The eagerly awaited Third Plenum in China, which will take place in Beijing from July 15 to 18, is being watched carefully by the business. In China, key policy shifts and economic reforms have been a key focus since this event generally. Market participants and China watchers hope the Third Plenum will be able to address this time around with a very distinct question: Will there be enough growth-boosting actions announced to bring the country’s economy back from years of stagnant growth?
Based on how officials and Chinese academics have been setting the ground for this event, there has n’t been much hope that groundbreaking reforms will be announced at the Third Plenum. The issues that have been accumulating over the past few years are, nevertheless, getting worse, rising from real estate stagnancy to the challenging economic conditions of local governments, as well as the fast declining return on assets, all of which are caused by overinvestment and the negative pressures in the economy.  ,
The secret to all these woos, as aired by the Chinese leadership over the past few decades, is by expanding China’s manufacturing capacity under the guise of the” New Production Forces.” There is, nevertheless, little indication of demand measures, especially those supporting exclusive usage. At most some additional consumption tickets are anticipated, but not without establishing a happiness condition. Xi Jinping has vehemently denied having any interest in a unit of this nature.
More source without boosting domestic demand will have to stop somewhere, possibly leading to an even greater trade surplus. As the West and some important emerging markets have started putting restrictions on Chinese goods, this seems increasingly difficult. The result, hence, will be more negative pressures.
The same very gradual approach to resolving China’s key imbalance ( the persistently low domestic consumption ) will likely be used to address other pressing concerns, such as the fiscal deterioration, especially those of local governments, who have long been financed by land sales, which have fallen since 2020.
The economic pressure on local governments is, by then, well known. Both local government employees ‘ earnings and those of the public service are affected. One should anticipate measures to improve the local authorities finances at the Fourth Chamber given the lack of other governmental income and the growing interest rate burden that regional governments must bear.
The exchange of use taxes to local institutions is the one that seems most probable right now. The code will be coordinating government investing in addition to profit. The state will need to compromise the increase in income and health costs thoroughly, given the shrinking working-age inhabitants. This will likely involve the removal of the retirement years, which was previously made public but now with real effect.
A longer-term problem is clearly aging, which has been tackled in the previous chamber with announcements on the lessening of China’s system to handle local migration, the hukou. Although these measures should promote urbanization, the reality is that China does not have a sizable portion of its population who is willing to migrate ( with 63 % of the population in urban areas as opposed to less than 30 % before WTO entry ), and that, most importantly, the employment opportunities in cities are declining.
Lastly, China would profit from more lax monetary and fiscal policies, despite the fact that the area is not really that, despite the quick issue of the policy mix. The RMB is currently at record lows as a result of the government’s commitment to 100 % of GDP and interest rates are now very low, particularly in comparison to the US. This is why, not even on the combination of require policies, can we hope any radical change from the Third Plenum.
All in all, aspirations for China’s long-awaited conference for transformation, the Third Plenum, may be managed carefully. Even though China’s health problems are getting worse, the announcements will resemble Chinese medicine more than a shock therapy.
This has significant effects on the global economy, including that China’s need for imported goods will be restrained and that Chinese businesses will continue to rely on foreign businesses to succeed. This suggests that trade war are still raging in newspapers and possibly going on beyond.