The BGA China Team wrote an update to clients on China’s 20th third plenum.

Context

  • China’s third plenary session of the Central Committee, elected by the Chinese Communist Party National Congress every five years, was held in Beijing from July 15-18. The National Congress — the highest organ within the party — already set China’s long-term policy direction in October 2022, complementing the 14th five-year plan and other plans and initiatives. At this third plenum, China’s 20th, the Political Bureau reported its work and reviewed the committee’s draft decision — a high-level document outlining the country’s political, social and economic policies and reforms in the coming five years. It is expected to be recorded in the 15th five-year plan, which aims to deepen reform and promote Chinese-style modernization.
  • The government announced more than 300 reforms covering seven areas: the economy, democracy, culture, livelihoods, the environment, party governance and the military. Beijing’s approach is issue driven, with the slowing economy a key concern and focus of both the public and government. Nevertheless, the government has restored some confidence in meeting its 2024 economic goal of 5 percent GDP growth, although second-quarter economic performance data fell short of estimates.

Significance

  • The government expects “new productive forces” and an innovation-driven growth strategy, mainly represented by strategic emerging industries and new technologies, will replace the housing sector as the new growth driver. This will require regulatory adjustments and reforms affecting innovation systems such as incentive and restraint mechanisms, education, science and technology, research and development and talent systems. The integration of real and digital economy, infrastructure construction and supply chain resilience and security will also be priorities.
  • China’s opening-up policy will not change in response to the geopolitical and trade environment; instead, China will promote foreign direct investment inflows and foreign trade. Foreign investment and external markets will remain key drivers of China’s economy. However, China will continue to deepen its supply-side reform and structural foreign trade reforms to move up the value chain to promote high-tech products exports including the “new three”: electric vehicles, lithium-ion batteries and solar cells. This may be subject to increasing trade conflicts with Western countries given the current geopolitical environment.

Implications

  • Despite the ambitious reform agenda, the plenum did not address several pressing challenges in detail. China’s growth remains too slow to provide jobs for its unemployed youth, a three-year property slump is eroding personal wealth, local government debt is stifling investment and a rapidly aging society is increasing health care and pension burdens. Furthermore, the country continues to face deflationary pressures. Clearer policies may emerge in subsequent elaborations of the communique, but for now, the lack of assertiveness in resolving these deep-seated issues represents a missed opportunity.
  • Another potential challenge is the omission of significant progress toward reorienting China’s growth model from an overreliance on investment and exports to one driven by household consumption as policy priority — a shift promised as far back as 2004. China’s trade and investment partners long hoped this transition would reduce China’s trade surpluses and stimulate global demand.

We will continue to keep you updated on developments in China as they occur. If you have any comments or questions, please contact BGA Adviser Eric Wang at ewang@bowergroupasia.com.

Best regards,

BGA China Team

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Advisor

Eric has over two decades’ experience in government affairs and public relations and currently serves as firm partner and managing director of Yuan Associates. He has worked with more than 80 clients in manufacturing, agriculture and food, consumer goods and service industries. Eric joined Yuan Associates in 2005 and become a partner and managing director in 2011. As managing director, he is responsible for comprehensive government affairs service for and management of clients. As a partner his responsibilities include overseeing the firm’s daily overall operations. Prior to joining Yuan Associates, Eric worked as an account manager for Euan Barty Associates ... Read More