The Third Plenum of the 20th Central Committee of the Communist Party of China (CCP) was held from July 15 to 18, 2024, and is widely regarded as one of the most important events on China’s political agenda, as it sets the country’s economic plan for the next five years. President Xi Jinping presided over the closed-door meeting with the Central Committee, which concluded on July 18, 2024.
Compared to other plenary assemblies held in China, the Third Plenum generally focuses on long-term economic reforms. In particular, the 1978 Third Plenum chaired by Deng Xiaoping kick-started China’s economic reforms, transforming the country into the global powerhouse it is today, while the 2013 Third Plenum triggered the abandonment of the one-child policy and encouraged private investment in state-owned enterprises.
This year’s Third Plenum came at a time when China is grappling with issues such as a real estate crisis, high levels of local debt and stagnant domestic consumption, and came on the heels of the economic slowdown reported by the People’s Republic this year, with the April-June 2024 economic growth rate falling 4.7% from the previous quarter and lower than the first quarter of 2023, inevitably falling short of expectations. In the 2024 Business Confidence Survey of the European Union Chamber of Commerce in China, 55% of respondents cited China’s economic slowdown as one of the top three challenges facing businesses.
While the plenary traditionally focuses on long-term strategies, investors and analysts were waiting to see whether more immediate measures would be outlined to address the housing crisis and high levels of local government debt, with overhauls to the tax system to boost domestic consumption and boost confidence in the private sector. Observers agree that the upcoming Third Plenum is unlikely to bring about significant policy reforms, though it is a glimpse of China’s approach to its economic challenges.
Following the plenum, a communique was issued, providing details on the key issues discussed in the closed-door meeting. It remains faithful to Xi Jinping’s agenda so far, with a focus on deepening reform and realizing China-style modernization, 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, and further opening up and reforming foreign trade and investment for greater international cooperation. The long-term vision of modernization and growth through innovation, high-tech manufacturing and green development remains.
The statement does not provide specific details on how the policy reforms will achieve the vision outlined. However, it acknowledges the multiple obstacles facing the Chinese economy and signals the intent to deepen reforms for a more equitable and dynamic market environment. The statement reiterates the policy direction already outlined by the Chinese government in recent years, stressing that the government’s focus remains on balancing economic recovery with national security concerns.
China’s recent restrictive actions in various sectors, including finance, education and technology, as well as its increased focus on national security, are factors that have contributed to discouraging foreign investors. For European companies operating in the country and in order to regain investor confidence, it is therefore more important to implement policies aimed at addressing the aforementioned issues rather than too distant and ambitious goals. Although the Third Plenum has not historically been a platform for the creation of specific measures, economists and investors hoped that a specific plan to stimulate the economy or tax reforms to support the real estate sector or consumption would be announced.
The statement highlighted the risks of real estate, government debt, and small and medium-sized financial institutions, as well as the need to effectively maintain social stability. While the need to better develop and utilize market mechanisms was mentioned, there was no mention of the importance of boosting consumer demand, something foreign investors believe is crucial to lifting China out of its current economic stagnation.
More details may emerge in the coming days, but the overall message is clear: China is continuing with Xi Jinping’s strategy of strong state leadership and a strong focus on technology and security, with little likelihood of drastic corrective measures to revive the economy.
