While Europe and the United States are dealing with a string of crucial elections, the world’s second largest economy is about to convene a major conclave to decide its economic direction of travel – the third plenum of the 20th Chinese Communist Party (CCP) central committee. Boring and unfashionable as it might sound, China watchers and global investors will closely follow this event: previous third plenums have offered a clear signpost on China’s economic growth strategy for the following decade.
Significance of the third plenum
Since 1982 the CCP politburo and its central committee typically convene seven plenums every five years. The first and second plenums focus on senior party leadership appointments and a restructure of governmental institutions. The third often introduces major policy initiatives for the next five to ten years. Several have become key moments for the party and the country’s modern history.
In 1978, the third plenum of the11th CCP central committee decisively pivoted the country from dealing with the turmoil of the Cultural Revolution to introducing the monumental economic reform and opening-up by Deng Xiaoping – a political blueprint that changed modern China. Ever since, the party leadership has always wanted to use the third plenum to unveil major policy initiatives.
Many international observers have set high expectations for this upcoming plenum, anticipating a sound stimulus package to revitalize China’s sluggish economy in the post-COVID-19 era.
Yet, many might well be disappointed. Beijing has firmly shifted its growth paradigm, from chasing a nominal growth rate into building a resilient economy driven by innovation that can cope with protracted geopolitical repercussions. This gathering will give a final political stamp to do so.
Two key policy changes
Communist Party high politics is usually shrouded in secrecy. Unlike previous similar gatherings which had a strong focus on unleashing market forces and reducing government intervention, the current politburo has decisively placed the relationship between society and economy at the heart of the upcoming discussion.
To put in practical terms, observers must be under no illusion on stimulus, but expect further government intervention to channel economic resources into the strategic and innovation sectors and to guarantee minimum social welfare to the poor. These are unlikely to be policies eagerly waited and favoured by private enterprises and global investors.
There are two connected policy lexicons that will be discussed extensively and will shed some light on the key elements of this third plenum. Yet neither are what international, liberal-minded audiences might want to hear.
The first term is ‘new quality productive force’. Marxist as it might sound, it asks the Chinese economy to become a leading light in the innovation of new technologies.
The introduction of this term marks a sea change in the party leadership’s economic governance. Until very recently, Beijing’s economic and industrial policies were largely based on accelerating progress in catching up to existing technologies and achieving self-reliance in order to help China withstand the US’s strategic containment.
From now on, the ultimate goal is to make China a champion of innovation through generating disruptive technology and scaling up into high-end manufacturing.
Previous industrial policies mostly focused on expanding global market share for China’s own exports. This new term calls for the government and enterprises to lead future industries that are in the nascent stage at a global level.
The second and related new vocabulary in this upcoming plenum is ‘new national system’. This refers to distributing national resources with an even stronger centralized control, allocating capital to sectors with strategic significance. The underlying emphasis here is not on the economy but on geopolitics.
China’s worsening relations with the collective West have already limited its future access to market and technology innovation. The ‘national system’ is Beijing’s recipe to acquire technologies by pulling all available national resources together in supporting home-grown technology breakthrough.
The term again sets a clear distinction between the current party leader’s economic governance model and the more explicitly market-oriented consensus of the Reform and Opening eras of the last 45 years.
Uncertainty lies ahead
These two new terms clearly represent another step towards top-down and centralized economic governance under President Xi, which distinctively focuses on innovation breakthroughs rather than maximizing GDP growth through infrastructure and property.