China’s plenum strikes the right opening chord

Small step. When top party officials gathered for the last Third Plenum in 2018, all eyes were on Xi Jinping’s removal of presidential term limits. Having successfully consolidated his power, the Chinese leader this week returned the focus of the key meeting to economic reforms. It suggests Xi may adjust the policy course to shore up confidence in the $17 trillion economy.

Among the sweeping pledges that emerged on Thursday after the central committee of the ruling Communist Party concluded its closed-door conclave, the word “reform” popped up some 54 times in a brief readout published by official news agency Xinhua.

Xi appears to be rethinking the role of “market” in China’s “socialist market economy”. The statements call for a fairer environment and the lifting of restrictions. Although it adds that regulation shall still be ensured in the case of “market failures”, suggesting the prominent role for the state in all walks of business will continue.

It builds on Xi’s repeated remarks earlier this year about his plans for “a series of major measures” to reboot growth. The economy can no longer depend on a debt-fuelled real estate market, and that challenge was laid bare on Monday after official data showed GDP grew 4.7% year-on-year in the second quarter, well short of economists’ forecasts.

The statements also point to a sense of urgency. The government set a goal in 2021 to double the size of the Chinese economy by 2035. Reform tasks laid out at this week’s meeting shall be completed sooner, by 2029, when the People’s Republic celebrates the 80th anniversary of its founding, the Xinhua report said.

Perhaps the most powerful message is that, after years of crackdown against companies from internet giant Alibaba to property developers, China will “unswervingly encourage” the private sector. That’s just as well because the leadership’s desire for “innovation”, another much repeated word in the pledges, depends on the enthusiasm of entrepreneurs.

Of course, messages embedded in bland political statements don’t mean much on their own, and investors will be cautious. “Common prosperity” endures, suggesting some level of scrutiny on the rich will continue. At the plenum in 2013, Beijing vowed to let the market play a “decisive” role in allocating resources in the economy and that never materialised. For now, at least, China is hitting some of the right notes required for a reset.

Context News

Chinese leaders concluded a key meeting, known as the Third Plenum, on July 18, and laid out their broad economic policy goals. The role of the market must be better leveraged, and restrictions on it will be lifted, a readout of the pledges published in the official news agency Xinhua said. Effective regulation will be ensured to better maintain order and remedy market failures, it added. The plenum, a meeting of the Communist Party’s Central Committee, takes place roughly every five years. The committee is led by President Xi Jinping who was shown on national TV delivering a speech, Reuters reported citing CCTV.