China’s Third Plenum Commenced, Economic Decline Under Watch

The third plenum of China commenced on July 15 and will continue until the 18^th of this month, with high-level policymakers discussing major policy shortcomings of this year. The state media in China refers to the meeting as an epoch-making meeting. This meeting will set the direction for the next five years to come for Chinese economic policy.

China Daily, the largest English-language newspaper owned by the Chinese Communist Party, highlighted the significant anticipation surrounding the four-day event. It is expected that potential measures to boost the world’s second-largest economy further will be discussed at the event. On the same day of the commencement of the meeting, GDP was observed to be at 4.7% for April-June, making the meeting much more relevant.

The third plenums are known for major reforms in the past as well, steering China’s advancement in various sectors. The abolishment of the One Child Policy was announced in the third plenum of 2013.

Plenums of the Chinese Communist Party

In China, the Communist Party of China (CPC) plays a pivotal role in shaping key policy decisions concerning the State. President of China, Xi Jinping heads the party, being the Secretary General.

Every five years, a significant party congress convenes to elect members to the Central Committee, a crucial body comprising over 300 members. Plenums are conducted within the period of these congresses. Third plenums typically concentrate on economic matters.

The Third Plenum of the Communist Party of China usually refers to an important gathering convened by the CPC’s Central Committee, where pivotal policy decisions concerning the economy of the country are formulated. These meetings play a critical role in shaping the party’s direction and guiding the country’s economic and social policies at large.

With Chinese modernization in view, this year’s deliberations will focus on deepening reforms comprehensively in the State. The Political Bureau will report to the Central Committee. Given the structural economic slowdown faced by China this year, the plenum carries huge significance for the State.

What is expected out of the third plenum of the 20^th Central Committee?

Major announcements regarding economic reform are not anticipated, but there may be discussions about the current economic situation. The COVID-19 pandemic and its stringent restrictions have been cited as factors contributing to decreased economic activity and reduced consumer spending.

Concerns have also arisen regarding China’s property sector, exacerbated by risky practices among Chinese developers and certain government regulations. A tight crunch in the Real Estate sector was seen in its full effect during the Covid-19 phase.

There has been a mismatch between the demand for housing and the oversupply of units. This trend resulted in many large construction firms plummeting into substantial debt, further raising concerns about potential spillover effects on other sectors of the economy.

China Daily notes that Xi Jinping has highlighted the importance of “New quality productive forces,” focusing on advancing sectors such as Artificial Intelligence (AI), green energy, and electric vehicles within the science and technology fields.

According to Xi Jinping New quality productive forces are primarily driven by innovation, moving away from conventional growth paradigms. They aim to enhance overall factor productivity. In production, whether for a business or a nation, investment in labour and capital is essential. Consequently, increasing the input of labour or capital results in higher output. Accelerating the advancement of new quality productive forces is crucial for fostering economic activities across all government levels.

The decline in population, especially those in the working-age category, as well as the recent economic slowdown, puts this third plenum at a higher pedestal of importance and scrutiny at the same time.