Xi maintains his laser-like focus at China’s third plenum

HONG KONG: The Third Plenum – a meeting of Central Committee members held from 15-18 July to clarify China’s long-term economic and social policies – illustrated how Chairman Xi Jinping is holding unwaveringly to his vision for China. It also demonstrated how he is ignoring calls for any course correction.

A total of 199 members and 165 alternate members attended this plenary session of the 20th Central Committee, held nine months late. Xi’s overarching objective is to attain a “high-standard socialist market economy in all respects” by 2029, with Xi Jinping Thought acting as the guiding light.

Since 1982, the Chinese Communist Party (CCP) has usually convened seven plenums every five years. Whereas the first and second plenums in each five-year term focus on senior party leadership appointments and restructuring of governmental institutions, the third plenum typically introduces major policy initiatives for the next 5-10 years.

This Third Plenum was the first since November 2013 and, reflecting China’s increasing opacity, the CCP offered no explanation as to why it was delayed for so long. The party also simply announced refinements of existing measures, rather than any major shift in strategy. Markets reacted glumly to Xi’s unwavering trajectory, with Chinese stocks promptly suffering their largest decline in six months.

Neil Thomas, a Fellow on Chinese Politics at the Asia Society Policy Institute’s Center for China Analysis, pointed out how draft decisions in 2013’s plenum invoked 2,564 comments and 539 revisions, equating to a 21 per cent acceptance rate for modifications. On the other hand, the 2024 plenum’s draft drew 1,911 comments and just 221 revisions, a remarkably lower 12 per cent acceptance rate.

Thomas thus concluded, “Cadres are less willing to speak, and Xi is less willing to listen… There is less internal policy discussion; cadres sent 25% fewer comments.” The academic added, “In 2013, Xi chaired several plenary meetings of the drafting team.

This year, he just reviewed drafts, gave instructions and read notes from team interviews with other leaders. Xi seems increasingly secluded from lower-level officials and less interested in policy debates.”

The CCP, in an 18 July communique, patted itself on the back. “At the session, the Central Committee gave a highly positive assessment of the success and achievements we have made in comprehensively deepening reform since the beginning of the new era, and studied the issue of further deepening reform comprehensively to advance Chinese modernization.”

However, members were cognizant of growing challenges: “It was stated that the present and the near future constitute a critical period for our endeavor to build a great country and move toward national rejuvenation on all fronts through Chinese modernization.”

China’s position is “serious and complex,” it said. Indeed, COVID-19 precipitated am existing crisis, including weak consumption, a slowing economy and unequal wealth distribution.

Xi highlighted five foci at the plenary session. The first was the “leading role of economic system reform”. Of course, “reform” in Chinese vocabulary has a vastly different connotation to its meaning in the West. Chinese “reforms” do not mean altering direction but, rather, minor technical adjustments. After all, major shifts in strategy would be an admission that the CCP had been mistaken, something anathema to authoritarian systems.

Economically, the communique stated, “We must better leverage the role of the market, foster a fairer and more dynamic market environment, and make resource allocation as efficient and productive as possible. We will lift restrictions on the market while ensuring effective regulation, striving to better maintain order in the market and remedy market failures.”

Perhaps surprisingly, the communique glossed over the need to raise domestic consumption. Household consumption in China, expressed as a percentage of GDP, plummeted after 2019.

China wants to lure back Western companies too, as net inflows of foreign direct investment collapsed. After reaching their acme in 2021, by 2023 China had suffered a 90 per cent drop in investment to just USD33 billion. This amount represented a 30-year low.

However, Xi did not offer any positive recommendations as to how this situation could be reversed. Instead, China articulated rhetorical goals of “fostering a first-rate business environment that is market-oriented, law-based and internationalized, and protecting the rights and interests of foreign investors in accordance with the law”.

With China surreptitiously supporting Russia’s war in Ukraine, Western restrictions are only likely to increase. Furthermore, spooked private companies are reshoring in their home countries or moving operations to the likes of India, the Philippines, Thailand or Vietnam.

Naturally, tight party control undermines many policy goals. By imposing strict control over intellectual property and implementing national security and espionage laws, many foreign companies are being dissuaded from doing business in China. Paradoxically, simultaneous to declaring greater openness to foreign investment, the CCP announced tighter party control over the market! Private companies must act “in accordance with the law” and align with party interests, a stance that offers no reassurance for foreign investors.

A second focus highlighted by Xi was “comprehensive reform” that aligns policies in other domains with high-quality development. The phrase “new national system” is now popular, referring to distribution of national resources with stronger centralized control, and allocating capital to sectors with strategic significance. This is to achieve geopolitical, rather than economic, goals, and it represents China’s recipe to counter Western sanctions and boost domestic technological progress.

A third focus of Xi is “integrating development and security”. China is attempting to juggle economic policies with modernization of its armed forces and national security. The communique stated: “We must maintain the party’s absolute leadership over the people’s armed forces and fully implement the strategy of strengthening the military through reform to provide a strong guarantee for realizing the centenary goal of the People’s Liberation Army (PLA) in 2027 and achieving basic modernization of national defense and the armed forces. We will improve the systems and mechanisms for leading and managing the people’s armed forces, further reform joint operations systems, and deepen military-civilian reforms.”

