China's political signals and programmatic: modernization of economy and state, reform projects, economic stability

By Willy Sabautzki
[This article posted on July 22, 2024 is translated from the German on the Internet, https://www.isw-muenchen.de/online-publikationen/texte-artikel/5271-chinas-politische-signale-und-programmatik-modernisierung-von-wirtschaft-und-staat-reformvorhaben-wirtschaftsstabilitaet

The outcome of the deliberations of the 3rd plenary session of the Central Committee of the leading Communist Party, along with the half-yearly balance sheet for 2024, form the basis for the further economic policy path in China.

Structure of the report

The objectives of the 3rd plenary session
High expectations
The half-yearly balance of the Chinese economy
Highlights of growth – and its gaps
Communiqué of the 3rd Plenary Session. The framework for modernization, reform and further opening
An interim conclusion

The objectives of the 3rd plenary session

The 3rd Plenary Session of the leading bodies of China's political leadership is one of the country's most important meetings for decision-making and political guidance. This year, it was dominated by reforms and the modernization of the economy and the state.
Reforms? How do reforms fit into a communist state that, unimpressed by the attempts of Western political and military power circles, refuses to abandon the path of building a socialist country that has been conceived since 1949 and to consistently pursue a socialist development of Chinese character?
In fact, the Chinese interpretation of reforms, which began at the 3rd Plenary Session in 1978 under Deng Xiaoping, marks a decisive turning point in the economic development of the socialist country. These reforms put China on a course of economic opening and reform that enabled rapid development. The most important aspects of these reforms included

The introduction of market economy elements into the socialist planned economy, which is defined as a socialist market economy with Chinese characteristics,
The opening of the Chinese market environment to accelerate the supply and provision of products in line with demand and the associated strengthening of the self-interest of capitalist economic players, a pragmatic concession for foreign investment and technology,
state decentralization and liberalization at the vertical and regional levels. (1)

In the political debate of the last 100 years, tons of justifications, system-critical analyses and recommendations have (presumably) been produced that deal with the question of reforms, even in a socialist-structured social system. But this should be understood only as a suggestion to deal more intensively with the culture, politics and social development of the People's Republic of China and to reconsider one or the other preconceived opinion about the country of China.
The following article, however, is about the current reforms and directions that were the focus of the 3rd plenary session of the Central Committee and its standing committees. (2)

High expectations

The significance of this meeting in July 2024 lay in the fact that it was an opportunity to assess the current socio-economic situation in all its complexity. Questions were raised about the dynamic continuation and modernization of the economic, social and state components of Chinese society, as well as the discussion of political guidelines for reform projects and modernization approaches in the identified problem areas.
The topic of further opening up the economy, with all its consequences, also played a central role; topics relating to the admission and promotion of entrepreneurial activities by foreign companies were of particular importance in this regard.

In this Chinese context, reforms are to be understood as a path towards modernization of Chinese society. Reform projects therefore characterize a planned reorganization or improvement of existing structures. A departure from the basic principles of building a socialist society and its fundamental intellectual and cultural foundations was and is not intended according to the prevailing communist ideology of Chinese society.
Existing weaknesses such as the persistent unequal development of incomes, regional differences in living and working conditions, the lack of training and job opportunities, especially in the advanced industries and the problematic real estate market, can be identified as the most pressing areas in need of reform. (3) See the analysis by Wolfgang Müller, prepared before the plenary session, for a complementary description: Is China readjusting its economic policy? Debates before the Third Plenum of the Central Committee of the Communist Party, Sozialismus.de, Issue 7/8-2024

The importance of opening up to the market environment

In the run-up to the plenum meeting, a series of analyses were produced that dealt with the importance of opening up, a pragmatic opening up to Western capital to promote its own economy and also international cooperation within the framework of participation in global organizations; an example of the latter is the co-determination in the UN and the World Trade Organization (WTO). (5)

In my opinion, the key factors that have made China the world's second largest economy are the fundamental retention of state leadership and proven economic policy, as well as the willingness to change structures and the pragmatic willingness to open up. Keeping the doors open and making room for pragmatic experiments remain integral to China's economic success, especially when it comes to the much-needed transition to a knowledge-based, advanced manufacturing center.
According to experts, China should empower its entrepreneurs to increase the competitiveness of both private and state-owned enterprises in an experimental and forward-looking way. Economist Keyu Jin has pointed to the demand deficit and the loss of confidence in the private sector as obstacles to China's post-pandemic recovery. (6) Chinese economic experts also called for a continued opening to foreigners, whether tourists, students or skilled workers, in the run-up to the plenary session. Zheng Yongnian, a political scientist and professor at the Chinese University of Hong Kong in Shenzhen, called on China to dare to open up unilaterally to the rest of the world if necessary.

