The CCP announced structural reforms and measures to attract foreign investment. These reforms reflect technical adjustments rather than strategic shifts, while improvements to China’s resilience, military modernisation and national-security priorities will continue to shape the party’s economic policies.Â
Following an unprecedented nine-month delay, last week the Chinese Communist Party (CCP) finally held its third plenum – a meeting of Central Committee members to outline China’s long-term economic and social policies. It subsequently published an initial brief communiqué on 18 July, with a decision document providing greater detail on 21 July. In the lead-up to the event, the Chinese media and debate within China’s expert and academic communities focused on the need for reforms in the face of considerable domestic and external challenges. These include a slowing economy, weak consumption, unequal wealth distribution and a need to increase technological innovation and attract foreign investment following a three-year nosedive. (Following the expansion of anti-spying laws and notable raids on consulting companies, as well as US sanctions limiting investment in China’s technological sector, foreign companies have grown to perceive operating in China as carrying greater political risk.) Unsurprisingly, China’s leaders announced in the communiqué that ‘we must purposefully give more prominence to reform’ and adopted ‘The Resolution of the Central Committee of the Communist Party of China (CPC) on Further Deepening Reform Comprehensively to Advance Chinese Modernization’.
Structural reforms and foreign investment
In order to transform the country into a ‘modern socialist economy’ driven by high-quality development, the plenum’s communiqué outlined structural reforms to the economy and plans to attract foreign investment. However, the CCP’s definition of ‘reform’ is not the same as the West’s; articles in the People’s Daily in the lead-up to the third plenum highlighted previous statements made by President Xi Jinping that reform does not mean changing direction and does not mean China will take on a Western governance model. As such, the reforms discussed in the communiqué do not represent huge strategic shifts but rather technical adjustments within a party-state system – a system in which the CCP’s (and in particular Xi’s) centrality and interests remain of key importance.
The communiqué focuses on achieving two key objectives: building China’s national resilience and self-reliance; and increasing its national strengths in key strategic sectors, such as science and technology, to become a leader in leveraging ‘new quality productive forces’ that the CCP hopes will underpin economic growth. In the months before the third plenum, leading economists close to the party had argued that in order to achieve high-quality development, China needed to improve its social-security system. Chinese leaders therefore agreed to make improvements in this area, as well as ‘reform the medical and healthcare systems’ and improve ‘systems for facilitating population development’. Official media outlets had recently highlighted the need to reduce inequalities between China’s rural and urban populations. This prefigured the decision at the third plenum to coordinate new rural-revitalisation programmes and help enrich farmers through land reform. The structural reforms announced at the third plenum thus reflect the economic discussions held within the CCP.
The communiqué also announced supply-side structural reforms to help China become a world leader in science and technology. These reforms will involve changes to education as well as ‘incentive and constraint mechanisms for promoting high-quality development’. These initiatives reflect the party’s belief that the world is facing a ‘new scientific and technological revolution’. Chinese theorists believe that the winner of this revolution will be the country that achieves a ‘technological breakthrough’. Unsurprisingly therefore, the communiqué not only confirms China’s focus on advanced technology but also urges the party to achieve these reforms by 2029 and fully establish a high-level socialist economy by 2035.
With the CCP publicly acknowledging the need to boost domestic consumption, it is perhaps surprising that the communiqué does not dedicate more attention to this issue. Indeed, there was only one sentence that mentioned the need to ‘strive to expand domestic demand’. However, this should not be interpreted as a failure to address spluttering consumption levels. Rather, official publications have demonstrated that party economists believe domestic consumption will be increased by resolving issues such as rural–urban inequalities and the lack of social security, which were addressed at the third plenum. It is also probable that more detailed plans will follow. Such plans are likely to announce initiatives similar to the current trade-in plans occurring in China’s automobile sector, or the party’s plans to address the real-estate crisis through public investment in housing stock.
The CCP believes that the implementation of these structural reforms requires a powerful party-state. To resolve rural–urban inequalities and build a successful social-security scheme, the CCP will have to reallocate resources and possibly make changes to the registration of rural migrants in cities. The communiqué also reveals the party’s desire to defeat the local protectionism that hinders trade within China, something which will require overcoming self-interests at various levels of local government.
Challenges and tensions
In China, contradictions between party vision (and policy) and market realities are common, and continued party control may undermine the policy goals announced in the plenum communiqué. This is particularly the case with regards to the plans to boost foreign investment. The communiqué announces reforms to open more of China’s economy to foreign investment whilst simultaneously describing plans to establish greater party-state control over the market. Although the CCP believes private companies will be vital to achieving technological innovation, this does not override its interest in maintaining ‘market order’. As a result, the communiqué restates that although China welcomes ‘all forms of ownership’, both public and private businesses must ensure they act equally ‘in accordance with the law’ and in line with party interests. This tension between the CCP’s desire for market control and coordination and the need for foreign investment is unlikely to reassure foreign investors, who have become concerned over the party’s control over business in China and the targeting of foreign businesses operating in the country for counter-espionage raids.
Military modernisation
Military modernisation and national security remain priorities for the party and will likely continue to shape the CCP’s economic policies, reforms and development. As such, the plenum dictated the need to achieve a positive interaction between high-level security and high-quality development, promote the modernisation of the national-security system and implement the CCP’s national-security concept. References to the need for greater loyalty and discipline within the party are also mentioned. The communiqué urges leaders to ‘continue working to purify’ the party – a reflection of the corruption scandals that have been investigated within China’s military, the party and China’s defence industry. It confirms the expulsion of former minister of national defense Li Shangfu, former PLA Rocket Force commander Li Yuchao and former Rocket Force chief of staff Sun Jinming from the party for serious violations of discipline and law. Former minister of foreign affairs Qin Gang’s resignation application was accepted, and he has been officially removed as a member of the Central Committee. However, in a sign that party dynamics have not yet returned to normal, Minister of National Defense Dong Jun’s expected membership of the Central Military Commission was not announced.