Where Does China’s Economic Policy Go From Here?

On April 30, China announced that it will host the third plenary session of the 20th Central Committee in July. The main theme will be “comprehensively deepening reform and advancing Chinese modernization.”

This meeting of the top governing body of the Chinese Communist Party is important, because it provides a plan and the big economic picture for the duration of the Central Committee’s five-year term, which began in fall 2022.

The third plenum traditionally has a focus on economic plans and gives grand strategy for the next five years. This time, the third plenum had been delayed for months, suggesting that Xi Jinping’s top leadership circle had encountered difficulties in formulating a good economic plan amid uncertainties.

Ahead of the third plenary session, top Communist Party leaders have been touring the countries to understand the economic situation. According to ThinkChina’s report, Premier Li Qiang, the second-ranked leader, visited Xinjiang and Anhui and stressed the importance of the Belt and Road Initiative. Zhao Leji, the third-ranked leader, went to Henan; Wang Huning, chair of the Chinese People’s Political Consultative Conference and another important Politburo Standing Committee (PSC) member visited Guangxi. Vice Premier member Ding Xuexiang visited Liaoning with a focus on technology; Li Xi, secretary of the Central Commission for Discipline and Inspection, went to Jiangsu. Both Ding and Li are also on the PSC.

Clearly, the Politburo has all hands on deck for the upcoming plenum. Although on-site visitations are a convention ahead of plenary sessions, central-local relations remains one potential item on the agenda.

Moving forward, we are likely going to see the promotion of “new quality productive forces,” which is the latest buzzword to capture Xi’s goal to upskill China’s economic production. The new term, coined in early 2024, involves “high technology, high efficiency, and high quality.”  According to the official account, targeted sectors include the green transition, innovation and operation model, intelligent and digital production.

China Energy Engineering Corporation Limited has been featured by state media as an exemplar in “new quality productive forces.” The company has invested nearly 13 billion yuan in R&D in the power grid, new energy, and other innovative fields. The company also signed contracts worth more than 500 billion yuan with BRI partners. Fulfilling more BRI contracts to overcome overproduction problems is likely continuing to be promoted in the third plenum.

Another emphasis is likely going to be the further integration and development of the Yangtze Delta River region, including Shanghai, Jiangsu, Zhejiang, and Anhui. In 2023, the region produced 30 trillion yuan or 24.2 percent of China’s GDP.  While Shanghai is known to be the economic powerhouse and the biggest financial center in China, the three provinces are home to eight other cities with GDPs exceeding a trillion yuan, known as the “trillion club,” including Suzhou, Hangzhou, Nanjing, Ningbo, Wuxi, Hefei, Nantong, and Changzhou.

Anhui province is home to multiple large innovative companies, including BOE Technology, Changxin Memory Technologies, and NIO, which are industry leaders in semiconductors and electric vehicles. Anhui is also home to the “quantum avenue” of China; Hefei Construction Investment Group, Hefei Industry Investment Group, and Xingtai Holdings together contributed greatly to an industrial cluster. Now known as originator of the “Anhui model” in China, the province produced five new companies every day in 2022, heavily clustered around semiconductors, AI, smart home appliances, and electric vehicles.

China’s economic policymakers will likely also give some remarks on revitalizing the real estate sector, given that the sharp decline of the Chinese economy was triggered by the implosion of the sector exemplified by Evergrande, China’s largest real estate developer.

The plenary session is also seen as an opportunity for Chinese leaders to reestablish confidence among private capital. It is likely only a part of the rhetoric will seem convincing, despite the booming advanced manufacturing sector in China. The IMF observed that China’s economy has taken longer than expected time to bounce back, and suggested China’s priority should be to “further stimulate housing demand and help restore market balance.”

The IMF estimates that Chinese GDP growth will fall to 3.3 percent by 2029 due to China’s aging population and low birthrate. But it also adjusted China’s 2024 and 2025 GDP forecast to 5 percent and 4.5 percent, up by 0.4 points compared to another estimate made in April.

The plenary might be a critical juncture for the nation’s economic and strategic planning. There is much anticipation regarding how China will navigate these challenges within the framework of its planned economy.