Market and international media responses have been mostly negative since the Communist Party of China (CPC) held the third plenary session of its Central Committee (“Third Plenum”), a top economic policy meeting. We dig deeper into the conclave’s outcomes and implications.
- The primary thrust of the plenum was reaffirming the leadership’s existing economic strategy and priorities, with no dramatic shifts or stimulus to cheer investors.
- However, negative reactions reflect unrealistic expectations, not new retrograde steps or a changed outlook. China faces severe economic challenges and further slowing growth, but not looming financial crisis.
- Prioritising technology and manufacturing will deepen trade tensions (for which China is actively preparing) and risks under-emphasising consumption and private sector-focused reforms (though the plenum calls for these, too).
- Despite these concerns, the plenum will also prompt positive developments, notably fiscal and tax reforms, a private sector promotion law, and highly selective but potentially significant market access moves.
You don’t get it
With the plenum’s “communique” that was issued on the last day of the 15-18 July meeting and the longer “decision” (or “resolution”) issued on 21 July, mainland and Hong Kong financial markets, and the consensus in international media, reflected disappointment. This is understandable: despite long-standing concern about weak growth, the plenum signalled policy continuity and endorsed current priorities, with no clear sign of bold new reforms. This does little to assuage fears about the economic trajectory and business environment. However, the plenum merely confirms rather than worsens the outlook. The negative reactions are partly rooted in unrealistic expectations, and confusion about what these plenums and “decisions” are.
The decision is a top-level framework and to-do list that will inform long-term policies and legislative measures at the annual National People’s Congress (legislature) next March, in the five-year plan that will be drafted next year (for 2026-30), and in the meantime shape action on structural issues like tax and fiscal reform. Resolutions produced by third plenums are about strategic direction, not short-term tactical adjustments, although the latter will be made, too.
Since the plenum, Beijing has cut rates and introduced more trade-in schemes to encourage consumer goods purchases. At a 30 July meeting, the CPC Politburo acknowledged that “domestic demand is insufficient” and that the government would “strengthen counter-cyclical adjustment” and launch several “incremental policy measures as soon as possible” (which will likely focus on consumption and may include government housing purchases). This confirms that further stimulus measures will follow those announced in the week following the plenum, but without changing the overall restrained approach. The Politburo meeting reiterated the plenum priorities, asserting that officials must “maintain strategic focus” and confidence, and that the overall economic situation is stable and “continuing to rebound and improve”. The coming months should bring more implementation details of actions vaguely called for in the plenum decision.
Xi’s got this
Historically, third plenums have sometimes heralded important shifts, notably the one in 1978, which launched China’s reform era. No such course-shift ever looked likely this time. Much of the text in the decision is more about reiterating and justifying the existing path.
This year’s plenum decision calls the 1978 plenum and the third plenum of 2013 “epoch-making”; the latter was the first since President Xi Jinping took office and launched the “new era” of Chinese modernisation. The latest plenum hailed achievements made during this period, distinguishing it favourably from the previous era and emphasising progress beyond mere GDP growth: having “broken down barriers erected by vested interests” and moved China’s reforms from “experimental” progress and “trials” to an “integrated drive being advanced across the board”.
This is in line with the historical narrative set at the plenum held in 2021, which produced a rare authoritative decision stating the Party’s view on history. In this view, Xi’s new era is less about rapid growth itself, and more about strengthening the CPC-led system, sharing the benefits of modernisation more fairly, and establishing China’s national strength and security amid external threats, and entering “the new round of science and technology revolution and industrial transformation”. With a strong focus on the latter, promoting “high-quality economic development” is identified as the “primary task”.
Not for nothing
Among the most significant signals in the 2024 third plenum decision are those involving fiscal and tax reforms, with a clear focus on rebalancing the shares of fiscal powers and spending responsibilities between the central and local governments. This has moved up the agenda as many local governments face severe financial difficulties, partly due to over-dependence on land sales amid a deep and ongoing real estate slump. These difficulties have in turn made it harder to boost demand and consumption.
Local government debt and fiscal balance are an age-old problem, and Beijing has mooted reforms for years while seeming timid in tackling root issues. Yet this is an area to watch for potentially important shifts on a fundamental issue. Others include:
- Efforts towards a “unified national market”, reducing market access barriers between provinces and cities – another old problem seemingly set for prioritisation.
