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One Month After the Third Plenum: What’s Next for China?
August 2024
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As the dust begins to settle on last month’s Third Plenum, analysts and business people alike have been left thinking about what this could all mean for China’s economic trajectory over the coming years.
The long-anticipated four-day meeting ended on 18 July with an initial Communique, later expounded on by a more comprehensive Resolution document – The Resolution of the CPC Central Committee on Further Comprehensively Deepening Reform to Advance Chinese Modernisation – covering some 300 specific reform measures across almost every aspect of governance. For the full picture, however, these two documents should be read in conjunction with President Xi Jinping’s Explanation of the Resolution.
Traditionally held in the following autumn after a Party Congress year, this Plenum had been postponed for nearly nine months. Given the intense speculation surrounding this unconventional delay, perhaps the most significant revelation has been how much continuity there actually seems to be with the broader policy direction of recent years. Both the Resolution and Explanation draw a consistent line with many of the macro priorities and ideological commitments espoused at least since 2017, marked by an increasing degree of centralisation in decision-making.
Continuity in policy amidst uncertainty
Following the long-term vision set out since the 19th Party Congress, “high-quality development” continues to feature as one of the “main tasks” of economic structural reform, while “party leadership” remains central as ever. At the same time, building on the prevailing trend of more recent years, national security has also become a subject of “higher priority”.
On the economy, the Third Plenum did well to acknowledge some of the most pressing challenges China faces, from poor consumption and youth unemployment to risks in the real estate sector, while outlining macro schemes to address these issues.
- Private sector investment to stimulate economy
The Resolution takes clear steps in reaffirming the crucial role of the private sector by pledging to introduce a “private sector promotion law” geared at removing investment barriers, supporting innovation, and levelling the playing field for private enterprise. Still, in promising to “better leverage the role of the market”, there is an implicit step back from the “decisive role” spelled out for the market a decade ago, at the 18th Third Plenum. Indeed, while there is a strong emphasis on improving market mechanisms and revitalising financial resource allocation, there is also the unambiguous recognition that the Party remains the ultimate arbiter of market freedom.
- Strategic innovation for a global edge
“New quality productive forces” feature prominently – a term that should be understood as a catch-all strategy of leveraging technological innovation to achieve the sorts of decisive breakthroughs that would give China a strategic edge on the global stage. Amidst technological rivalry and trade frictions – especially with the United States – focusing on these industries of the future is becoming a matter of geopolitical necessity, as much as an attempt to boost economic growth and productivity.
- Hukou system reform to drive urbanisation
A long overdue focus on reforming China’s prohibitive household registration (hukou) system will see previously inaccessible social security benefits and public services gradually become available to internal economic migrants from rural regions. Over time, this should reduce longstanding barriers to the movement of labour within the country, thereby encouraging more positive, sustainable trends in urbanisation, stimulating consumption, and opening the door to new commercial scenarios.
- Fiscal reform to address local government debt
Local government debt continues to be one of the main risk areas for China’s economy. To tackle this, the leadership has committed to redressing fiscal imbalances through tax reforms, which would allow local governments to retain a larger share of tax revenue – especially consumption tax – while maintaining greater autonomy over tax management. However, it also leaves the door open to more stringent central government oversight, with a commitment to creating “a system for monitoring and regulating all local government debt”.
What’s next
Ultimately, the Resolution provides an expansive, macro-level blueprint for economic reform – but the details of execution are more ambiguous. These specifics are left up to government departments, who are required to formulate their own relevant strategies in the subsequent weeks and months, based on the spirit of the Third Plenum. For example, on 3 August the State Council released an action plan to boost consumption by optimising and expanding diversified services, with a particular focus on digital consumption – building on the Third Plenum’s emphasis on the digital economy.
Undoubtedly, the reforms outlined in the Resolution are broad and ambitious – their success will depend on implementation, which itself hinges both on administrative capacity and, perhaps more importantly, political will. Among the 300-odd reform measures, the scope of possibilities is huge, and many of these priorities are likely to run up against each other in competition for resources and attention.
What can be said for certain, however, is that economic and industrial policies are increasingly being informed by geopolitical and security questions, as China’s long-term modernisation strategy becomes inseparable from political vision. For multinational enterprises operating in this ever-changing economic landscape, understanding the Chinese government’s policies, politics and even ideological priorities will become all the more crucial in the years to come.
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