Many Chinese observers and analysts believe that the Chinese Communist Party (CCP) is unlikely to outline a major policy reform blueprint at the upcoming Third Plenum. Prominent foreign scholars have even directly urged that the “CCP’s Third Plenum must take action rather than sticking to rigid slogans.”
Against the backdrop of a collapsing real estate market, ballooning local government debt, and weak consumer demand leading to sluggish economic growth, the top leadership of the CCP will convene an economic policy-making meeting next week (July 15-18) in Beijing, known as the Third Plenum.
The date of the Third Plenum has been delayed by almost a year from the usual timeframe, with international media speculating diverging opinions within the CCP and the economic reform process being postponed due to the aftermath of the Covid epidemic.
Both domestic and international sentiment towards China’s economy is bleak, with household consumption, private investment, and foreign capital inflows all remaining lackluster.
Many analysts predict that the CCP will make commitments at the Third Plenum to comprehensive reforms in areas such as manufacturing, social security networks, taxation, and promoting private sector investment. However, these are unlikely to be deemed as transformational policy strategies.
Chinese political expert Wu Muluan from the Lee Kuan Yew School of Public Policy in Singapore, in an interview with the Sydney Morning Herald, anticipates that the Third Plenum will be filled with a significant amount of promotional narratives, attempting to portray an optimistic outlook for the economy.
Wu Muluan stated, “The central (CCP) government in China is out of touch with the market. The market has already signaled that the situation is bad, they need to do something about it, but they instead say that the people need to have a better mindset.”
Professor Eswar Prasad from Cornell University, a senior researcher at the Brookings Institution and author of “The Future of Money,” bluntly wrote in the Financial Times that “The CCP’s Third Plenum must take action, not just with rigid slogans.”
Prasad highlighted that the continuous decline in real estate values and a sluggish stock market both reflect and exacerbate the sentiment that the “Chinese economy lacks direction. The government either doesn’t understand the seriousness of the situation, doesn’t have a plan to curb the downturn, or both.”
“The problems in China are both cyclical and structural, requiring action on multiple fronts,” Prasad wrote. “Stimulus measures will not be very effective without broader fiscal and financial reform programs and measures to rebuild confidence in the private sector.”
Neil Thomas, a researcher at the China Analysis Center of the Asia Society Policy Institute in the United States, told the Sydney Morning Herald, “Xi Jinping cares about the economy, but he cares more about national security. His current top priority is to reduce China’s dependence on Western technology.”
Thomas pointed out that while the current performance of the Chinese economy is underwhelming, it has not yet reached the brink of collapse. However, there are long-term risks if Xi Jinping fails to chart a path to prevent economic decline.
“If the Third Plenum fails to present convincing reform proposals, it will further damage the confidence of businesses in Xi’s leadership, posing new challenges to China’s growth trajectory,” he said.
This marks Xi Jinping’s third five-year term in office.
According to a report by BBC UK, Bert Hofman, Director of the East Asian Institute at the National University of Singapore, speculated that CCP decision-makers may have only recently felt the need to convene the Third Plenum, a decade after the previous one. (Note: The previous Third Plenum had no economic topics).
“Then (they) are looking into what needs to be changed, questions of demand, structure, or something else. There should have been some debate in this process, and before the announcement of the Plenum, some kind of consensus should have been reached,” Hofman said.
Hofman stated that the CCP hopes to launch a variety of reform policies together to gain political appeal, but structural reforms are very challenging.