China has – after some delay – the long-awaited third plenary session of the Communist Party Central Committee on Monday. The four-day meeting is expected to determine the country’s economic strategy for the next five to 10 years.
Previous Third Plenary Sessions unveiled groundbreaking changes. The 1978 Plenum adopted the policy of reform and opening up. In 1993, China’s status as a “socialist market economy” was formalized, and the 2013 Plenum codified the “decisive role” of the market in resource allocation.
Below are five questions many have asked ahead of the third plenary session – and our thoughts on the answers.
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The facts: At the annual meeting of the World Economic Forum’s new champions – also called ‘Summer Davos’ – in late June, Premier Li Qiang said after the outbreak of Covid-19 that the Chinese economy, like a patient recovering from an illness, must gradually recover and return to normal.
Our opinion:We believe that an announcement of imminent stimulus is highly unlikely.
Historically, the Third Plenary Congress has led to comprehensive reforms that outline China’s economic road map for the coming decades, rather than focusing on short-term problems.
Chinese officials have also said several times that they… no intention to ‘flood’ the economy with stimulus.
And a massive stimulus doesn’t fit with President Xi Jinping’s governing philosophy, which focuses more weight and resources on areas seen as crucial to building the country’s core strengths. Finance isn’t one of them.
The facts: Two former ministers of defenseLi Shangfu and Wei Fenghe have been expelled from the Communist Party, fueling speculation that more dismissals will follow.
Our opinion:It is unlikely that staff changes will be discussed in detail, as the economy traditionally tops the agenda during third plenary sessions.
However, since this is a Central Committee meeting, it will be worth checking whether former Minister of Foreign Affairs Qin Gang loses his status as a member after being dismissed from his positions in the ministry and the State Council. An investigation is underway to find out which deputies will replace the expelled members.
The facts: On May 17, China unveiled a series of policies to stabilize the real estate sector on both the supply and demand sides, lower mortgage rates and announce a 300 billion yuan (US$41.3 billion) refinancing program supported by the central bank.
Meanwhile, on February 19, a meeting of the Central Commission for Comprehensive Deepening Reform — chaired by Xi — approved a document on land administration system reform.
Our opinion:Housing will undoubtedly be discussed at the meeting, given its importance to the country’s economy.
However, contrary to some expectations for the sector to be turned around via a stronger rescue package, we believe that the government will rather implement structural reforms to stabilize and ultimately reduce the weight of the housing market in the overall economy. From the government’s perspective, the value proposition of the sector has changed – from an economic driver to a risk to be dismantled.
We are confident that the government will determine which sectors can serve as new engines for economic growth to fill the void in the real estate sector.
As for rural land policy – strongly correlated with total factor productivity and labour mobility – we believe that some policy changes are likely. The question is how big those changes are.
The style of rural land reform carried out in the central municipality of Chongqing, where land use rights collective ownership of agricultural land could be sold to developers or investors – we believe it will be challenging to roll out nationwide, as the safety of low-income farmers is a key consideration for policymakers.
The facts: Beijing has placed innovation on a high pedestal, with “new high quality productive forces“is increasingly common in official rhetoric – a phrase that refers to the long-term growth potential of technology and other emerging industries.
Our opinion: Certainly. We expect the Party to hold extensive discussions on how to advance Chinese science and technology, especially in strategically important areas.
Closing the technology gap with developed countries and moving up the value chain would provide a solid foundation for China to remain competitive in the coming decades. The depth and breadth of the country’s commitments in this area are, in our view, key issues.
The facts: Xi held a high-profile meeting with business leaders and economists in May, and Premier Li Qiang and Vice Premier He Lifeng appealed for foreign investment in late June and early July respectively.
Our opinion: Yes. Reform and openness are traditionally the theme of the Third Plenum and we believe that this edition will be no exception.
Improving relations with foreign investors and building private sector confidence is more important than ever to revive the economy, especially given the heightened geopolitical tensions with the US and the West, and their implications for trade.
The big question is how convincing China’s pleas will be.
This article originally appeared in the South China Morning Post (SCMP)the most authoritative voice covering China and Asia for over a century. For more SCMP stories, explore the SCMP app or visit the SCMP’s Facebook And Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
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