There are increasing signs that the political leadership wants to meet the demands and interests of foreign companies by making further concessions regarding their activities in China. These include, for example, the relaxation of visa restrictions for non-Chinese and the inclusion of Australia and New Zealand in the list of countries that are already exempt from visa requirements. (7)
Experts believe that the removal of administrative obstacles in the areas of legal registration, business disputes and the lack of transparency in the regulations to be observed would be one of the areas of opening up that would encourage entrepreneurial activity in China.
Another topic worth mentioning in the context of opening up is the consistent maintenance of constructive dialogue with well-meaning partners who can promote China's reputation, including in Western societies.

This is also underlined by China's desire to maintain and expand its own influence in the face of increasingly fierce international competition.

As the rapid socio-economic development of the country over the past 40 years shows, opening up and reform have become effective tools that enable the party and the people to make great strides in keeping up with the times.

John Ross: How China will continue achieving its high-quality development, Senior Fellow at the Chongyang Institute for Financial Studies at Renmin University of China. (8)

The 3rd plenary session was, in the opinion of the organizers, problem- and result-oriented and created the conditions for an intensive, open and constructive discussion on practical solutions that should help the country to overcome some major obstacles on its path to sustainable growth while at the same time preserving its long-term strategic autonomy.

While the majority of the press in the West showed little objectivity in their assessment of the reform efforts in the run-up to the plenary session and commented on the half-yearly result of the economy in an ideologically motivated and rather unobjective manner, the plenary session was an expression of the determination and political program of a differently organized state, which simply has to appear in a bad light. (9)

The half-yearly balance sheet of the Chinese economy

While China's top politicians were preparing for the third plenary session of the 20th Central Committee, the National Bureau of Statistics, NBS, announced the latest figures on China's current economic development, the half-yearly balance sheet for 2024.

According to the preliminary estimates of the National Bureau of Statistics, NBS, gross domestic product (GDP) rose by 5.0 percent in the first half of 2024
(compared to the previous year).

Broken down by quarters, GDP rose by 5.3 percent year-on-year in the first quarter and by 4.7 percent in the second quarter, which corresponds to a slight quarterly decline in the first quarter.

Chinese authorities and analysts pointed out that this slowdown was a short-term fluctuation that would not derail the economy from its sustained recovery momentum. The fundamentals of the economy remained positive and would improve in the second half of the year. A number of outstanding economic drivers are cited, including the ongoing modernization of industry, robust exports and extensive investment in high-end production. (10)

Broken down by economic sector, value added in the primary industry rose by 3.5 percent year-on-year, while the secondary industry recorded an increase of 5.8 percent and the services sector an increase of 4.6 percent.

Focus on annual target

The 5 percent GDP growth in the first half of 2024 is in line with the target set by the government at the beginning of the year.
However, immediately after the data was released, some Western media outlets cited the slowdown in the second quarter as a rather negative development in the Chinese economy. Some exaggerated the downward pressure on the country and abruptly hinted that China would move away from its annual GDP target. However, if you look at the growth curve after the Covid slump, growth is moving at a remarkably constant high level (unlike, for example, the German economy).
While the official statistics admitted that current economic activity was under some pressure, they explained that the slowdown in the period from April to June was also influenced by short-term factors such as extreme weather conditions and frequent rain and flood disasters. The stable growth of 5 percent in the first half of the year also puts China on a good path to achieving its target of economic growth of around 5 percent for the year as a whole, according to economists.

“The Chinese economy has remained stable despite a complex global and domestic environment, and has achieved not only quantitative growth but also qualitative improvement [in the first six months]. This is a commendable and solid economic testimony.”
NBS spokesperson, July 15, 2024

Highlights of growth – and its gaps

According to analysts, economic growth in the first half of the year was “stable and moderate”, and in principle reflected a comprehensive picture of the recovery of the world's second-largest economy after the Covid slump. It is in a period of transition, in which the development of new driving forces is taking effect through complementary impulses to promote the development of productive forces. Industrial activity remains the main driver of the economy, partly due to robust foreign demand. The value added by industrial enterprises of a certain size increased by 6% year-on-year in the first six months, with the development of new, high-quality productive forces picking up noticeable momentum. (11)

A number of current figures on the half-yearly balance of economic activity are compiled in the following table:

Some additional comments on some of the figures in the table:

Note 1:
An analysis by ownership showed that the value added by state-owned enterprises increased by 4.6 percent, that of share-owned enterprises by 6.5 percent, that of enterprises financed by foreign investors or investors from Hong Kong, Macao and Taiwan by 4.3 percent, and that of private enterprises by 5.7 percent.

