”. Both times, the announcements were good signs for a freer economy.

This time, China’s strategy is expected to take more external elements into consideration. Despite low expectations of any bold move in the coming plenum, analysts said it would be worth watching how the world’s second-largest economy approached “high-quality development” and achieved “Chinese modernisation” – citing Xi’s catchphrases.

This was particularly significant in light of the larger retreat from globalisation and rise of protectionism and right-wing politics, as highlighted by the recent European Parliament election, they said.

The decisions made at the plenum would test the ability of the ruling party to help the economy tackle the “China de-risking” push in the global supply chain, and fierce competition for markets and technology with the United States and other Western nations. These challenges are also intertwined with China’s own problems, including an ageing population and low consumer and investor confidence.

Observers will also be watching for any announcements related to the as-yet-unexplained dismissals of several senior officials over the past year, as the party and public still expect to be given “justifiable causes” for their departure.

“Market sentiment remains gloomy so it will take bold policy moves to revive confidence in China’s long-term economic trajectory,” said Neil Thomas, a fellow for Chinese politics at the Asia Society Policy Institute’s Centre for China Analysis.

“But anyone expecting this plenum to be as significant for market reform and opening as the iconic third plenum of 1978 will likely end up disappointed.

“The plenum is unlikely to announce the bold economic reforms long called for by many economists, entrepreneurs, and investors. Instead, it’s likely to focus on structural reforms to advance Xi’s economic focus on investment in technology, manufacturing, and human capital.”

Xi shed light on the likely economic priorities as he led a meeting with China’s top group on deepening systemic reforms on June 11.

China needed to expand international tech exchanges, attract and retain more overseas talent, and actively take part in global tech governance, to build an open and “globally competitive” environment for technological innovations, the meeting decided, according to state news agency Xinhua.

The Central Commission for Comprehensively Deepening Reform also resolved to improve China’s corporate governance system and better protect farmers’ interests.

The decision to hold the third plenum in July was announced at a meeting of the 24-member Politburo in April, chaired by Xi.

“China’s reform must continue in the face of complex international and domestic situations, a new round of scientific and technological revolution and industrial changes, and the new anticipation of the people,” it was decided at the meeting.

The April 30 meeting did not spell out the agenda of the plenum, but highlighted the need to adopt a proactive fiscal policy, utilise foreign capital and develop “new quality productive forces”, as it listed measures to address risks “lurking in key areas” as the economy faces up to fierce global competition.

“New quality productive forces” is another catchphrase coined by Xi, who has described them as “advanced productivity freed from traditional economic growth models” and featuring “high technology, high efficiency and high quality”.

Xi introduced the term during a visit last year to China’s northeastern rust belt, which has seen its lead in heavy industry challenged by the shift in traditional growth drivers.

The new productive forces “align with the country’s new development philosophy”, Xi said, vowing to encourage innovation and address technological bottlenecks as trade and investment curbs imposed by the United States and its allies restrict China’s access to advanced chips and other hi-tech products.

“The complexity, severity and uncertainty of the external environment have spiked,” the Politburo meeting resolved, according to state news agency Xinhua.

According to George Magnus, a research associate at Oxford University’s China Centre, “for the Communist Party of China, being number one in science and technology is a goal as it is for the US, but it is also much more”.

“It’s a path towards leadership and domination of the Fourth Industrial Revolution, and to upend the global economic order in China’s favour. So, I think the party [plenum] will have much to say about new productive forces, and the direction of policy and strategy.”

Wu Junfei, a researcher at the Hong Kong-China Economic and Cultural Development Association think tank, said China was likely to finance its tech ambitions by issuing more treasury bonds.

“The plenum is likely to pave the way for the expansion of treasury bonds,” Wu said. “The money raised will not be used to boost domestic consumption or improve social welfare measures. Instead, it will mainly be used to fund science and technological projects and industrial upgrading to break the Western blockage.”

Last Friday, Beijing issued 35 billion yuan (US$4.8 billion) worth of 50-year “ultra-long-term” treasury bonds. It was the fourth batch of 1 trillion yuan in such bonds planned for this year, for terms of 20, 30 and 50 years.

The first batch, issued on May 17, was worth 40 billion yuan.

The issuance of the special government bonds might continue for a few years, Premier Li Qiang said when he announced the plan in March.

According to the National Development and Reform Commission, the top economic planning body, the bonds will finance scientific and technological innovation, integrated urban-rural development, coordinated regional development, and food and energy security.

