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China’s third plenum, a major meeting that takes place only twice a decade, concluded on Thursday to plaudits from Beijing’s state-owned media. The Global Times, for instance, hailed the meeting for “drawing up a sweeping blueprint that will guide China’s reform and opening-up for years to come”.
The reality seems less momentous. Rather than unveiling bold reforms, the communique that followed the plenum reads like a lengthy endorsement of the leadership of Xi Jinping, China’s strongman leader, and his existing policies. It stated that the Central Committee gave a “highly positive assessment” of Beijing’s work.
Importantly, it reaffirmed Xi’s philosophy of “high-quality economic development”, echoing objectives stated at a key congress in 2022. This philosophy means, in essence, relying increasingly on technological innovation, big data and artificial intelligence to drive growth rather than on traditional inputs such as labour, capital and land.
But the communique did not address in any detail a litany of pressing challenges. China’s growth is too slow to provide jobs for legions of unemployed young people. A three-year property slump is hammering personal wealth. Trillions of US dollars in local government debt are choking China’s investment engines. A rapidly ageing society is adding to healthcare and pension burdens. The country has continued to flirt with deflation. In subsequent elaborations of the communique clearer policies could emerge but, for now, the lack of assertiveness on resolving these deep-seated woes is a missed opportunity.
For China’s trade partners in the west, there was another disappointing omission. As long ago as 2004, Beijing pledged to reorientate its growth model away from an over-reliance on investment and exports towards household consumption. This, western governments have long hoped, would help reduce China’s huge trade surpluses and invigorate global demand.
Not only has China failed to deliver on its rebalancing pledges, it has actually regressed. Household consumption currently stands at 39 per cent of gross domestic product, down several percentage points over the past decade, according to research from the Rhodium Group. Its trade surplus, meanwhile, ballooned to around $823bn last year, invigorating a protectionist backlash in the US, Europe and elsewhere.
The plenum communique does not pledge to boost consumer spending or rebalance the economy away from investment and exports. It does say that China should “strive to expand domestic demand” but it does not make clear how this should be done. In the past, the preferred way to do this has been to boost debt-fuelled investment rather than to bolster household incomes and energise consumer spending.
On trade, the communique says that China should “move faster to foster new drivers of foreign trade”. Again, it is not clear exactly what this means but there are no concrete signs that Beijing is getting ready to appease American and European opinion by flinging open its doors to more imports. Xi and his politburo should realise that China’s trade imbalances are becoming an ever more incendiary issue. Its monthly trade surplus reached an all-time record in June. The resurgence of Donald Trump, who imposed hefty tariffs on Chinese imports during his term as US president, should give real pause for thought.
Above all, Beijing needs to do more to support lower-income households, including by improving access to welfare, to help stimulate its lacklustre consumption. China’s downbeat private enterprises would also benefit from greater policy stability. These actions might not only create jobs, they could also boost imports, and ease trade tensions in the process.