Fourth days of highly anticipated, high-level Third Plenum discussions ( july 15 through July 18 ) among Chinese Communist Party leaders came to an unsettlingly ambigu readout.
However, the expected debate’s July 19 press event failed to soothe China monitors ‘ general idea of a non-event, even if some 300 measures were touted by the official Chinese media, most of which were now live.
As the second duct under President Xi Jinping’s assistance, expectations were running great for bold actions. That was n’t the case at his first plenum, in the spring of 2014, which could have only set the tone for his mandate so early after his appointment.
The next plenum under Xi, held in 2018, was more focused on modifying the terms of the Chinese Constitution to allow for his reinstatement than on making changes. This year’s chamber, on the other hand, was the first under an all-mighty Xi unlimited by name restrictions
It was also the first post-Covid crisis, which confined persistent imbalances in the Taiwanese economy, not the least of which is how little private consumption contributes to economic growth.
It is also noteworthy that, since the first chamber under Xi, the physical environment has deteriorated significantly as a result of a much more intense US leadership, both under Joe Biden and Donald Trump.
In response to the Third Plenum, the readout and press conference addressed China’s difficulty with the outside environment while also addressing three important domestic issues, including the debt problems of local governments, the ailing real estate sector, and systemic financial risk.  ,
Three measures stand out from the plenum’s obscure reading: one, a force for more rapid industrialisation through transformation of rural than metropolitan area, two, greater centralization of governmental policy, and three, more focus on innovation and moving up the value-added ladder.
On the first, property system reform was particularly important in this readout. As industrialization progresses, there should be more infrastructure-building and a continual relocation of low-productivity workers from rural areas to cities, promoting progress.  ,
On the next point, a “national strategic planning program” that aims to organize more fiscal responsibility and lower local governments ‘ spending was mentioned.  ,
Given the enormous differences between their income and expenditures, especially given the decline in real estate investment since mid-2020, it is important and essential to strengthen local authorities finances. But the manner given in the Plenum’s display may be difficult.  ,
More consolidation of federal spending may have an impact on a number of important issues, including how China implements industrial policy or spends money on research and development, which has long been based on local government competition.
Innovation and professional policy were the third and final topic of discussion. Advancement of the so-called “new quality creative forces” was now high on the group’s policy plan a year before the chamber, so this came as no surprise.
But two phrases , stand out in the document:” the new system for mobilizing resources nationwide to make key technological breakthroughs” and developing “talent”.
It is hard to know whether the “new system” is really new, or if it is more of the same, namely conducting an innovation-centered industrial policy.
Despite the complaints from a large portion of the world about China’s overcapacity and its dumping of cheap exports into the global trading system, what is clear is that China’s leadership is quite content with its supply-centric growth model.  ,
That likely reflects the urgency with which Xi wants China to become more self-sufficient and less dependent on US technology. Additionally, innovation is anticipated to increase productivity and help to reduce China’s demographic decline’s negative effects on economic growth.
These three proposed solutions to China’s key structural issues, when combined, demonstrate that it is clearly attempting to reduce its structural deceleration through urbanization and increased industrial capacity supported by innovation, as well as raising its public finances and establishing more self-reliance.  ,
The purpose of these three measures is to create a virtuous cycle that reduces the systemic risks from the local governments ‘ debts and the real estate crisis.
The first impression of these measures, however, is that they will probably not be enough to solve China’s entrenched economic woes.
Firstly, neither consumer nor investor sentiment, both needed to restore economic vibrance, is likely to change based on such measures.
Notably, no specific reform was proposed to support household consumption at the Third Plenum and lessen excessive savings. This would require the creation of a well-functioning welfare state, which still does not seem to be in the Chinese leadership’s plans.
Second, and this is related to the first point, there does not seem to be any concern about China’s growing production capacity in the face of weak domestic demand and rising protectionist forces against Chinese imports in the US, EU, and other countries.
Finally, the Chinese government has harmed the private sector, which is generally more productive than state-owned enterprises, through stricter laws and other types of state crackdowns.
The plenum’s readout does not seem to give any hint of a change in direction. If anything, the opposite was signaled by omitting the adjective “decisive” when speaking about the role of the private sector in the economy compared to the 2013 and 2018 plenum readouts.
Overall, it was obvious that the Third Plenum was not a game-changer in terms of the reforms that were announced, especially given the difficulties China faces both domestically and internationally.
Chinese authorities appear to prefer to muddle through while retorting their convictions. The issue is that by this point, China has much more mud to deal with.
Bruegel’s senior research fellow and Natixis ‘ chief economist for the Asia-Pacific, Alicia Garca Herrero.