Quick Look:
- China aims to modernize industry, expand demand, stimulate growth, curb debt risks, and acknowledge inherent contradictions.
- The plenum outlined ambitions without detailing resolutions for conflicting goals like boosting consumer spending amidst producer-focused resource allocation.
- China faces weak domestic demand, deflation risks, property downturn, debt crisis, and higher tariffs, with slow growth in Q2.
- Previous goals to liberalize markets and boost consumption shifted towards heavy infrastructure and real estate investment, accumulating unsustainable local government debt.
Chinese officials acknowledged on Friday the sweeping list of economic goals re-emphasized at the end of a critical Communist Party meeting this week contained “many complex contradictions,” pointing to a bumpy road ahead for policy implementation.
Following a four-day, closed-door meeting led by President Xi Jinping, which takes place once every roughly five years, officials made a raft of pledges, from modernizing the industrial complex to expanding domestic demand and stimulating growth while curbing debt risks.
The Plenum’s Promises and Problems
The initial summary of the meeting, known as the plenum, needed to contain details on how Beijing plans to resolve the tensions between these goals, such as how to get consumers to spend more. At the same time, resources flow primarily to producers and infrastructure. Tang Fangyu, deputy director of the policy research office of the Party’s central committee, stated that “pushing forward Chinese-style modernization faces many complex conflicts and problems, and we must overcome multiple difficulties and obstructions.”
These contradictions in Chinese policy efforts have been present for decades, as were goals to increase manufacturing value-added, enhance social security, liberalize land use, and improve local government tax revenues. This balancing act is an enduring challenge for the Chinese leadership, necessitating difficult trade-offs and innovative solutions.
Economic Challenges on the Horizon
But making tough choices is an increasingly urgent task as the world’s second-largest economy faces multiple challenges, from weak domestic demand and deflation risks to a relentless property sector downturn, a debt crisis in some cities, and higher tariffs on Chinese goods from key trade partners. China grew slower in the second quarter, leaning hard on industrial output and external demand but showing persistent domestic weakness.
Some analysts found it disappointing that the plenum outcome borrowed heavily from China’s existing playbook. Chinese stocks were slightly lower on Friday, in line with other Asian markets, suggesting the plenum failed to lift investor sentiment.
Supply-Side Strategies
After a similar plenum in 2013, Beijing launched a policy agenda with goals announced on Thursday. This agenda included ambitions to liberalize financial markets and make domestic consumption a more prominent growth driver. A capital outflow scare in 2015 halted many of these plans. Many analysts argue that national security considerations have pushed China in the opposite direction in recent years. China tightened control over swathes of the economy with regulatory crackdowns on industries, including tech and finance.
Instead of leaning on household demand, Beijing poured resources into infrastructure and real estate. This strategy led many local governments across the country to accumulate debt at an unsustainable pace. Beijing has recently highlighted advanced manufacturing as a new growth driver, again sidestepping consumers. Leaders hope an industrial leap could save China from the middle-income trap and stabilize the job market.
The Quest for New Productive Forces
The plenum reasserted China’s quest for “new productive forces,” a term coined by Xi last year that envisions scientific research and technological breakthroughs for industrial expansion. There is tension between expanding the economy’s supply side and boosting household spending. The communique mainly focused on ‘new productive forces,’ ‘the scientific and technological revolution,’ and ‘industrial transformation.’ Mention of support to household wellbeing didn’t come until the tail end.
Looking Ahead: The Road to High-Quality Development
Chinese officials are expected to publish a document with more detailed policy plans in the coming days. China’s strategies for navigating these complex economic waters will be crucial as the world watches closely. The balance between modernizing the industrial complex, expanding domestic demand, and managing debt risks will require deft manoeuvring and strategic foresight.
In conclusion, China’s road ahead is fraught with challenges and contradictions. The ambitious goals set by the recent plenum highlight the need for careful policy implementation and innovative solutions to drive sustainable growth. As China continues to evolve, its successes and setbacks in this intricate journey will undoubtedly influence the global economy.
COMMENTS