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CCP’s Third Plenum set to disrupt an already ailing economy
What you need to know:
The CCP has declared that the Third Plenum of the 20th Central Committee will convene in July, with an agenda centred on studying further comprehensive deepening of reforms and advancing Chinese-style modernization.
Since the outbreak of the COVID-19, and some would argue even before, China’s economy has showcased severe distress. Plaguing challenges such as rural-urban divide, real-estate crisis, growing unemployment, ailing working population and much more have been some of the many economic calamities waiting to erupt in the Chinese economy.
Among the many meetings the Chinese Communist Party (CCP) undertakes, the Third Plenum, which is set to take place in mid-July is perhaps the most consequential one that will once again suggest drastic measures to recover the ailing economy.
The once-in-five-years meeting, known as the Third Plenum, of top officials deals with major economic and political policy changes. Historically, these meetings have introduced significant economic reforms yet adverse in nature. The outcomes of such plenums have disrupted the Chinese economy, leading to further economic turmoil.
The CCP has declared that the Third Plenum of the 20th Central Committee will convene in July, with an agenda centred on studying further comprehensive deepening of reforms and advancing Chinese-style modernization. This year's plenum will be attended by approximately 200 full members of the central committee and around 170 alternate members along with some academic representatives.
At the previous plenum in 2018, the CCP committed to restructuring the party, government, military, and other public institutions, and vowed to balance the powers between central and local governments. Historically, landmark plenums have introduced significant reforms, such as the relaxation of China's one-child policy in 2013.
Similarly, the Central Economic Work Conference held last December seemed to indicate that the Plenum meeting would suggest reforms that establish a unified national market intended to eliminate long-standing issues of barriers and protectionism at provincial and local levels.
Among some of these pressing issues, the Central-local relations are pivotal to China’s fiscal affairs serving as a key indicator of China's future economic trajectory. The uneven distribution of power and responsibility between central and local authorities has led to significant resource misallocations and provincial resistance to central reforms.
The decisions at the third plenum therefore face major challenges in terms of provincial resistance that can potentially go onto disrupt China’s party-state structures. Furthermore, policies emerging from the Third Plenum that are perceived as aggressive or expansionist will most certainly exacerbate geopolitical tensions. For instance, a more assertive stance on Taiwan could potentially lead to trade restrictions and a loss of foreign investment.
Critical issues plaguing Chinese economy
For decades, China's local governments have been the primary drivers of growth through extensive infrastructure spending. However, this approach has led to an enormous accumulation of provincial debt further aggravated by the property market slump. Chinese economists have also urged the Party to assume a greater share of expenditure to stimulate growth and to reform the tax system to provide local authorities with more sustainable revenue sources.
During the Party’s economic meeting in December, leaders indicated that they were considering a new round of fiscal and tax reform. These reforms were however seen in two ways. Some advocated this to be the reform needed to kick-start the provincial economies that were burdened in with debt while other saw fiscal and tax reforms as a measure that would extend the debt burden onto common public further stressing an already stressed economy.
China’s economic conditions are expected to deteriorate instead of improving majorly due to the rash manner in which these decisions are intended to be implemented. The forthcoming decisions, although pledging to address critical issues, will likely be unable to do so effectively in broader terms and further stress the economic volatility of the Chinese economy.
Expectations regarding the outcomes of the upcoming plenum also vary as the Plenum convenes later this month being six months behind schedule.
The meeting also comes at time when significant political upheaval has disrupted China’s political environment including the dismissal of three high-ranking ministers within the Party-State. The meeting also convenes amidst a three-year property crisis and subsequent to a $2 trillion decline in Chinese equities between 2022 and 2023.
Thus, given the wider economic and political distresses, a mere meeting of political leaders can be assumed to do very little apart from a marketing stunt that diverts attention away from the prevailing economic issues.
