Third Plenum Hot Takes: Skepticism and Concern

Trustee Chair in Chinese Business and Economics  >  Trustee China Hand

The Chinese Communist Party (CCP) last week concluded the long anticipated Third Plenum of the 20th Party Congress, which brought together the Party’s top leadership, including all the members of the Central Committee and the Politburo. Historically, Third Plenums have focused on economic policy; it was the Third Plenum of the 11th Party Congress in December 1978 that ushered in a series of ideological and policy changes championed by Deng Xiaoping, which is why this gathering is recognized as the start of “Reform and Opening Era.” In September 1992, the Third Plenum of 14th Party Congress unveiled the goal of creating a “socialist market economy.” And at the Third Plenum of the 18th Party Congress, in November 2013, the CCP famously stressed “the decisive role of the market in allocating resources,” which led many to expect a new wave of market-oriented reforms and liberalization.

A key task of the just completed conclave was to consider a draft of the Decision of the CCP Central Committee on Further Comprehensively Deepening Reform to Advance Chinese Modernization (中共中央关于进一步全面深化改革、推进中国式现代化的决定), which lays out the CCP’s most authoritative plans to govern the economy in the coming years. According to a CCP website, the document went through 38 drafts. Right after the conclave ended, the CCP issued a communique (English, Chinese) summarizing the results of the meeting. On Sunday, July 21, the text of the full, far more detailed Decision (English, Chinese) was issued, which provides a stronger foundation for evaluating the meeting’s significance. 

Below several experts from CSIS’s China programs weigh in on the Decision and its significance for China’s economy, politics, and foreign relations. 

 

Daniel H. Rosen and Logan Wright

Our benchmarks for evaluating this Decision document (composed of 60 pledges, as in 2013) were threefold: quality diagnosis of economic challenges, concreteness of proposed actions to address the challenges, and coherence of the policy package as a whole. Third Plenums are an opportunity to reset expectations: if this one spurred discussion of what Beijing would do next to deepen reform, we would score it a success; if the result was simply comparing today’s pledges with those from 2013 and pointing out that we had heard them before, that would be a disappointment. 

Thus, the Decision is disappointing. It claims all of the 2013 goals were met and does not offer a credible diagnosis of China's economic challenges. Unlike the 2013 edition, it fixates on what Beijing wants to happen without explaining how it will do it. The package is not coherent. It also doubles down on policies raising alarm bells globally about China’s growth model and persistent macroeconomic imbalances. The Decision focuses on further expanding industrial policy support for manufacturing sectors across the spectrum, while nothing is offered to stimulate sputtering domestic demand and narrow China’s gaping trade surpluses. The Decision will generate more trade conflict, rather than be a pathway to easing structural economic tensions.

Jude Blanchette

The Third Plenum Decision stands out for a number of important reasons, many of which have been detailed by colleagues elsewhere in this short reaction piece. I would add two additional observations. 

First, perhaps most importantly, the Plenum decision should be (yet another) reminder that Xi Jinping’s core views on state power, political economy, and the market are no longer up for debate. There won’t come a point at any time in the future when Xi makes a radical break from his Party-state centric view of economic governance and back towards robust free market mechanisms. This has been largely clear since at least 2015-16, but today, it’s written in bold font and in all caps. Xi’s is a worldview that sees Party-state “steerage” of technology, talent, and capital as critical to achieving national security, technological breakthroughs and ensuring that the PRC can withstand an increasingly fructuous external environment.

And second, and directly related to the first, “national security” gets significant ink space in the plenum Decision. In an entirely new section dedicated to the topic entitled, “Modernizing China’s National Security System and Capacity,” the Party leadership describes “national security” as a “pivotal foundation” for China’s modernization, and that the Party must “ensure that high-quality development and greater security reinforce each other.” While this might sound banal, it’s important to note that here “national security” does not mean security of the “nation,” but in fact security of the regime and the CCP. As a 2021 article posted on the website of the Party’s Central Organization Department made clear, “In the body of national security, political security is the heart,” adding “the most fundamental thing to maintain political security is to safeguard the leadership and ruling position of the Communist Party of China and the socialist system with Chinese characteristics.” Thus, national security is political security, and the core of political security is the security of the Party. In this context, the growing centrality of “national security” discourse and its increasing intertwining with high-level statements on the economy signal the ineluctable securitization of economic policy, so long as Xi governs. 

