Turning Point: Will Xi Jinping Seize the Moment at the CCP's Third Plenum?

 

As China faces its deepest economic challenges in decades, the third plenary session of the CCP Central Committee on July 15, 2024, represents a critical moment for decisive policy shifts that could either stabilize or further destabilize the nation.

China stands at a crossroads, facing economic headwinds that threaten to undermine decades of rapid growth and development. As the Chinese Communist Party (CCP) prepares for its crucial third plenary session on July 15, 2024, the stakes have never been higher. This meeting is not just a routine gathering of the party elite but a potential turning point for China’s economic policy and political strategy. Investors, analysts, and ordinary Chinese citizens alike are keenly watching to see if President Xi Jinping will heed the plethora of advice coming from within and outside the party, or if he will continue on a path that many believe could lead to further economic stagnation and social unrest.

The third plenary session of the Central Committee has historically been a venue for significant policy shifts. In 1978, Deng Xiaoping used the third plenum to pivot China from Maoist isolation and poverty towards economic reform and opening up, setting the stage for China's transformation into a global economic powerhouse. Similarly, the third plenum in 1993 entrenched the concept of a "socialist market economy," further integrating market mechanisms into China's economic framework while maintaining state control. These sessions have been more about setting the party's strategic direction than detailing specific policies, but they have nevertheless been crucial in shaping China's trajectory.

China’s economy, which once seemed unstoppable, is now grappling with multiple crises. The property sector, which has been a key driver of growth, is mired in a prolonged slump. May 2024 saw the largest fall in new home prices in nearly a decade, exacerbating a crisis that has been years in the making. This decline has had a ripple effect, severely impacting local governments that rely on land sales for revenue and leaving consumers with little confidence. The mid-year shopping festival, 618, saw a decline in sales for the first time ever, indicating deep-seated consumer pessimism.

To achieve its modest growth target of 5% for the year, China is banking on exports and industrial investment. While exports are currently strong, this strategy is fraught with risks due to weak domestic demand and increasing global protectionism. The European Union is set to impose new tariffs on Chinese electric vehicles starting in July, and the United States, regardless of the outcome of the upcoming presidential election, is likely to continue tightening trade restrictions.

Xi Jinping is under immense pressure to address these challenges. Within the party, there are calls for fiscal reforms to alleviate the burden on local governments and for measures to boost the confidence of private companies, which contribute to 60% of China’s GDP. Years of unpredictable regulations and favoritism towards state-owned enterprises have stifled entrepreneurial spirit, and there is a growing chorus of voices advocating for policies that would provide "chill pills" (dingxinwan) to beleaguered entrepreneurs.

Externally, China faces a hostile trade environment. The country's industrial policy, which has often led to overcapacity and the dumping of cheap goods on international markets, is drawing increasing ire from its trading partners. The imposition of tariffs by the EU on Chinese electric vehicles is just one example of the growing trade tensions that could hamper China's export-driven growth model.

Xi Jinping has a plethora of recommendations at his disposal. Some advisers suggest lowering taxes, liberalizing rural land sales, or opening up the services sector to stimulate domestic demand. Reforming the hukou system, which restricts access to public services for rural migrants, and improving state pensions and healthcare could also encourage consumers to spend more and save less. However, Xi has shown a reluctance to implement large-scale consumer stimulus programs, preferring to maintain tight control over the economy.

The upcoming third plenum offers Xi a platform to signal his commitment to addressing these issues. A clear and decisive agenda could reassure investors and businesspeople who have grown wary of the government’s half-measures and inconsistent policies. However, if the meeting results in only vague allusions to potential reforms, it is unlikely to restore confidence in China's economic direction.

The decisions made at the third plenum will have far-reaching implications not just for China, but for the global economy. China’s economic health is closely tied to that of the world, given its role as a major trading partner and manufacturing hub. A failure to address its economic issues could lead to slower global growth and increased economic volatility.

Furthermore, the political ramifications within China could be significant. Economic dissatisfaction can quickly translate into social unrest, especially in a country where the social contract between the ruling party and the populace is based largely on economic performance. Xi Jinping, who has consolidated power to an unprecedented degree, may find his authority challenged if economic conditions continue to deteriorate.

The third plenary session of the CCP’s Central Committee on July 15, 2024, represents a critical juncture for China. With the economy facing significant challenges, the decisions made at this meeting could set the course for the country’s future. Xi Jinping has an opportunity to implement bold reforms that could reinvigorate the economy and restore confidence among investors and the public. However, if he continues to ignore the advice of his advisers and maintains the status quo, the repercussions could be severe, both domestically and internationally. The world will be watching closely to see if this pivotal moment leads to meaningful change or further stagnation.