The much-anticipated Third Plenum of the Chinese Communist Party (CCP) 20th Central Committee wrapped up on July 18, with a communique issued at the end of the session pledging to “further deepen reform comprehensively” while remaining “committed” to the CCP’s bedrock ideology.
The communique reiterated China’s commitment to a “new development philosophy,” one focused on “high-quality economic development” driven by “all-around innovation.” The CCP is attempting to shift away from a previous emphasis on raw growth, which was driven in the past by unsustainable infrastructure investments. Today, key technologies are expected to form the foundation for a new era of growth. The communique declared that “education, science and technology, and talent function as a basic and strategic underpinning for Chinese modernization.”
Overall, as expected, the Third Plenum endorsed China’s current heading under Xi Jinping’s “New Era,” rather than marking a decisive shift.
Unlike the tizzy of excitement sparked by talk of the market playing a “decisive role” after the Third Plenum in 2013 – the first overseen by Xi Jinping – few are going to be enticed this time by promises to “leverage the role of the market, foster a fairer and more dynamic market environment, and make resource allocation as efficient and productive as possible.” The communique made clear that the CCP will “lift restrictions on the market while ensuring effective regulation” – and past history suggests the latter will continue to outweigh the former.
Similarly, the communique promised to address long-standing reality that state-owned enterprises have far easier access to loans, land, and legal protections than their private counterparts, but implementation will be key. The communique said China’s leadership would “ensure that economic entities under all forms of ownership have equal access to factors of production in accordance with the law, compete in the market on an equal footing, and are protected by the law as equals.” However, given strong signals that Xi’s CCP is less comfortable with private enterprises than its predecessors, Chinese entrepreneurs will take this with an ocean’s worth of salt.
Another policy area of great interest to economists is China’s fiscal and tax systems. China-focused economists have long held that China’s unbalanced fiscal system, which heaps financial obligations on local governments while sending tax revenue to the center, is the major cause of local government debt and related issues. The CCP is clearly aware of the problem, but its vague reference to “coordinated reforms in the fiscal, tax, financial, and other major sectors” will not inspire much confidence.
Likewise, the communique pledged, without elaborating, to “implement various measures for preventing and defusing risks in real estate, local government debt, small and medium financial institutions, and other key areas.” More details will follow in coming days, but the lack of space devoted to these key economic issues in the communique suggests a lower priority accorded to them versus other concerns that took up more room, including national security.
On that note, perhaps the entire Third Plenum communique could be summed up in its decree to “pursue progress while ensuring stability.” In a context where the CCP equates “stability” with its own control, there is often a direct conflict between economic progress and “stability,” which the CCP defines in terms of its level of absolute control. And when the two conflict, “stability” always wins.
The communique thus includes a paragraph on continuing “ideological work” and narrative control, saying the CCP will “improve public opinion guidance and effectively deal with risks in the ideological domain.”
As the communique made clear, “the overall objectives of further deepening reform comprehensively are to continue improving and developing the system of socialism with Chinese characteristics and modernize China’s system and capacity for governance.” In other words, the priority is not economic development per se, but solidifying the basis for continuation of China’s current system – a government and economy under the strict control of the CCP – amid the rapid changes of the 21st century.
The Third Plenum should thus be taken as yet more confirmation that Xi’s CCP has dropped the party’s previous emphasis on growth. As Sara Hsu put it in an analysis for The Diplomat, Xi has positioned himself “as a communist leader first, and a proponent of economic growth a trailing second.”
The only mystery remaining is why Xi appears obsessed with looking like a reformer, even while actively moving to consolidate control. Earlier this year, a glowing write-up in Xinhua, China’s state-owned news agency, labeled Xi as “another outstanding reformer in the country after Deng Xiaoping” and held up the 2013 Third Plenum as the equivalent to Deng’s Third Plenum in 1978, as each “marked the dawn of a new era of reform.” Indeed, China’s leadership frequently reiterates their continued commitment to “reform and opening up,” even while their actions serve to reduce the space for foreign companies and even Chinese private businesses to maneuver.
To make sense of this contradiction, we need to understand that the definition of this term has changed.
Xi’s idea of reform is precisely to re-emphasize CCP dominance over the all aspects of Chinese life: “economic, political, cultural, social, [and] ecological.” In today’s China, “opening up” is possible and desirable only when China is in the dominant position; it involves Chinese influence “going out” rather than foreign influence “coming in.” China’s leaders keep using the term “reform and opening up,” but it no longer means the same thing.