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Outcomes of the Third Plenum: where next for China?

BritCham / CBBC
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Immediately after the Communist Party’s Third Plenum, on 13 November 2013, members of the China-Britain Business Council, the British Chamber of Commerce in China’s Executive Committee and the 48 Group Club met to discuss their initial impressions of it. The following is a summary of their various opinions.

The Third Plenary Session of the 18th CPC Central Committee – or Third Plenum – was convened from 9 to 12 November 2013 to address the economic questions which exercise not only the Chinese leadership and people, but also, directly or indirectly, the rest of the world.

The Third Plenum was much awaited, since it would indicate the course China intends to steer during the next five to 10 years. Considered the most influential Plenum since 1978, it sets the tone for the Chinese economy, and by implication its international relations and strategies. It was the first such meeting to take place since China became embedded in the global market, and therefore its outcomes greatly interest economies and businesses worldwide. 

Details of the meeting were not divulged until the day after its conclusion, when a typically carefully crafted communiqué was publicised. And when that came, it was no surprise to find that even between the lines, detail was scant. “Thought-provoking” was one buoyant assessment – for which read: “Still not especially clear”.

However, the role of the Plenum was to set out what needs to be done, rather than how. The follow-up Central Economic Work Conference in December was planned to concentrate on the specifics: the whys and wherefores would be worked out in these discussions. The broad objective for the time being was more equitable and sustainable development, in view of achieving a so-called “moderately prosperous society” in the next decade.

And there was generally a cautiously optimistic consensus that the key areas were at least touched upon. Underpinning all else was an undertaking to examine the functions of the State in its relationship with the market and society. The market would be given a more “decisive role” in the allocation of resources, so the communiqué stated. Theoretically, a more market-driven economy in this mould points to less central government control and clearer demarcation between market and State, although it was notable that while the communiqué promised a more decisive market role with one hand, simultaneously it held with the other to the continued exertion of State influence. But then, so it would: no one expected the Party just to hand over the reins.

And despite the implication that the public and private sectors would be brought onto a more equal footing, which would herald business opportunities for non-State-owned enterprises, the feeling remains that the Party’s fondness for SOEs is such that any change will be measured. While it sees the need for concessions to the private sector, much remains to be defined in future talks: nothing of substance came out of the Plenum with respect to taxation, investment or market entry, for example. But the Chinese have been very clear that their model is socialism with Chinese characteristics – and this means that ideology and political control of the market economy will prevail.

It has been pointed out that if the market is to drive the economy, stronger legal foundations are required: for example, an extension of the bankruptcy law to provide a mechanism to resuscitate companies that fail, and to release assets back to the market – for in an open market, there will be failures as well as successes. As for the public sector’s role, it seems to be accepted that SOEs should bring their operations more closely into line with modern corporate practice, even if China’s conception of the market continues to have plenty of its own characteristics.

Land was another focal point of the Plenum, given questions over land ownership and mass urbanisation. Urban and rural land will be unified in one market for construction purposes, according to the communiqué, and rural dwellers will be accorded greater rights to their property. Talk of this, as well as the hindrance created by the “dual structure” of town and country, hinted at the possible industrialisation and development of the agricultural community, as opposed to the previous concept of nudging farmers off their plots and into the big smoke.

This would relieve the pressure on cities, and could well be a boon not only for agricultural economic efficiency, but also for quality of life both in cities and in the countryside. There is a human element behind hukou reform – moving people’s homes – that inevitably has repercussions for the economy, and while there is not necessarily much to be read into the phrase “mutually beneficial” (which is mentioned so often in Party announcements that only its omission would be remarkable), perhaps there is a glimmer that here – where it refers to the respective interests of industry and agriculture – there will be due consideration given to both sides. It is thought in some quarters that the methods and aims of China’s urbanisation drive have hitherto been misunderstood, and the direction in which this proceeds now may make matters clearer.

On a more practical level, the Plenum decided on the establishment of two new bodies: a State Security Committee – designed to concentrate on national defence, leaving the State Council to focus on economic policy – and a Central Leading Group, focused on the economy, to which has been attributed the vague task of “comprehensively deepening reform”. How exactly it will operate and how it will interact with other bodies, such as the National Development and Reform Commission for example, was not explained, although onlookers suggested it would ease power away from the State Council (under Premier Li) and towards the Party (under President Xi).

It is worth noting that the Central Leading Group marks the centralisation of State oversight in this area. There are concerns that vested interests at the provincial level, entangled with local governments, have clogged the arteries of the country at large and impeded the economy’s progress up to now, which gives some context to the sudden introduction of a centralised command centre – it is to “clip the wings of the provinces”, as one observer described it.

There appeared to be at least one other area of express intent – namely that to “feel the way across the river stone by stone”, an expression whose deployment gives a nod back to the reform era of Deng Xiaoping. Deng pioneered Shenzhen’s successful pilot trade zone; today’s leaders launched a similar venture in Shanghai in September, and it seems reasonable to assume that the process of opening up to foreign direct investment, exchange rate liberalisation and other financial measures will be undertaken only at China’s own speed.

Reform of a host of other sectors was also promised, notably in social areas such as education, employment, income distribution, social security and public health, but how and to what extent they might be carried through was less explicit. Murkier still was an oblique reference to the pollution problem, which intimated that polluters would be made to cough up – financially – for their sins.

So, with so little to go on, how about the immediate outlook? China has clearly told the world that it is moving from low-cost, export-led consumption to domestic consumption. Chinese investment in infrastructure is likely to remain high for the next 20 years as central and western China are developed and tens of millions move into newly built or extended cities across China. Personal consumption is likely to increase rapidly as the urban population doubles over the next 10 years. Together with a strengthening renminbi, Chinese imports should be positive and strong.

The limited remit of the Plenum meant that it stopped short of committing to specific action, but there are signs that at the bare minimum the leadership has recognised the imperatives of the immediate future and – more importantly as far as the rest of the world is concerned, and especially for foreign businesses dealing with China – it is moving to address them. Whether the market has the same faith or not remains to be seen.

For the UK, following the return to normal relations and a succession of productive top-level ministerial visits, the prospects are bright. China views the UK as a potentially important route to its global commercial goals, and a good place to invest for relatively safe returns. That is all good for Britain. While progress is unlikely to be fast, the UK is in prime position – perhaps alongside Germany – to take advantage of the new opportunities to do business with China in the Chinese market and in third countries.



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