The Third Plenum: Is China’s economic policy approach sustainable?

Summary:

The Third Plenum of the 20th Central Committee of the Communist Party of China (CPC) took place in Beijing from 15 to 18 July 2024. Previous third plenums, especially the one in 1978, played central roles in the promotion of economic policies and reforms. Economic data published by China's Bureau of Statistics very shortly before the start of the Plenum paint a very sobering picture of the state of China's economy. While exports in June performed well, imports decreased in year-on-year terms, likely due to weak domestic demand. Data on new construction starts and property investments underlined the seriousness of the situation in the property sector. Weak nominal GDP growth is not only a sign of deflationary tendencies, but renders the government debt situation even more problematic. The ongoing (relative) strength of industrial production combined with weak domestic demand illustrates well the export-driven character of the current economic policy. While China might still reach its GDP target of 5 %, this would probably be the effect of manufacturers bringing orders forward ahead of potentially higher tariffs. Following up on the Third Plenum, the Politburo discussed economic policy in its meeting of 30 July, insisting on the importance of promoting domestic consumption. Statements since then, however, show that the CPC does not seem willing to go much beyond what was announced earlier this year (electric vehicles (EVs), home appliances), showing the strong resistance inside the party in particular to changing the current growth model based on the absolute promotion of manufacturing. Such an incremental approach, however, is likely to increase global trade tensions, as the country has regularly been trying to export its over-capacities to third countries, including the EU. Against this background, the outcome of the Third Plenum is very modest, although the authorities seem to have corrected some of their policies in the immediate aftermath. At the same time, the medicine prescribed so far is unlikely to avoid an even worse scenario than Japan's lost decades.

• Alternative Source 1