CHINA is aware that its 2035 goal to build a more equitable, innovative and greener economy and 2049 goal of modernization are within reach. However, to realize them, rational but difficult choices must be made and challenges faced head-on now. The third plenary session of the Chinese Communist Party’s (CPC) 20th Central Committee in July 2024 came at a critical juncture for China’s economic challenges and therefore focused on deepening economic reforms to address a range of pressing issues facing China’s economy and society.
The third Plenum, therefore, enacted much awaited and required major structural reforms. China set ambitious long-term policy goals and unveiled a range of economic reforms and policies to address long-standing issues hindering growth and recovery. While reforms are modest, yet comprehensively cover all aspects of economy and governance. These reforms will have a substantial impact on the country’s development trajectory and thus their impact should be well understood.
The CCP plenums are quasi-annual meetings held by the Central Committee. After the National Congress, which is held every five years and elects the Central Committee, they are the most important and high-level political gathering in China. Historically, these plenums have been the platform from which the government launches seminal policies and decisions, such as the “reform and opening up policy” in 1978 and the easing of the One-Child policy in 2013.
Although past plenums have seen major reforms and policy decisions, July 2024 plenum did not announce any drastic pivots and instead put in more granular reforms that align with the country’s current development trajectory. The Central Committee approved decision on Further Comprehensive Deepening of Reforms and Advancing Chinese-style Modernization. The third plenum named “high quality development” as China’s “top priority” and laid out structural reforms to be completed by 2029, the 80th anniversary of the founding of the People’s Republic of China.
This document outlined the planned economic reforms for the coming years and focused in part on policies to promote the “new-type industrialization” policy. This initiative seeks to move China’s industries up the value chain and boost their global competitiveness by focusing on digitization, advanced manufacturing, secure supply chains and developing core and emerging technologies. “High quality development is the primary task of building a modern socialist country in an all-round way,” the statement said.
External factors are anticipated to encourage reinforcement of China’s internal competencies, especially in the technological sector, aiming to enhance the robustness and self-reliance of vital industrial and supply networks. In recent years, the US and the EU, as well as other allies, have increased pressure on China by introducing a variety of policies aimed at countering China’s growing influence in key supply chains. These include the US’s curbs on key technology exports to China and recent tariff hikes as well as the EU’s growing scrutiny of various Chinese imports.
To mitigate this, the Central Committee may prioritize enhancing domestic high-end, intelligent and green manufacturing, consolidating advantageous industries and fostering strategic emerging industries, such as semiconductors, alongside encouraging collaborative innovation across the industrial chain. Decisions have also been taken to help with business matchmaking, location analysis, market entry strategy, market research and supply chain re-engineering.
While technology innovation initiative was first introduced in 2002 during the 16th National Congress, it has become an increasingly important aspect of China’s industrial policy in recent years. In September 2023, China’s President Xi Jinping stressed the “vital role of high-quality development in advancing new-type industrialization,” emphasizing the need to adapt and lead the ongoing scientific and technological revolution.
China views technology innovation as a new growth engine that could help the economy transition from the old model fueled by infrastructure investment and debt expansion. The third plenum announced policies related to promoting high-end, intelligent and green manufacturing processes, consolidating existing industrial strengths and expanding strategic emerging industries and proactively developing industries of the future to stay ahead in global technological and industrial revolutions. Meanwhile, China has been proactively building economic relationships with countries in Southeast Asia, Africa, Latin America and Eastern Europe to strengthen its supply chain resilience. This strategy is expected to remain steadfast in short term.
Chinese private sector has experienced uneven recovery since the COVID-19 pandemic, with private companies falling behind their public counterparts across measures such as value output and investment. The third plenum announced new policies to support the growth and recovery of the private sector, with initiatives including ensuring equal treatments for state-owned and private enterprises through institutional and legal frameworks, protecting the property rights and interests of private entrepreneurs and supporting the growth of small, medium, and micro-enterprises as well as individual businesses.
