GP Short Notes

GP Short Notes # 925, 25 July 2024

Takeaways: Third 20th CPC Plenary meeting 2024
Sayeka Ghosh

On 18 July, concluded the Chinese Communist Party's Third Plenum of 2024, a crucial policy-setting meeting, they released a comprehensive blueprint for China's future development. The communique issued after the plenum outlines a wide range of agendas touching on economic reform, technological innovation, social welfare, and China's position in the global economy. While reaffirming long-standing policies of state-led development, the document also reveals subtle but potentially significant policy shifts towards giving private and foreign actors a greater role in the economy. The third plenum stands to be significant as it outlines major policy reforms that will be observed in the coming decade. They also are a review of the previous reforms and policy decisions brought in by the previous plenums. Some also call the meeting “rubber stamps” to already decided policies by the party and a mere show. Following are the takeaways from the plenum resolution issued after the meeting:

1. Reaffirms 5 per cent economic growth
The plenum resolution affirmed Chinese ambition towards economic growth and reinstated the 5 per cent economic growth target for next year. The salient focus was on more short-term orientation than the long-term priorities, something the Third Plenary usually focuses on. The resolution stressed the urgency of implementation measures to boost growth in the face of recent economic challenges and substantial long-term uncertainties. Leaders reiterated the need for “stronger implementation” of macro policies to meet this growth target. There is reason to believe that further policy easing is likely in the coming months partly because Q2 growth came in well below expectations. The communique replaced its focus on letting the market play a ‘decisive role in resource allocation’ with one on ‘leveraging’ the market which could suggest a somewhat more active role for the state in economic management.

2. Revolutionary” innovation and technological development
The highlight of the plenum was about pursuing “revolutionary technological breakthroughs” specifically in key sectors like AI, aerospace, new energy, biomedicine, and quantum science. This dovetails with recent efforts to promote tech self-sufficiency.—likewise the communique mentioned seeking immigration channels for foreign talents, a new development for China. It further committed to reforming incentives for state-owned enterprises to encourage them to contribute more to technological innovation. The implication would be that state-led innovation might complement the role of market-only.

3. Lack of focus on consumption and social welfare polices
Despite expectations, there was no explicit mention of boosting consumption or implementing a consumption tax. This is a notable omission given concerns about weak consumer demand in China. Instead, the attention shifts towards reinforcing social safety nets such as unemployment insurance schemes, the broad span of healthcare coverage, and pensions. In totality, it is expected that the reallocation of these funds will be directed more towards encouraging households to save less and spend more. There are plans to expand public services for urban migrants who lack local “hukou” registration. This could help address issues in the property sector by giving people more incentive to buy homes in cities.

4. Fiscal and financial reforms focused on alternative local government revenue
The plenum outlined plans to diversify local government sources of revenue by handing over some consumption tax collection duties from central to local governments. It also emphasized the need to solve the risks of local government debt and to appropriately extend the local government bond application scope indicating that many local governments were facing serious financial difficulties.
This document is designed to manage the gradual deleveraging of highly indebted sectors such as real estate and local government financing vehicles but to do so in a way that reduces the risks of financial crisis.


5. Vows to protect foreign investors rights
The communique promises protection for foreign investors’ rights and vows to expand the industries open to foreign investment. Specific sectors mentioned include telecommunications, education, and healthcare. It also pledges to remove restrictions on foreign investment in manufacturing. It is an apparent reaction to the foreign grievances over access to markets. But more generally, there are hints of the opening of the door on Chinese terms, rather than on Western ones. For example, it speaks of using Chinese laws in international contracts.

6. Reforms to shorten urban-rural disparity
The communique envisaged deepening land reform so that farmers could gain more access to the increased land values. This would lead to urban-rural integration and reduce huge income disparities between urban and rural areas. It proposed to establish a single national market by dismantling the internal trade barriers. This might prove to be conducive to encouraging domestic production and consumption.

7. Improved functioning of State-Owned Enterprise
The document outlines plans to improve the management and supervision of state-owned enterprises (SOEs). It emphasizes focusing SOEs on core functions related to national security, the economy, and public services. Notably, this section doesn't mention making SOEs more market-oriented. Instead, it seems to reinforce their role as instruments of state policy.
 

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