There is a section on “advancing the national security system and the modernization of capacity,” with Xi putting the safeguarding of national security in a more prominent position. Arran Hope, Editor of the China Brief at The Jamestown Foundation, observed:

“The addition of this section and its emphasis on the inseparability of the two suggest that security is increasingly factored in as an underlying economic consideration.” Such a stance ends hopes of any rebalance toward development.

Hope added, “Beyond reiterating requisite phrases, such as the PLA’s ‘centenary goal’ and emphasizing the need for political loyalty within the PLA, much of this section is taken up by instructions for the military-industrial complex, especially for equipment development and procurement.”

The Third Plenum pledged to “speed up the development of strategic deterrence forces,” a reference to nuclear weapons. In its 50-page final summary of the Third Plenum, China said it would accelerate “strategic deterrence forces, develop new-domain forces with new combat capabilities, while … [strengthening] traditional combat forces”.

Three years ago, Xi ordered the PLA to “speed up the creation of a high-quality strategic deterrence and joint combat system”. This has seen a rapid build-up in nuclear warheads, ballistic missiles, missile silos and missile-carrying submarines. The US Pentagon estimated that China had boosted its nuclear warhead inventory to 500 in 2023, compared to 400 just a year earlier.

At the plenum, expulsions of Li Shangfu (former minister of national defense), Li Yuchao (former PLA Rocket Force commander) and Sun Jinming (former PLARF chief of staff) from the party were confirmed. Their seats were filled by alternate members.

Perhaps oddly, new Defense Minister Dong Jun was not elevated to the Central Military Commission. At the same plenum, former foreign minister Qin Gang’s resignation was accepted, his being a fate less stern than that of his defense ministry colleague.

The fourth focus underlined by Xi was “building institutions and mechanisms to support comprehensive innovation”. This emphasizes education, human capital and science and technology reforms. The party is pinning hopes of economic revival on leveraging new, emerging technologies as the world enters the next round of techno-industrial revolution. Already, almost 70 per cent of local government industrial investment funds are being directed towards science and technology manufacturing.

China also calls this approach “new quality productive force”. Instead of trailing others, China wants to lead, all the while insulating its supply chains and growth potential from Western threats. Countries like the US have imposed export controls on technological components to China. Bloomberg predicts that technology industries could account for 23 per cent of China’s GDP by 2026, even as the real estate sector slumps from 24 per cent to 16 per cent.

The fifth and final focus according to Xi is “strengthening party leadership”. Xi was reaffirming his determined belief that centralized power improves government performance.

Thomas of the Asia Society Policy Institute drew this conclusion: “Xi thinks his main problem is poor execution. Side notes say the party already has a relatively clear picture that Xi controls top-level design of reforms, but now the party should concentrate on their overall promotion and supervision of implementation.”

Additionally, Thomas shared, “Xi is now firmly in control of central decision-making, but he still feels that local officials, state bureaucrats and business executives are not doing what he tells them to do.” In January, Xi complained that cadres were holding back his agenda because of their “inadequate understanding”, “old-fashioned concepts” and “insufficient ability”. In other words, Xi thinks there is nothing wrong with his policies, but that the problem lies in their execution by underlings.

Unsurprisingly, the session placed Xi on a pedestal. “We must thoroughly study and implement General Secretary Xi Jinping’s new ideas, viewpoints and conclusions on comprehensively deepening reform and fully and faithfully apply the new development philosophy on all fronts,” the communique urged.

Willy Wo-Lap Lam, a Senior Fellow at The Jamestown Foundation, identified three noteworthy themes: high-tech innovation, taxation and re-collectivization of rural land. Although the communique only briefly mentioned tax reform, there are indications that Beijing will broaden tax categories, especially for consumption or sales taxes. For example, a greater share of sales taxes will go to local governments to help relieve their fiscal difficulties, which now amount to an astounding RMB100 trillion (USD13.8 trillion) of debt. Moneyless local authorities are already subjectively extracting levies and negotiating tax levels with businesses as creative ways of recouping funds.

The phrase “deepening reform of the land system” briefly appeared in the communique too, with growing concern about plots of land left fallow after millions of farmers flocked to cities. Lam therefore speculated, “Xi appears to be contemplating some degree of land recollectivization. This would not support the high-tech economy that Xi is focused on, but it could be construed as a magic bullet, boosting agriculture’s contribution to the economy while simultaneously mitigating the unemployment problem by mobilizing more young men and women in the cities to return home to work in the agricultural sector.”

No rival clique challenged Xi during the plenum, and his position remains unassailable. Lam thus concluded, “If Xi’s proposed reforms for the economy do not have the desired effects, and the deep structural issues are not resolved, the balance of power within the party could finally start to shift. For now, however, Xi remains the undisputed core of the party and of the country.”

Xi is also guaranteed to remain as General Secretary and commander-in-chief for a fourth five-year term, from 2027-32. Incidentally, there was speculation that Xi’s wife, Peng Liyuan, might be elevated to the Politburo. However, her accession failed to materialize.

After this Third Plenum, Thomas offered this prognosis, “Xi is clear on where he wants China to go. It is unclear what could change his mind – perhaps an economic collapse that decisively discredits his policies, though that seems unlikely. Likelier is gradual stagnation that exacerbates social instability and political uncertainty. For now, we must search for actions rather than words.” (ANI)