The Third Plenary Session has concluded, and the Chinese Communist Party (CCP) tends to maintain the status quo, without introducing any major changes to the economy. Some economists say that Beijing prefers to play it safe and remains stubborn in its ways.
The Wall Street Journal reported that CCP leaders held a secret meeting in Beijing with hundreds of senior officials to plan the future direction of the struggling Chinese economy. However, the outline released at the end of the four-day meeting indicates that the future under CCP rule may not differ much from the present.
As China’s economic imbalances worsen, Beijing faces increasing pressure as the policy promises made a decade ago remain unfulfilled. CCP leaders attempted to reiterate these promises during the meeting but failed to provide specific details.
According to Reuters, the Third Plenary Session did not make any structural changes in response to mounting domestic monetary tightening pressures, weak demand, and growing external concerns about China’s dominant role in exports.
Despite an unexpected rate cut by the People’s Bank of China, the Chinese stock market fell on Monday, July 22.
Alicia García Herrero, Chief Economist for Asia-Pacific at BNP Paribas, stated that the reform measures announced at the meeting clearly fall short of addressing the challenges both domestically and internationally faced by China, indicating Beijing’s preference for complacency and stubbornness.
Economists do not believe the CCP will truly improve the business environment for state-owned enterprises or allow the market to play a decisive role in resource allocation as promised, given the party’s poor track record.
After the 2015 Asian stock market crash, the CCP tightened capital controls and increased regulatory oversight in sectors such as technology, finance, and others. State-owned enterprises have expanded their share in the economy, squeezing out private businesses.
Despite promises made over the past 11 years to boost domestic demand, reform the household registration system, strengthen rural land rights, or enhance social security, the CCP has only offered empty promises without concrete actions.
Bert Hofman, former World Bank representative in Beijing, noted a prevalent low sentiment among consumers and investors. Many affluent Chinese citizens are leaving the country due to uncertainty in the economic strategy. He emphasized the need for China to face its economic challenges head-on.
David Lubin, Senior Researcher at Chatham House, wrote that there is an undeniable confidence issue in the Chinese economy, but the top CCP leadership refuses to address it directly. He highlighted the missed opportunity for the Third Plenary Session to boost confidence in the market economy among Chinese households.
When trying to understand the Chinese economy, it is essential to remember that there is a significant gap between what CCP decision-makers say and do, or they may avoid discussing certain topics altogether.
Lubin stressed that the focus should be on what the CCP does rather than what they say.
Zong Liang, Chief Researcher at Bank of China, acknowledged the challenge of changing market expectations. He remarked, “It is not simple, nor easy to change course. After going this far, there is a lack of confidence among the public.”
China faces a series of problems including an unresolved real estate market crisis, high local government debt, consumer spending cutbacks, tense foreign trade relations, and rapid aging of the population. None of these issues can be easily resolved.
China’s economic growth significantly slowed in the second quarter (4.7%), lower than the first quarter (5.3%).
Even CCP official media sends conflicting signals, advocating for a state-led development model while also trying to attract foreign investments that rely on market influence.
Moody’s analytics on the Third Plenary Session summary stated, “If access to China’s major export markets is restricted, officials will have to rely on a sluggish domestic economy to drive growth – a daunting task given the continued uncertainty about the domestic economic health.”