Xi’s government has also strengthened its national security apparatus in the past decade. The plenum pledged to ensure “security,” which means national security concerns could continue to drive policymaking. They also vowed to give “better play to the role of the market,” while noting that market forces need to be better managed and retained a previous promise to “unswervingly” develop the state sector.
China also pledged to “improve people’s livelihoods” at the plenum, which is essentially a continuation of Xi’s “common prosperity” agenda. While previous leaders in post-Mao China were content to let some get rich first, Xi believes the time has come to share the fruits of China’s development more widely among its population. The Plenum acknowledged the need to improve “basic and bottom-up livelihood, solve the most direct and realistic interests of the people and continuously meet the people’s yearning for a better life.” This is the most promising part of the reform agenda, since channeling a greater share of income to households would help advance a much-needed rebalancing toward consumption.
It was also decided to improve job market, social security, education system and the medical system. Likewise, the need to address risks in the property market and other threats to the economy have been heighted with determination to put requisite strategies in place to rectify the problems. Relieving the financial squeeze on local governments that have built up huge amounts of debt after a crackdown on heavy borrowing by property developers pushed the real estate industry into crisis, cutting off a vital source of tax revenues from sales of land-use rights. The urgent need to reform the tax system and better integrate cities and the countryside has also been emphasized.
The leadership also vowed to revamp the fiscal, taxation and financial systems, which signal their concerns about how to address the debt crisis faced by local governments. Debt has piled up at China’s municipal governments, after three years of pandemic controls drained their coffers and the property slump led to a sharp decline in land sales, which they rely on for income. That poses risks to the country’s banking system and economic growth.
Besides the long-term structural reform priorities, policymakers also promised to achieve short-term economic goals, including a 5% GDP growth target for 2024. That came days after China released disappointing economic data for the second quarter of this year. GDP grew 4.7% year-on-year in the April-to-June period, marking the weakest growth since the first quarter of last year, according to data from the National Bureau of Statistics on Monday. The figure slowed from 5.3% in the previous three months and missed the 5.1% increase forecast.
To achieve the annual goals, “China will proactively expand domestic demand” and develop “new-quality productivity forces.” That could mean channeling resources to favored sectors, such as high-tech manufacturing, while gradually curbing the role of sunset industries like property development, according to Evans-Pritchard from Capital Economics. Analysts say that the coming months could offer more details on how Xi plans to revive the economy.
Sustainable development remains a cornerstone of China’s policy framework. It has committed to peaking carbon emissions before 2030 and achieving carbon neutrality by 2060. China has now introduced measures to accelerate this green transition, promoting renewable energy, enhancing energy efficiency and supporting the development of a circular economy. These efforts underscore China’s dedication to combating climate change and fostering a harmonious co-existence between humanity and nature.
The decisions taken at the Third Plenum will propel China in a new era of reforms and prepare it to face the challenges emerging around it that may restrain its development. China is now determined to ensure it realizes its second millennial Goal of rejuvenation of the motherland by the middle of the century.
It plans to do this by building a high-standard socialist market economy, improving nacroeconomic governance, improving the national strategic planning system and policy coordination mechanisms, deepening reform of the fiscal and tax systems, deepening reform of the financial system, improving mechanisms for implementing the coordinated regional development strategy, promoting integrated urban-rural development, pursuing high-standard opening-up, advancing whole-process people’s democracy, promoting socialist rule of law with Chinese characteristics, deepening reform in the cultural sector, ensuring and improving the people’s wellbeing, deepening reform in ecological conservation, modernizing China’s national security system and capacity, deepening national defence and nilitary reform, improving the Party’s leadership.
So far China has demonstrated its determination to fully implement its short and long-term goals. Now it is in the final decades of achieving its cherished goal of national rejuvenation of the motherland. Whether it is able to achieve it will depend on the decisions China is taking today and will continue to need strong and sagacious leadership.
—The writer is former Ambassador, based in Islamabad.
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