BEIJING — China’s leadership convenes this week for its fifth plenary session to discuss policy amidst mounting concerns about the health of the country’s economy.
The four-day plenum, held every few years, is considered a crucial government meeting. It is when lawmakers draw up China’s five-year plans, or essentially blueprints for reforms in various sectors ranging from healthcare and social security to environmental policy. This year’s plan is exceptionally notable as it is the first one devised under the leadership of Xi Jinping, China’s hardline president known for his sweeping anticorruption campaigns and unflinching determination to implement widespread reforms, particularly with the economy. This year’s plenum wraps Thursday against a backdrop of economic uncertainty.
For the third quarter, China’s gross domestic product growth of 6.9 percent was the slowest since the first quarter of 2009. Consumer confidence was shaken by domestic stock markets that, despite government intervention, were in a virtual free fall over the summer. Just last week, the country’s central bank cut interest rates for the sixth time in less than a year while lowering the amount of Chinese currency banks are required to hold.
“All this pretty clearly indicates that economic growth, despite official assurances, is not healthy,” said Christopher Balding, an associate professor of finance and economics at Beijing University’s HSBC Business School.
“I don’t know anyone, whether an expat or a Chinese, who says business is going great,” he said, adding that the latest round of rate cuts likely “won’t have much of an impact” because they are so minimal. Plus, he said, there’s the risk that more lending would lead to more infrastructure spend, a mechanism Beijing employed to fend off the 2008 financial crisis yet led to a glut of useless projects and local government debt from borrowed money to fuel the building binge.
Political analysts say that predicting any outcomes from this week’s closed-door plenum is a bit like looking into a crystal ball. A finalized plan will be approved during another major government meeting next spring. But many analysts are in consensus that reforms, particularly economic, will continue to deepen and that a vast anticorruption campaign, initiated by Xi when he came to power, will continue to expand, particularly to executives in the country’s financial sector.
Leaders will also likely have to set lower GDP growth targets that take into account slower growth as Beijing works to enact reforms and continues to try to move away from stimulus measures to prop up the economy all while avoiding a hard landing as China tries to move towards move sustainable growth and social stability at the same time.
“It is hard to predict,” said Shen Dingli, vice dean of the Institute of International Affairs at Shanghai’s Fudan University. “The Chinese process is quite opaque. People would expect given the [economic] slowdown, the government needs to find more creative ways to build up its economy. The momentum to increase [growth] very rapidly is gone, so they have to figure out how to pick up steam again and how to maintain new normal growth.”
A cornerstone of Xi’s administration has been shifting China’s economy from one reliant on exports and low-cost manufacturing to an economy supported by a strong service sector, domestic consumption and innovation. He has touted the importance of supporting small-and-medium sized enterprises while overhauling the influence of often-inefficient state-owned enterprises, or SOEs.
Overhauling SOEs, which are often operated by relatives of government officials or individuals with otherwise powerful connections, could prove to be one of the biggest challenges, according to Parris Chang, professor emeritus of political science at Penn State.
There are “vested interests” who stand to lose a lot from Xi’s reforms, Chang, who is now based in Taiwan, said.
“If Xi Jinping really wants to enact his economic reform, he is going to run into vested interests. Most of them are his supporters but they are also the power base behind the SOEs,” Chang said.
He added: “He will run into opposition from those people. The vested interests are too strong, and Xi Jinping knows he has no way to really subdue them. He risks creating too many enemies. I think Xi must realize he is not invincible.”
Chang said he sees continued focus on infrastructure investment, though with better planned projects, more efforts to bolster consumer spending as well as investment in the service industry. The question is whether this will all work.
The government “is very concerned about keeping Chinese society stable,” he said. “They are really worried about instability and turmoil.”
Others seem to have more confidence for the next five years.
Sonny Lo, head of the Hong Kong Institute of Education’s social sciences department, says he thinks the next five-year plan, for 2016-20, will “reinforce the directions that have already been laid out quite clearly.”
For example, Beijing will continue to push its “One Belt, One Road” initiative, a project to reinvigorate trade between China, the Middle East and Europe. He expects more regulatory reforms for domestic stock markets, efforts to make SOEs more efficient and more heavy-handed measures from Beijing to stem corruption at local government levels while promoting moderate infrastructure development to, in part, contain already rising unemployment, particularly in construction and manufacturing sectors.
“The focus will be on improving [economic] efficiency,” he said. “But not touching any political power base. Instead, just focusing on structural aspects.”
Lo also pointed out Beijing’s dilemma. In some aspects, the government still sees state intervention as essential, for example, with recent efforts to force institutional investors to not withdraw funds from domestic markets. Yet, at the same time, China wants to internationalize its currency and play by global financial standards.
“So we see this kind of contradictory trend in China,” Lo said.
For now, he said, it seems the only certainty is uncertainty as to how reforms will be implemented.
“I don’t think we should expect many surprises,” Lo said. “We will continue to see more attempts at sustainable development and economic reform and the central government continuing to play a crucial role.”