- A planned new “private sector promotion law”. There are also nods throughout the document to “supporting and encouraging” (as well as “guiding”) private firms.
- Pledges to “protect [the] rights and interests of foreign investors”, expand the catalogue of encouraged industries for foreign investment, shorten the negative list (areas closed to foreign investment), and “remove all market access restrictions in the manufacturing sector”. It also calls for greater opening of the service sector.
- Potentially more significant reforms to the household registration system, which has long limited migrant workers’ ability to fully settle or access welfare and services in cities.
- Development of “tech finance, green finance, inclusive finance, pension finance and digital finance”. However, there is also a strong focus on controlling risks. Just after the plenum, a new Central Financial Discipline Inspection and Supervision Working Commission was announced, signalling that strict scrutiny of the sector will continue.
Techno-optimists
The drive for “high-quality economic development” prioritises industry, science and technology. The long-standing focus on “supply-side structural reform” and more recent mantra of “new quality productive forces” both feature prominently in the decision, which calls for “revolutionary breakthroughs”, “high technology, high performance and high quality”. A section on supporting innovation – such as through education – and linking research and development to state and business applications, is one of the longest in the document.
Most countries now have a big focus on technology and innovation, but the scale and nature of China’s industrial drive has led to growing concern among its trade partners about surging exports, as well as complaints about subsidies and other perceived “unfair” practices.
The plenum decision says China will promote alignment on international trade rules, including on “industrial subsidies, environmental standards, labour protection [and] government procurement” – all areas of contention – but there is nothing to suggest major new concessions. Overall, the decision confirms that Beijing remains committed to urgently increasing its high-end manufacturing as a central feature of its modernisation strategy. Both China’s exports and the backlash against them in many countries will thus keep growing.
Resilience, reliance and…retaliation?
China is well aware of this and is preparing. Beijing has been developing a regulatory framework to counter “coercion” since at least 2019, but the plenum’s outcomes suggest even greater urgency now to prepare for tough times. It likely fears an escalation in restrictive trade and economic measures by the US beyond its November election. (This is also one theory for Beijing’s reluctance to deploy more fiscal stimulus – keeping resources in reserve in case of more severe disruption ahead.)
The decision’s section on national security calls for building abilities to “counter foreign sanctions, interference and long-arm jurisdiction”. The section on trade policy also flags trade risks, export controls and remedies. Another section calls for “building industrial and supply chains that are self-supporting and risk-controllable”. This is the only task the document prefixed with the term “zhuajin”, which implies more urgency or importance than terms used elsewhere. This section also lists less familiar tasks, raising the potential for more sweeping initiatives ahead to guard against intensified sanctions, trade restrictions or even conflict scenarios:
- Improve the “mechanism for industries to be relocated domestically"
- "Develop China’s strategic hinterland and ensure backup plans for key industries"
- "Improve the system for national reserves… [and] strategic mineral resources"
- Other sections call for “raising the underwriting capacity of shipping insurers”, and pushing forward development of “a homegrown, controllable cross-border payments system".
Geopolitical pessimists
Looking beyond the headlines then, hopes for blockbuster reforms or bazooka stimulus were always going to be disappointed, and on deeper reading the plenum decision is not devoid of significant points. However, it is hard not to be pessimistic on two fronts. One is the sense that Beijing, while calling for opening and supporting the global trading system, is anticipating worsening geopolitical turbulence. It is probably correct in this outlook, which implies further headwinds for China’s economic growth, disruption for business and greater pressure to “de-risk” and “decouple”.
Secondly, while there are probably some significant reforms coming after the plenum, the basic economic strategy is set and portends domestic as well as external strains. A striking number of the challenges and intentions outlined at this latest plenum are very similar to those in the 2013 third plenum. This raises the question of how much progress Xi has made after a decade in power and commanding greater resources and authority than his predecessors. The issue may be intent as much as capability: the new economic blueprint is not trying to recapture the golden age of growth seen in the early 21st century. It seeks a more resilient China for an era where growth rates and global economic integration have peaked, progress is relative to rival powers, and “future industries” are seen as both a geopolitical battleground and a panacea for rejuvenating the economy.