On 24th September, Beijing announced a long-awaited stimulus to boost its economy. Mortgage rates for existing housing have been cut, the bank reserve requirement ratio is down a half per cent, and banks are allowed to give loans to acquire the lands of real estate companies. This is expected to give the domestic economy a much-needed boost of confidence and spending.
Two days after the stimulus package was announced, on 26th September Chinese President Xi Jinping held a meeting of the Politburo, where he announced 2 trillion yuan ($270 billion) in bonds for the stimulus. About 1 trillion yuan of this will be used to help local governments overcome their financial problems and the second trillion will be used to boost spending by households and firms.
There was not an inkling of this at the Third Plenum of the 20th Party Congress, a long overdue meeting held 15-18 July,[1] which laid out the agenda for China’s long-term growth and global dominance. The much-delayed Third Plenum, the result of ongoing problems in China’s economy and the delay in finalising economic measures to overcome those problems, finally announced 300 measures to boost the economy, which were to be revealed over a period of time.
At the end of every Third Plenum, a communique is issued that gives out the deliberations of that plenum. It necessitates analysis, to understand China’s decision-making, especially for the economy. This year the communique was titled “Decision of the CCP Central Committee on Further Comprehensively Deepening Reform to Advance Chinese Modernization (中共中央关于进一步全面深化改革、推进中国式现代化的决定)”. During the drafting process, 1,911 opinions were received, and 221 revisions were carried out. This year, as he usually does, President Xi Jinping gave his explanation of the communique.
The communique emphasized some important agendas. It exhorted the coordinated implementation of the Five-Sphere Integrated Plan and Four-Pronged Comprehensive Strategy. The five ‘spheres’ are (五位一体) – the promotion of coordinated economic, political, cultural, social, and ecological advancement. The Four-Pronged Comprehensive Strategy (四个意识) aims to build a modern socialist country, deepen reform, advance law-based governance, and strengthen Party self-governance.
Two timelines were mentioned. One, to complete the overall reform process by 2035, and to complete the reforms laid out in this Third Plenum by 2029. The date is significant, as 2029 is the 80th anniversary of China becoming a republic, making the implementation of these reforms even more important.
China has been trying to become a market economy for some time now. That it has not achieved the goal is evident by the exhortation to build a high-standard, socialist market economy. The reforms emphasise lifting restrictions on the market and attempting to remedy market failures through strict regulation. This may or may not be possible, for it is well-known that State Owned Enterprises (SoEs) dominate China’s corporate sector. The reforms seek the consolidation and development of SoEs simultaneously with the private sector, by building a unified national market and deepening supply-side reform. This is one-sided: there are no measures to improve the demand side which has been weighing down the economic growth of China. China is worried about its supply chains and hence, the resilience of supply chains has been emphasised.
The real estate sector and high local debt which has been dragging the economy down, have been listed for ‘prevention’ and ‘defusing’ of risks.
The communique mentions the promotion of high-quality development. This is a euphemism for slower growth, to divert China away from its usual quantity of growth mantra to quality of growth. Continued opening up and reforms are pledged, but their efficacy is the key.
To overcome the rising inequality in society, an effort has been made to integrate urban-rural development(城乡融合发展是), enhance the employment-first policy (including providing government support in employment services and technical training), reform medical care to increase access and quality of public medical care and innovation of new drugs, and improve the income distribution system Most importantly, the hukou(户口) system, which is the residence permit for migratory labour from rural to urban, and which built the coastal cities and the elite of China, is likely to undergo a change to allow migrants access to benefits in their cities of work, which had been denied them so far.
There is of course mention of supporting the growth of New Quality Productive Forces, which is another name for companies working on cutting-edge technologies like Artificial Intelligence, quantum technologies, space, advanced materials and cybersecurity. Unusually, the term ‘National Security’ has found importance in the communique, indicating its place in all aspects of the economy. The Peoples Liberation Armed Forces have been ordained to complete their basic modernisation by 2027, which is on track.
Innovation, repeatedly emphasised by Xi Jinping, finds a place in the communique. The integration of the digital economy with the real, productive economy continues, implying the push for the Digital Currency that China has been implementing, slowly.
The plenum slated the ubiquitous One Belt One Road Initiative (BRI一带一路倡议) for “high-quality cooperation” with countries that have signed on to it. Given that the BRI’s decade-old blazing buildout has slowed down, and is even seeing some pushback, it is not clear how this will be achieved.
The dichotomies in the plenum did not seem to concern the attendees. While the Party promoted the concept of a “human community with shared future” – the overarching concept behind all China’s initiatives of the last four years – and the reform and development of global governance which China aspires to lead, it is less kind to its own.