Claire Reade

The Third Plenum Decision adopted last week contains disheartening contradictions, and, overall, reconfirms the top-down government-Party control of the economy.  

Back in 2013, an ambitious 18th Third Plenum Decision was issued just after Xi Jinping became leader. It stated, among other things, that the market would play a decisive role in the allocation of resources, that private enterprises, both domestic and foreign, would have equal treatment with state-owned enterprises, and that the government would move away from intervention in the economy, instead acting more as a neutral regulator.  

The latest Third Plenum Decision declares that “overall, we have accomplished the reform tasks” set out in 2013. Since this is patently not the case, it is particularly discouraging. The decision ironically then highlights the gap between its triumphant conclusion and reality by going on to pledge that by 2029, the market will determine the allocation of resources, and private domestic and foreign enterprises will obtain equal treatment with state-owned enterprises. While this might seem mildly encouraging, the Decision then declares boldly that China also will support SOEs so they “get stronger, do better, and grow bigger, with their core functions and core competitiveness enhanced.” China will pour money into them to build any industry that is “the lifeblood of the economy,” including the classic list of strategic emerging industries. The Decision also makes clear that the Party will guide every area of the economy and society.   

On balance, trading partners need to continue to be savvy and proactive in taking steps to protect their economies against this massive, state-heavy economy, and companies need to look carefully at their own risk management.

Scott Kennedy

The Communique and Decision give the distinct impression that despite the economy’s various structural problems and cyclical downturn, the CCP is not going to change course, but instead will intensify its efforts to steer the economy on to a sustainable long-term path. The central focus for generating “high-quality development” will be on expanding focus on advanced technologies, what are now ideologically described as “new productive forces” (新质生产力). At the same time, the plenum also put a high emphasis on reducing inequality, greening the economy, and developing resilient supply chains. 

China’s state media have highlighted the ambitiousness of the Decision, reflected in the various  economic and political goals, and the long list of reforms to seemingly every facet of the economy and society: advancing technological innovation in education and industry; integrated urban-rural development (including the household registration system); reforming the fiscal, tax and financial systems; strengthening macroeconomic governance; building a unified national market; expanding domestic demand; and reducing inequality and strengthening social services. 

That said, the Plenum’s analysis and policy proposals on the economy are likely to draw a more skeptical reaction from a variety of corners, domestic and international, because of its deeply statist focus: 1) A strong emphasis on the central role of China’s party-state in directing the economy; 2) The prioritization on investment and production as the drivers of growth and far less attention to consumption and households; 3) Continued support for the “public sector” and state-owned enterprises (SOEs) even while pledging to create a level playing field for private firms; 4) A discussion of the global economy that proposed incremental expanded market access to China while stressing the need for China to leverage its large market for its own benefit; and 5) The expansive discussion of national security and the need to align economic policy with national security, which as Jude Blanchette notes, is centered around the security of the CCP. 

Although the Decision asserts that its current direction squarely fits within the “reform and opening up” approach, “reform” is no longer associated only with marketization and liberalization, but instead with any significant policy or institutional change. As in 2013, the Decision asserts that “the market plays the decisive role in resource allocation,” but it sounds less like the market is a sacrosanct alternative to state discretion and instead a tool of the state. As a result, many of China’s private entrepreneurs may be disheartened, inhibiting a rebound in investment. This may also propel further diversification by multinational businesses and greater efforts by other governments to insulate their economies from what they view as distortions emanating from China’s economy. 

It is possible that such skepticism is ill-founded. If the CCP can engineer a wave of S&T innovation, reform key economic regulatory institutions, and create sufficient opportunities for domestic private and foreign firms, it could induce an economic recovery in the short term and sustained growth over the long term. If so, it will be the CCP that will be able to say, “I told you so.” But for the time being, the CCP faces an uphill battle to recover domestic and international confidence. 

Lily McElwee

The CCP’s Third Plenum was somewhat overshadowed by a busy week of U.S. politics: Former President Trump narrowly survived an assassination attempt the weekend before the plenum; the holding of the Republican National Convention, and a drumbeat of Democratic calls for President Biden to step aside all claimed U.S. headlines during the week. And then during the weekend, Biden abruptly dropped out and endorsed Vice President Kamala Harris in his stead. None of these political developments will change the fact that come January 2025, the next U.S. administration will sustain and enhance strong trade and investment measures against China. China’s other major trading partners are trending in the same direction. Over in Europe, for example, newly reelected European Commission President Ursula von der Leyen has embraced a “de-risking” agenda, and Berlin increasingly looks like the odd one out among EU countries throwing their support behind duties on China-made EV imports.