Note 2:
In the first half of the year, the total value of goods imported and exported amounted to $2,912 billion, an increase of 6.1 percent year-on-year. The total value of exports amounted to $1,698.2 billion, an increase of 6.9 percent.
The total value of imports was $1,265.46 billion, an increase of 5.2 percent.

Note 3:
In the first half of the year, fixed asset investment (excluding rural households) reached $3.44 trillion, an increase of 3.9 percent year-on-year. After deducting investment in real estate development, fixed asset investment increased by 8.5 percent.
Specifically, investment in infrastructure grew by 5.4 percent,
investment in manufacturing grew by 9.5 percent, and investment in real estate development grew by
10.1 percent.

Note 4:
In the first half of the year, the consumer price index (CPI) rose 0.1 percent year-on-year, while the index in the first quarter remained at the same level as the previous year. Broken down by product category, prices for food, tobacco and alcohol fell by 1.4 percent, for clothing by 1.6 percent, for housing by 0.2 percent, for goods and services for daily use by 0. 9 percent, for transport and communication 0.7 percent, for education, culture and recreation 2.0 percent, for medical services and health care 1.4 percent and for other goods and services 3.3 percent.
Among the prices for food, tobacco and alcohol, the price of fresh fruit fell by 7.8 percent, the price of fresh vegetables fell by 2.7 percent, pork remained unchanged and grain rose by 0.5 percent.
The core consumer price index, excluding food and energy prices, rose by 0.7 percent year-on-year. (12)

In general, the country's economic performance remained stable in the first half of the year, and steady progress was made in the transformation and modernization.
The assessments of serious analysts of the economic situation are largely in line with the critical assessments of the leadership circles and working bodies at the 3rd plenary session that there is an obvious potential for economic recovery. The still conspicuous gaps, or in other words, the crisis phenomena, such as the real estate crisis with a huge stock of unfinished apartments, or the obviously too slowly growing labor market for young people who see their professional qualifications in modern IT and service sectors, present serious but solvable challenges to state bodies and companies.
For example, unemployment is basically at a constant manageable level, but there are clearly too few jobs available to meet the requirements of the development of future-oriented industrial sectors. (13)

China's share of the global economy has risen from around 12.3 percent over a decade ago to around 18 percent now. China's contribution to global economic growth in recent years has been around 30 percent.
However, more recent figures from a long-term forecast suggest a decline in China's contribution to global economic output. This is why the political leadership sees itself as responsible for taking appropriate measures to maintain its existing economic and political influence in world affairs.

According to experts, China's remarkable development from one of the world's poorest countries in 1949 to the world's second largest economy in just over 70 years is primarily due to the consistent role and guiding leadership of the CCP. According to John Ross, Senior Fellow at the Chongyang Institute for Financial Studies at Renmin University of China, no other political party in the world can demonstrate a comparable performance. (14)

IMF raises GDP growth forecast for China

In its latest World Economic Outlook (WEO), the International Monetary Fund (IMF) has confirmed its forecast for Chinese GDP growth in 2024 at 5 percent.
The IMF's statement on the China data came immediately after the official announcement by the NBS. The key factors cited are a steady recovery in domestic consumption and an increase in exports. In its July WEO update, the IMF expects the forecast 5% growth for 2024 to be an upward revision of 0.4 percentage points from the IMF's April WEO report. (15)

“In China, a rebound in domestic consumption in the first quarter provided a positive development, supported by a seemingly temporary increase in exports, which only late on were able to pick up on the increase in global demand last year."
WEO, World Economic Outlook

Contrary to the mostly negative news (16) from Western media on China's half-yearly balance sheet for 2024, the upward revision of the IMF forecast also indicates that expectations for a stable and solid recovery of the Chinese economy will be met despite the deteriorating external economic environment and increasing trade protectionism. This is to be seen as evidence of China's economic competitiveness.

