After months of unexplained delay, top officials from China’s ruling Communist Party are gathering in Beijing this week to signal the direction forward for the world’s second-largest economy as it faces major economic challenges and friction with the West. The stakes are high for this meeting, known as China’s third plenum, which occurs every five years. Historically, this platform has been used by the party’s leadership to announce key economic reforms and policy directives.
China is currently grappling with a property sector crisis, high local government debt, weak consumer demand, flagging investor confidence, and intensifying trade and technology tensions with the United States and Europe. These challenges were highlighted by the latest economic growth data announced on Monday. China’s gross domestic product (GDP) expanded by 4.7% in the April to June months compared to the previous year. This represents a slowdown from the 5.3% growth reported for the first quarter and also missed the expectations of a group of economists polled by Reuters, who had predicted a 5.1% expansion in the second quarter.
Economic problems have been exacerbated by years of stringent pandemic controls, leading to mounting social frustration and questions about the direction of the country under Xi Jinping, its most powerful leader in decades. These questions have been underscored by a recent shake-up in the upper echelons of Xi’s government, which saw three ministers and a handful of top military officers removed from posts or investigated. Some observers of China’s opaque political system believe this situation contributed to the delay of the plenum.
How Xi and his top officials choose to address the country’s economic challenges will have a significant impact on whether they can continue to raise the quality of life and public confidence within China. These decisions could also broadly affect the country’s role in the global economy and the willingness of foreign investors to do business there, especially with uncertainties like the upcoming US presidential election looming.
The four-day gathering, which begins on Monday, will see about 200 members of the party’s Central Committee leadership body and 170 alternate committee members gathering in Beijing to approve a document laying out a plan for “deepening reform” and advancing “Chinese-style modernization,” according to state media. Past third plenums have delivered sweeping reforms. The meeting in 1978 was linked to the landmark shift toward the “reform and opening” of China’s economy, while Xi’s first third plenum as leader in 2013 set in motion the move to dismantle the decades-old one-child policy.
However, observers of China’s opaque political machine do not believe there will be fundamental economic reforms this time around. Instead, they expect more targeted efforts to address structural economic issues and social problems and to enhance China’s technological self-reliance at a time when it faces a raft of restrictions on access to technology driven by the US.
This is Xi’s third time overseeing this meeting after he extended his rule into a norm-breaking second decade at the last Party Congress in 2022. Speculation has swirled around why the meeting, which was widely expected to take place last fall, is only happening now. Some observers suggested the flagging economy and internal disagreement over how to address it, as well as the high-level personnel shake-ups that cast a shadow over Xi’s third term, could have played a role.
The high debt loads held by local governments and their shrinking income, linked to an ongoing property sector crisis, lie at the heart of China’s current economic woes. Observers will be looking for signals on a new direction for real estate development and property sector policy in the wake of the industry crisis that has seen dozens of Chinese developers default on their debts, which in turn has devastated investors, homebuyers, and construction workers.
Fiscal reforms, especially around taxation and government spending, that could reduce pressure on local governments and bolster their revenue will be closely watched. Many also say the government should take steps to boost consumer spending and increase household income, including potential reforms to change rural land ownership and China’s restrictive household registration system, as well as expand social safety nets in a country grappling with high medical costs and a rapidly aging population.
Xi has acknowledged economic hardship in China, stating in a New Year’s speech that “some people” had “difficulty finding jobs and meeting basic needs.” In a May speech, he also stressed that the party should “do more practical things that benefit the people’s livelihood,” adding that reform should give people a sense of “gain.” While chasing rapid economic growth is “no longer Beijing’s singular priority,” Asia Society Center for China Analysis experts Neil Thomas and Jing Qian wrote last week, Xi likely recognizes that his priorities of national security and tech self-reliance “must co-exist with a baseline level of growth that sustains consumption, investment, social stability, and his own political security.”
Tech self-reliance has become a key focus for Beijing as the US and its allies have moved to limit China’s access to high-end technologies, citing their own security concerns. The plenum is expected to greenlight more government coordination around Xi’s plan to build China into a “science and technology power,” both in terms of innovation and industry. However, such a focus also threatens to heighten frictions with the West.
The European Union and the United States have recently imposed hefty tariffs on Chinese electric vehicles, claiming they are unfairly subsidized by the government and flooding global markets. Any moves this week that bolster the production of such high-end green technologies, which also include goods like solar panels or batteries, could further inflame the issue. Meanwhile, global investors will be looking for Beijing to make good on promises to further open up its market, even as many firms have become more wary of doing business in the country as Xi has prioritized heightened state control and security.
The plenum could also see the formal ousting of top Communist Party officials who have been ensnared in opaque disciplinary investigations or removed from posts without explanation, some of whom were linked to an apparent military purge. Li Shangfu, China’s former defense minister who was fired from his role in October and expelled from the Communist Party following a corruption investigation, will likely be formally removed from the Central Committee.
Observers will be watching closely for any similar movement around other ousted government and military officials, including former Foreign Minister Qin Gang, People’s Liberation Army Rocket Force commander Li Yuchao, and his political commissar Xu Zhongbo. The outcome of these proceedings could provide further insights into the internal dynamics of Xi’s administration and the future direction of China’s political and economic landscape.
In summary, the upcoming third plenum is a critical moment for China as it navigates a host of economic challenges and international tensions. The decisions made at this meeting will not only shape the country’s economic policies and reforms but also impact its global standing and the confidence of both domestic and foreign investors. With Xi Jinping at the helm, the world will be closely watching how China plans to steer its economy and address the pressing issues it faces.