An International Monetary Fund briefing in March warned that China must pay attention to the public debt sustainability. While acknowledging that the country did “have policy space” for fiscal expansion, the IMF noted that its public debt increase in recent years had been “even steeper than the United States”.

Chen Daoyin, an independent political analyst, said that in addition to “new quality productive forces”, the plenum was likely to set the tone in a variety of areas to achieve what Xi has labelled as “Chinese modernisation”. His assessment was based on the remarks made by four of China’s top leaders during recent inspection tours, traditionally undertaken before the third plenum.

Premier Li, top lawmaker Zhao Leji, top political adviser Wang Huning and Vice-Premier Ding Xuexiang, all members of the seven-strong Politburo Standing Committee – the centre of power in China – criss-crossed the country in May as Xi, who heads the committee, led senior diplomats and economic and trade affairs officials on a visit to France, Serbia and Hungary.

The four emphasised technological self-reliance, high-quality development, social stability and greater integration of minorities during their trips to provinces including Anhui, Henan, Liaoning, Guangxi and Xinjiang.

Shortly after returning from Europe, Xi went on an inspection trip to the eastern economic powerhouse province of Shandong. His visit from May 22 to 24 included a meeting with the bosses of state-owned firms, private entrepreneurs and economists.

Xi called for deeper reforms to address economic problems, as he vowed to “resolutely eliminate the ideological concepts and institutional shortcomings that hinder the advancement of Chinese-style modernisation”.

He also emphasised the need for “an approach that is both goal- and problem-oriented ... focusing on deep-seated institutional obstacles and structural issues”, in what was seen as a heavily pro-business message ahead of the third plenum.

Gabriel Wildau, managing director of advisory firm Teneo, said his comments suggested the plenum would “seek to reassure investors and entrepreneurs that the party leadership still values economic growth, the private sector, and market forces”.

Business confidence has been running low since China cracked down on property developers, internet firms and private tutoring companies to rein in the “blind expansion” of private capital in 2020.

Prolonged “zero-Covid” curbs during the pandemic years and tighter national security rules have also dampened investor sentiment.

On May 17, apart from the introductory bond issuance, Beijing also announced a slew of policy measures.

These included the easing of mortgage rules and encouraging local governments and SOEs to buy unsold housing inventory, in what was the central government’s most ambitious effort to revive the property sector and bolster economic recovery. Many cities had earlier already eased homebuying rules. However, analysts remain uncertain about the effectiveness of the measures.

David Tan, an entrepreneur in the eastern province of Jiangsu, said he did not have high expectations from the third plenum.

“The message from Xi’s meeting with business executives was pro-business. But it is not the first time the party has tried to talk up its support for the private sector,” he said.

“In reality, private companies are often elbowed out in bids for public projects by government-backed companies. The situation doesn’t get any better as more government firms have been set up in recent years to revive the economy, rescue the ailing property sector, and so on.”

Besides the economy, the plenum is usually a venue to display solidarity within the party.

However, those attending the July conclave may find it hard to ignore the elephant in the room – fellow Central Committee members who have lost their posts and disappeared from public view.

These include former foreign minister Qin Gang and former defence minister Li Shangfu, both with the shortest terms in office.

Qin and Li were stripped of their government titles after being absent from public events for months, Qin last June and Li in August. But they remain on the 370-strong Central Committee led by Xi.

The rare reshuffle in top diplomatic and military positions so soon after their appointments suggested wrongdoing – but Beijing has offered no explanation for their abrupt removal.

Two others – former PLA Rocket Force commander Li Yuchao and agriculture minister Tang Renjian – have been officially placed under corruption investigations but are still members of the committee.

The formal expulsion of committee members convicted of corruption requires an official resolution to be endorsed by the body during a plenum.

A professor of political science at Nanjing University said it was important for the party leadership to have official closure on the dismissals, especially unexplained ones.

“There will be a lot less speculation with the cases of agriculture minister Tang Renjian, or former Rocket Army commander Li Yuchao, because people know that they are under corruption probe, which is actually nothing new,” said the professor, who asked to remain anonymous.

“In a way, such an announcement is closure, telling people in the system that political careers have ended for these senior cadres.

“That is why, having a proper closure for the unexplained dismissal of Qin Gang and Li Shangfu is important. In Chinese politics, you always need justifiable causes for your actions, no matter how powerful the leader is.”

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