26 Jul 2024
Leaders of the Chinese Communist Party convened for the Third Plenum from 15-18 July. The communiqué provided the high-level overview of the reform plans for the coming years and reiterated its goals to reach a “high-level socialist market economy by 2035”.
Deeping reform
Key themes in the communique included a reiteration of support for high-quality development and innovation, increased regional integration, and management of risks such as from local government debt and the property sector. Further fiscal reforms, enhanced macro-policy coordination and continued opening up were also noted; specifics are detailed below. The release pledges to complete reform tasks proposed in the Decision by 2029.
1. Fuelling new productive forces
Given China’s ambition for higher quality growth, a large emphasis was placed on innovation and cultivating science and technology. This means more resources may be allocated to promote R&D, further support for education and efforts to integrate new technologies and digitalisation into existing industries. Green development was also highlighted to help meet carbon reduction goals, which may fuel more green-related investment.
2. Fiscal reforms and debt management
Fiscal and taxation reforms are set to be unveiled to better align revenues and expenditures, especially as local governments tend to spend disproportionally more than their share of fiscal revenues. Relatedly, resolving the local government debt risk remains a priority, and ongoing fiscal reforms should help to facilitate expansion of productivity enhancing projects such as in infrastructure build outs or social services provisions.
3. Resolving risk for the real estate sector
Following the recent slew of easing measures in mid-May, the property sector saw some respite in June, but the path towards stabilisation remains uneven. As the property market remains under pressure, the mention of ‘managing risk in the property sector’ likely means more support may come through as we move towards a new housing development model. Indeed, we think the government has the space to provide more policy support to help stabilise the sector.
4. Improving people’s livelihoods
Policies to expand social safety nets and grow the middle-income class are also in focus with calls to “improve the income distribution system, employment, social security system, and medical system”. This would allow China to move more towards consumption-led growth as improved income levels and wider social safety nets can help to reduce precautionary savings and unlock consumption. Meanwhile, further land reform should also help to improve urbanrural regional integration and narrow the income gap between rural and urban households.
5. Opening up and capital market reforms
Continued opening up and capital market reform will likely complement domestic demand growth. This could entail further easing of market access, encouragement of foreign investment into mainland China, and development of mainland China’s capital markets. In terms of global relations, mainland China reiterated the development of the Belt and Road Initiative, encouragement of investment flows and integration with Hong Kong and Macau. Also, engagement with ASEAN or the Middle East can provide further avenues for growth.
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1. This report is dated as at 22 July 2024.
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