The Third Plenum

Unpacking the implications

• The Third Plenum of the Communist Party’s Central Committee concluded on 18 July, outlining the long-term economic reform agenda for the next 10 years. Expectations for any significant policy changes were however unrealistic. Instead, the Plenum offered a message of policy continuity and confirmed authorities’ confidence in the path ahead and a focus on national security, technological advancement and self-sufficiency, innovation and productivity, the green transition, and equality.
• The Plenum indicates a continued focus on tightening the relationship between the party-state, society, and the economy, with an emphasis on strategic goals. Beijing’s goals are clear, but China’s path toward those goals is less clear. Several inconsistencies and contradictions remain, and the relative importance of these goals is ambiguous. Therefore, prioritisation can shift, depending on economic circumstances, changing how policy is formulated, and implemented.
• Compared to 2013 the reform agenda, this year appears less ambitious despite over 300 measures being laid out. The Plenum does include market reforms, intent on improving market functions, but maintains policymakers’ close control over economic governance. Key points include efforts to restrain monopolies, protect property rights, and ensure competitive neutrality. However, there is scepticism from the private sector. It seems that market forces – much like firms (private-owned or otherwise) – are primarily tools to propagate the Party-state’s priorities, such as high-tech industries, advanced manufacturing, and servicing the real economy.
• New productive forces remain the spearhead. The goal is to create new comparative advantages. The Plenum focused on enhancing R&D quality, and education. The Plenum is also unambiguous in the advancement of clean energy, aiming to assert global leadership. Here, the Party-state is seen as a catalyst through mainstays like an active industrial policy, SOE leadership, and the deployment of state capital, jettisoning concerns about the effectiveness of top-down development models or potential blowback from trade partners.
• The Plenum confirms that authorities see boosting domestic demand to involve a complex web of factors, including policies that reduce household expenditure, boost disposable income and improve social welfare, but also those that are pro-labour, supporting higher value-added sectors, traditional manufacturing, and investment.
• The Plenum also takes steps to address the financial vulnerability of local governments. The proposed reforms aim to rebalance fiscal responsibilities and revenues between central and local governments, enhance local financial autonomy, and improve debt management.
• The heightened emphasis on "national security" highlights its integration into domestic economic policy and the broader concept of "comprehensive security”.
• The Plenum is not the place for short-term economic stimulus and will do little to alter the cyclical trajectory. The plenum does nothing to address persisting issues such as weak consumption, low consumer confidence, and the struggling property sector. However, subsequently, the Politburo meeting signalled that more supportive macroeconomic policies would be forthcoming.