The “resignations” and removal from the Party of those who have “disappeared” (forcibly) were accepted. Xi Jinping’s explanation of the communique was a justification for the document. The Chinese president inserted a heavy dose of the word “reform” which appeared 51 times. With regard to “comprehensively advancing the modernisation” Xi Jinping identified shortcomings like unbalanced and inadequate development between various regions of China, quality of development, institutional gaps, innovation capacity, the industrial system not being strong or sophisticated, wide gaps in income distribution between urban and rural areas, over-reliance on key and core technologies controlled by others and agriculture needing to be further strengthened. He cautioned that China has entered a period in which strategic opportunities, risks, and challenges coexist, and uncertainties and unpredictability are rising. Various “black swan” and “gray rhino” events have the potential to occur at any time. His solution: continue reform and opening up, build a high-standard socialist market economy and carry out economic structural reform in major areas.[2]
The responses from China, the West and India on the outcomes of the Third Plenum, were varied.
Analysts from China saw the third plenum as important as the one in 1978 when China opened up its economy, carrying out sweeping reforms. They associated the reforms of President Xi as similarly significant, achieving China’s modernization by 2035, through the integration of high technology with national security planning over in the next 5-10 years. They saw a balance of opening up, reforms with self-reliance, and security with development. They felt that the simultaneous strengthening of SoEs and the private sector created a competitive neutrality between SoEs, the private sector and foreign companies.
The analysis from Western countries was mixed, from dismissing the outcome of the Third Plenum as insignificant to a more balanced understanding of it being a long-term outlook and planning for China. The focus of the plenum was on removing structural barriers to increase consumption, income and efficiency in resource distribution rather than an immediate large-scale stimulus – which came nearly three months later. Fiscal resources of the local governments are planned to be increased and the contribution from the central government increased to enable them to better handle the problems at the lower level.
In most cases, analyses from India covered the details of the communique but came up short on analysis.
China is certainly aware of the problems persisting in its economy. The measures undertaken so far indicate that the real estate issue is being allowed to play itself out. That is the reason for not recapitalising that sector as was done in the past.
For India, it is necessary to pay attention to two efforts begun by China: one, to diversify its own critical supply chains and two, to invest heavily in the development of technologies being denied to it. Despite the technology denial, China has released the Mate 60 mobile phone with a 7nM chip.
The Third Plenum is meant for long-term planning and not for quick-fix solutions. The emphasis by analysts on security being included unusually in the Third Plenum document needs to be noted. But further analysis is needed for the 300 measures, as and when they are revealed, over a period of time. This Third Plenum’s success will depend upon how the measures already announced, increase domestic consumption and reduce unemployment.
If the past is anything to go by, these measures have limited results. The success rate of the approximately 60 reform measures announced in the Third Plenum of the 18th Party Congress in 2013, has been abysmally low. This time 300 reforms have been announced; the success rate of implementation will be closely watched.
Lt Gen S L Narasimhan is the Adjunct Distinguished Fellow for China and National Security Studies at Gateway House.
This article was exclusively written for Gateway House: Indian Council on Global Relations. You can read more exclusive content here.
For permission to republish, please contact outreach@gatewayhouse.in.
Support our work here.
©Copyright 2024 Gateway House: Indian Council on Global Relations. All rights reserved. Any unauthorised copying or reproduction is strictly prohibited.
References
[1] A number of plenums are held for every party congress of China. The third plenum is held in the month of November, almost after one year of the party congress that is held once in five years and it invariably deals with the economic measures and policies that are expected to be followed for the next five years. The 20th Party Congress was held in October 2022 and the third plenum was expected to be held in November 2023. However, it was delayed and was finally held from 15th to 18th July 2024.
[2] The drafting process of the communique was explained along with how the priorities like institutional and economic structure and putting people first were arrived at.
The third part is the General Framework and Content. The communique has three main parts, 15 Sections and 60 Sub Sections. The first Section deals with the significance of deepening reform to progress Chinese modernisation. The next 13 sections draw out reform plans for the economy, politics, culture, society, environment, national security, national defence and the military.
The last section is about strengthening the party’s leadership: Prioritising economic reform for strengthening SoEs developing the private sector with a new promotion law and funding for future-oriented industries and improving urban-rural integrated development.
The second point is about improving innovation to be achieved by reforming education and talent development and refining mechanisms facilitating innovation.
Thirdly, comprehensive reforms in cyberspace governance, restructuring international communication system, income distribution, boosting employment, making the social security system more effective, lifting all restrictions preventing people from accessing social security in the places where they work but do not hold hukou, empowering municipal governments to regulate real estate market, incentivise boosting birth rate and elderly care programmes and ecological conservation.
Fourthly, national security issues include leveraging science and technology for national security, promoting security in the neighbouring regions and improving joint operations capabilities and lastly, strengthening the Party’s leadership over reform – better personnel management and distinguishing between intended and genuine mistakes.
Strengthening the Party’s leadership over reform – Leadership by the Party provides a fundamental guarantee for further deepening reform comprehensively to advance Chinese modernisation.