China's leadership acknowledges economic challenges

The recent Third Plenary Session of the 20th Central Committee of the Chinese Communist Party (CCP) concluded with a communique that has generated a range of reactions from investment banks and foreign businesses.

Some critics have expressed frustration over the perceived lack of immediate, detailed reforms, but such reactions often overlook the strategic depth and long-term vision intended by the Third Plenary Session, Caliber.Az reports via foreign media.

The communique, while brief, provides a foundational overview of China’s medium- and long-term development strategy. Detailed proposals are expected to follow, including a report with over 300 reform measures divided into three major sections. This report is anticipated to be released in the coming months, starting with a Politburo meeting at the end of July.

Initial market reactions, such as declines in stock indices and currency depreciation, may be misleading. The communique is designed not to deliver instant fixes but to outline a comprehensive strategy. Upcoming details, suggested during the press conference, are likely to include significant reforms such as opening service and manufacturing sectors to foreign businesses, fiscal and tax reforms, measures to enhance domestic consumption, improvements to the pension system, and adjustments to the urban-rural hukou system. Patience will be required to see these reforms fully implemented.

Critics have noted the omission of the phrase “decisive role” of the market, viewing it as a regression. However, this criticism overlooks the broader context. Unlike the 2013 Third Plenary Session, which emphasized the “leading role” of state-owned enterprises and “public ownership,” this year’s communique focuses on “putting more prominence” on reform and “better leveraging the role of the market.” This suggests an effort to balance market mechanisms with state involvement rather than diminishing the market’s role.

The communique also reflects an unusual sense of urgency, acknowledging short-term risks and growth goals, indicating the leadership’s awareness of current economic challenges. While those expecting a large-scale stimulus package might be disappointed, Han Wenxiu, deputy director of the CCP’s financial and economic affairs, clarified that the focus will be on removing structural barriers to low consumption and inefficient resource distribution, rather than on immediate stimulus.

Han emphasized the need for proactive measures to address the lack of effective demand, with plans to accelerate the issuance of special-purpose bonds to support local governments struggling with debt and operational costs. Potential adjustments in fiscal relations between central and local governments are also highlighted, aiming to balance local revenue-raising powers and reduce debt reliance.

The Third Plenary Session continues to prioritize advancements in high-tech industries and manufacturing. Critics may argue that Beijing’s focus on supply-side measures over demand-side support is misguided, but the leadership is not ignoring demand weaknesses. The CCP aims to balance technological advancement with addressing immediate economic challenges through structural reforms.

Ultimately, the success of the Third Plenary Session will depend on the detailed implementation of these reforms. Effective execution will be crucial for achieving the desired outcomes, and it’s premature to judge the session’s potential impact without seeing how these policies are realized.