A Thrilling Yawnfest: China’s Third Plenum Sets New Records in Boredom

 

The Third Plenum’s lackluster outcome underscores a broader global sentiment of deep skepticism and low expectations towards China's economic prospects. Despite China’s emphasis on "high-quality growth" and technological self-reliance, the absence of concrete measures to tackle key issues like the property downturn and local government debt leaves the economy teetering on a Great Wall of worry.

China’s recent Third Plenum, a meeting that theoretically sets the stage for significant economic policy decisions, concluded with a resounding thud, lacking in substance and failing to generate any notable enthusiasm. This underwhelming outcome speaks volumes about the current global sentiment towards the Middle Kingdom, reflecting a deep-seated skepticism and low expectations that have become increasingly prevalent.

Historically, the Third Plenum of the Chinese Communist Party (CCP) has been a pivotal event. For instance, the Third Plenum of 1978, under Deng Xiaoping, marked the beginning of China's "reform and opening up" policy, which triggered decades of rapid economic growth. Similarly, the 2013 Third Plenum, the first under President Xi Jinping, was anticipated with great fanfare. It promised to give the market a decisive role in resource allocation, heralding a new era of economic liberalization and private sector development. However, the reality fell short of these grand promises. While the one-child policy was relaxed in 2015, other significant reforms failed to materialize, and Xi’s subsequent Third Plenum in 2018 laid the groundwork for his indefinite rule, emphasizing state control over market liberalization.

The recent Third Plenum, delayed by a year without explanation, continued this trend of unfulfilled expectations. It emphasized "high-quality growth," focusing on advanced manufacturing and technological self-reliance to promote "common prosperity." However, these goals were vague and largely reiterative of past statements, offering no concrete measures to address pressing issues like the property downturn, local government financial woes, or the dominance of state-owned enterprises.

The lack of concrete proposals highlights the CCP’s tolerance for slower growth and reluctance to implement large-scale stimulus measures, likely due to concerns about wastefulness and bad debts from previous stimulus efforts. The emphasis on maintaining this year's growth targets of around 5% suggests minor policy support rather than any groundbreaking initiatives. When the People's Bank of China (PBoC) unexpectedly lowered lending rates by 0.2 percentage points, markets reacted negatively, interpreting the move as a sign of deeper economic troubles rather than a proactive measure to boost growth.

This reaction reflects the broader sentiment towards China's economic prospects. Chinese GDP growth slowed to 4.7% year-on-year in the second quarter from 5.3% in the first quarter, raising fears of further deceleration. While some analysts hoped for more forceful stimulus in response to this slowdown, the Plenum's outcome dashed these hopes, reinforcing the perception of a lackluster economic outlook.

Why has global sentiment towards China become so pessimistic? One factor is the prolonged bear market and slower growth in recent years, driven by imbalances such as an overreliance on manufacturing and exports at the expense of services and consumer spending. Additionally, regulatory crackdowns and increasing state control over the economy have undermined confidence in China's commitment to market reforms. The delayed and uninspiring Third Plenum has only reinforced these concerns, suggesting that significant policy shifts are unlikely in the near future.

Can China’s leadership still inspire confidence in their economic stewardship? The vague and repetitive goals outlined in the Plenum indicate a leadership that is more focused on maintaining stability and control than on pursuing bold reforms. This cautious approach may be intended to avoid the pitfalls of previous stimulus efforts, but it does little to address the underlying issues facing the Chinese economy.

What does this mean for China’s role in the global economy? Despite the low expectations, China’s sheer economic size means that even moderate growth can contribute significantly to global economic expansion. However, the gap between sentiment and reality is widening. While industrial production and exports are picking up, household consumption remains weak due to the ongoing property downturn. This mixed data creates uncertainty, with headlines often focusing on negative aspects while downplaying positive developments.

For investors, the subdued expectations towards China might offer a silver lining. With sentiment already low, the potential for significant disappointment is reduced. However, the lack of a clear policy direction from the Third Plenum suggests that investors should remain cautious, as the Chinese leadership appears content with a gradual and controlled approach to economic management.

The Third Plenum’s outcome also has implications for China’s international relations. The emphasis on technological self-reliance and advanced manufacturing underscores China’s strategic response to ongoing trade tensions and technological competition with the United States. However, without substantial reforms to foster innovation and private sector growth, China may struggle to achieve its ambitious goals.

In plain terms, China’s Third Plenum was a vague, dull, and uninspiring affair that did little to address the pressing economic challenges facing the country. This outcome reflects a broader global sentiment of skepticism and low expectations towards China’s economic prospects. While the country’s leadership appears focused on maintaining stability and control, the lack of bold reforms suggests that significant policy shifts are unlikely. For investors and global observers, this means that cautious optimism and realistic expectations are essential when considering China’s future economic trajectory.