Third Plenum: Will the Major Meeting Shift China’s Economic Path?
This article was originally published in Italian in Panorama on 9th Aug 2024.
Please note that this is a courtesy translation of the Italian language article originally published in the Panorama Magazine Issue at: https://www.panorama.it/news/dal-mondo/il-terzo-plenum-un-grande-evento-che-cambiera-il-percorso-economico-della-cina
The Third Plenum of the Chinese Communist Party (CCP) 20th Central Committee took place from 15th to 18th July 2024. The Third Plenum is widely considered one of the most important events in China's political agenda, setting the economic blueprint for the next five years. Xi Jinping headed the closed-door meeting with the Central Committee, which wrapped up on 18th July 2024.
Compared to other plenums that take place in China, the Third Plenum generally focuses on long-term economic reform. In 1978, the Third Plenum under Deng Xiaoping initiated China’s economic reforms, forging China into the global powerhouse it is today. In 2013, it set into motion the abandonment of the one-child policy and encouraged private investment into State-Owned enterprises (SOEs).[1]
This Third Plenum occurred at a time when China is having to tackle issues such as the property crisis, high local debt levels and sluggish consumer consumption. It kicked off on the back of China reporting slowing economic growth in the previous quarter, down to 4.7% from April to June, lower than expected and the lowest since the first quarter of 2023.[2] In the European Union Chamber of Commerce in China’s Business Confidence Survey 2024, 55 per cent of survey respondents found China’s economic slowdown to be a top-three business challenge.[3]
Although the plenum traditionally focuses on long-term strategies, investors and analysts were waiting in anticipation to see whether more immediate measures would be outlined to manage the property crisis and high local government debt levels, revise the tax system, boost domestic consumption and raise private sector confidence. Observers agree that the Third Plenum is unlikely to bring about meaningful political reform; however, this year’s plenum signals, to some extent, China’s approach to its economic challenges.
Following the plenum, a communique was issued, providing insights into the key topics discussed at the closed-door meeting. It remains true to Xi Jinping’s agenda thus far, with a focus on deepening reform and pursuing Chinese-style modernisation, aiming to establish a high-level socialist market economic system by 2035. The goals outlined in the communique include giving a more significant role to market mechanisms, creating a more equitable and dynamic market environment, further opening up, and reforming foreign trade and investment for greater international cooperation. The longer-term vision of modernisation and growth through innovation, high-technology manufacturing and green development remains.[4]
The communique did not provide specific details on how policy reform would achieve the outlined vision. However, it did acknowledge the many headwinds facing China’s economy and signalled intent to deepen reforms for a more equitable and dynamic market environment. The communique reiterates the policy direction already outlined by the Chinese government over recent years, highlighting that the government's focus remains on balancing economic recovery against national security concerns.[5]
China’s recent crackdowns on various sectors, such as finance, education and technology, and a greater focus on national security, have discouraged foreign investors. Policy specifics on how the outlined vision can be achieved are more important than lofty goals for European businesses operating in China and for rebuilding investor confidence. Despite the Third Plenum historically not being the arena for specific measures, economists and investors had hoped a specific stimulus package or fiscal reforms to support the property sector or consumption would be announced.
It warned of risks in real estate, debt, and small and medium-sized financial institutions, as well as the need to maintain social stability effectively. While there was mention of the need to better develop and leverage market mechanisms, there was no reference to the importance of increasing consumer demand – something foreign investors deem critical to pull China out of its current economic slump.
More details may emerge in the coming days; however, the overarching message is clear: China is continuing on its path of Xi Jinping’s state-led, technology-focused strategy. For now, hopes of any dramatic course correction measures to reignite the economy are unlikely to materialise.
Edited by: Lawyer Carlo Diego D'Andrea, Vice President of the European Union Chamber of Commerce in China
[1] What is the Chinese Communist Party’s third plenum?, The Economist, 16th July 2024, viewed 17th July 2024, <https://www.economist.com/the-economist-explains/2024/07/16/what-is-the-chinese-communist-partys-third-plenum>
[2] Yao, Kevin and Cash, Joe, China’s economy falters, raises pressure for more stimulus, 16th July 2024, viewed 17th July 2024, <https://www.reuters.com/markets/asia/chinas-economy-seen-slowing-q2-stimulus-calls-grow-2024-07-14/>
[3] European Business in China – Business Confidence Survey 2024, European Union Chamber of Commerce in China, 10th May 2024, viewed 15th July 2024, <https://www.europeanchamber.com.cn/en/publications-business-confidence-survey>
[4] Xinhua, Full Text: Communique of the Third Plenary Session of the 20th Central Committee of the Communist Party of China, 18th July 2024, viewed 19th July 2024, <https://www.chinadaily.com.cn/a/202407/18/WS6698f75aa31095c51c50ec9d.html>
[5] European Chamber Statement on CCP 20th Central Committee Third Plenum Communique, European Union Chamber of Commerce in China, 19th July 2024, viewed 19th July 2024, https://www.europeanchamber.com.cn/en/press-releases/3638