 These trends are a function of decisions made in Beijing, and this year’s Third Plenum gave limited hope for a course correction. The declaration that reform tasks set out in the 2013 plenum – giving the market a decisive role in the allocation of resources, equalizing treatment of state and private enterprises, and reducing state intervention in the economy – have been “accomplished” rings hollow. Instead, Beijing painfully although somewhat predictably signaled full steam ahead on practices driving risk reassessments among overseas governments and companies alike: doubling down on industrial policy, placing heavy emphasis on China’s national security architecture, and framing the private sector as a tool to advance state priorities, including development of high-tech industries and advanced manufacturing. Beijing should not be surprised, therefore, if capitals and boardrooms in advanced economies give a shrug and press ahead with their own varieties of risk management in the months ahead.

Ilaria Mazzocco

The Decision shows how China’s vision of state-led innovation is reshaping the climate sphere. The list of objectives on carbon governance in the Third Plenum Decision might be easily overlooked as part of a generic list of climate and environmental objectives. However, they reflect how trade, the energy transition, and industrial policy are becoming intertwined in ways that will both reassure and raise alarm bells among China’s trading partners. 

The document mentions fiscal, tax, financial, investment, pricing policies and standards to develop green and low-carbon industries, a nod to continued industrial policy support in line with the government’s focus on “new quality productive forces,” which will include hot-button sectors like electric vehicles. The detailed list of systems related to carbon accounting and standards that the government intends to establish has direct implications for trade as well. These institutions are being developed to ensure that China’s carbon governance meets international standards, allowing the country to continue exporting to key markets like the European Union. In short, while controlling the total amount of emissions rather than energy intensity and better carbon accounting is important for climate objectives, there will continue to be growth and export-related implications to these policies that may be worth closer attention.

 

Contributors

Jude Blanchette holds the Freeman Chair in China Studies at CSIS. Scott Kennedy is senior adviser and Trustee Chair in Chinese Business and Economic. Ilaria Mazzocco is senior fellow with the Trustee Chair in Chinese Business and Economics. Lily McElwee serves as deputy director and fellow in the Freeman Chair in China Studies at the Center for Strategic and International Studies. Claire Reade is senior counsel with Arnold & Porter, and senior associate (non-resident) with the Trustee Chair in Chinese Business and Economics. Daniel H. Rosen is the co-founder of the Rhodium Group and senior associate (non-resident) with the Trustee Chair in Chinese Business and Economics. Logan Wright is director of China markets research at the Rhodium Group and senior associate (non-resident) with the Trustee Chair in Chinese Business and Economics.

 

Related Activity: 

China’s Third Plenum: A Plan for Renewed Reform?,” CSIS Event, July 22, 2024.

Jude Blanchette, “Disaggregating China Inc.,” CSIS Pekingology Podcast, May 30, 2024. 

Ilaria Mazzocco, “Green Industrial Policy: A Holistic Approach,” CSIS Brief, February 27, 2024. 

Lily McElwee, “Beijing’s Emerging Assessment of De-risking,” CSIS Commentary, October 17, 2023. 

Logan Wright, Grasping Shadows: The Politics of China’s Deleveraging Campaign (CSIS: Washington, DC), April 10, 2023.

Jude Blanchette and Scott Kennedy, “China’s Fifth Plenum: Reading the Initial Tea Leaves,” CSIS Critical Questions, October 30, 2020. 

Claire Reade, “Trade May Still Be the Ballast in U.S.-China Relations – At Least for Now,” CSIS Commentary, August 10, 2020. 

Scott Kennedy and Daniel H. Rosen, “Market Metrics: A Fact-Based Approach to the Chinese Economic Challenge,” CSIS Commentary, October 10, 2019. 

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Trustee Chair China Hand Logo
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Scott Kennedy
Senior Adviser and Trustee Chair in Chinese Business and Economics
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5Mazzocco
Deputy Director and Senior Fellow, Trustee Chair in Chinese Business and Economics
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Lily McElwee
Deputy Director and Fellow, Freeman Chair in China Studies
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Claire Reade
Senior Associate (Non-resident), Trustee Chair in Chinese Business and Economics
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Daniel H. Rosen
Senior Associate (Non-resident), Trustee Chair in Chinese Business and Economics
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Logan Wright
Senior Associate (Non-resident), Trustee Chair in Chinese Business and Economics

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