A table published by the IMF shows the expected development of the Chinese economy in relation to other countries in the coming years.
In particular, note the forecast for economic development in Germany. (17)

Communiqué from the 3rd plenary session
The framework for modernization, reforms and further opening

At the end of the 3rd Plenary Session held in July of this year, the supreme political leadership body adopted a communiqué, an official announcement summarizing the results of the session and describing it as a framework for development over the next five years. Immediately after publication, the Chinese public was called upon in a press release to study the Plenary Communiqué and to participate in the planned measures in their respective areas of activity.
The communiqué is thus a resolution to further deepen the reform course that has been decided upon for the modernization of Chinese society. The promotion of high-quality development along the path that has been taken to build China into a modern socialist country is defined as the general line of socio-economic development.
As the name suggests, it is a communiqué and not a definite plan for implementation with firmly agreed approaches to solutions.
The following text summarizes excerpts from the communiqué. The focus of the presentation is on those measures and program points that attracted a great deal of international attention in the run-up to the plenary session, such as what China's future economic policy might look like. (18)

The full text of the document can be found at the link provided (19)

The communiqué

Emphasis on the importance and deepening of reforms to drive forward Chinese modernization.
The main points: building a socialist market economy, promoting high-quality economic development, supporting comprehensive innovation, improving macroeconomic management, promoting integrated urban-rural development, pursuing high-level opening-up and promoting comprehensive people's democracy , promoting the socialist rule of law with Chinese characteristics, deepening cultural reform, ensuring and improving the well-being of the people, deepening environmental protection reform, modernizing China's national security system and capabilities, deepening national defense and military reform, and enhancing the Party's leadership role in further deepening reform.

Expansion of domestic demand, in line with effective implementation of macroeconomic policy.
To prevent and mitigate risks in the areas of real estate, municipal debt, small and medium-sized financial institutions and other key areas, various measures will be implemented to ensure the further development and security of the level of prosperity achieved.
Promotion of new workers.

Solid steps towards environmentally friendly and low-carbon development.
Consolidate and expand the achievements in poverty alleviation.
Ensure and improve people's well-being.

Integrated urban and rural development for China's modernization.
In the new industrialization, coordinate the new urbanization and the comprehensive revitalization of the countryside, strive for a higher degree of integration between urban and rural areas in planning, development and governance.
Promote the equal exchange and mutual flow of production factors between the city and the countryside, in order to reduce the inequalities between the two and to promote their common prosperity and development. Improve the basic rural operating system, improve the support systems to strengthen agriculture, benefit farmers and enrich rural areas, and deepen the reform of the land system.

Further reforms of opening up by continuing the state's policy of opening up to the outside world, creating new institutions for the development of an open economy with higher standards.
Expansion of cooperation with other countries.
Deepening the structural reform of foreign trade, further reforming the management systems for domestic and foreign investment. Improving planning for regional opening up and refining the mechanisms for high-quality cooperation within the framework of the Belt and Road Initiative.

Improve environmental protection systems, make concerted efforts to reduce carbon emissions, reduce environmental pollution, pursue green development, and boost economic growth, actively respond to climate change.

Strengthen cultural self-confidence. Chinese modernization is the modernization of material and cultural-ethical progress. Develop an advanced socialist culture, promote a revolutionary culture, and carry forward traditional Chinese culture.

Modernization of peaceful development. Chinese modernization emphasizes China's policy of peaceful foreign relations, to continue as an independent foreign policy of peace. Foreign policy is still designed to work for a human community with a common future.

The modernization of national defense and the armed forces is an integral part of China's modernization. The absolute leadership of the Party over the People's Armed Forces must be maintained and the strategy of strengthening the military through reform must be fully implemented.
The Party's leading role is considered the fundamental guarantee for the further deepening of reforms and for the comprehensive advancement of China's modernization.

An interim conclusion

It would be dishonest to draw any final conclusions, because the detailed resolutions and measures will only be made known through the established state channels and to Chinese business partners at a later date.

Some foreign business associations and analysts operating from the sidelines are an inglorious exception in their knowledge of the communiqué, which had expected far-reaching liberal openings, even changes to the political system in China. For these circles, liberalization and reforms are nothing more than a free ticket for foreign companies to operate in China without restriction, independently and without control.

The program discussed at the 3rd plenary session, with its far-reaching reform proposals and the further opening of today's China, reflects the strenuous tasks facing the country as it shapes its future. The communiqué does not contain any surprising elements that have not already been the subject of continuous discussion in the committees of the bodies of the Chinese Communist Party. Analysts and the international press have reported on it in various nuances time and again.

The 3rd plenary session has produced a far-reaching statement with global impact as a political result. According to the results of the consultations, the economic and socio-political orientation of Chinese policy is to create a balance between stability and growth. The communiqué expresses the need for a modern organization of the economy and the state and the initiation of fair conditions for future investments in the Chinese market environment. The far-reaching opening up of the market to foreign investors that has been decided on is to be implemented at a high level and the necessary quality production forces are to be provided for this purpose. It can be assumed that detailed agreements and specifications for the participating economic partners will be the next steps. We will also continue to follow this with great attention and comment on it.