The Third Plenary Session: Old Wine in New Bottles?

The Third Plenary Session: Old Wine in New Bottles? The project “Dealing with a Resurgent China” (DWARC) has received funding from the European Union’s Horizon Europe research and innovation program under grant agreement number 101061700. Views and opinions expressed are however those of the authors’ and do not necessarily reflect those of the European Union. Neither the European Union nor the granting authority can be held responsible for them. Kjeld Erik Brødsgaard* and Kasper Ingeman Beck August 2, 2024 Copenhagen Business School *Corresponding author: [email protected] - 2 - Contents Key findings ................................................................................................................................ - 3 - Old wine in new bottles?......................................................................................................... - 4 - Third plenum meetings ............................................................................................................ - 4 - The 2024 third plenary session ................................................................................................ - 6 - Guiding theme: Chinese Modernization ............................................................................. - 6 - 300 reform proposals ................................................................................................................ - 8 - Party leadership and Party building ..................................................................................... - 9 - Personnel issues .......................................................................................................................- 11 - Conclusion and key takeaways for the EU .......................................................................- 11 - - 3 - Key findings • Third Plenum delay: The much-anticipated Third Plenum, expected in Fall 2023’, was delayed until July 2024. • No new ‘reforms’: As expected, the meeting addressed economic reforms to reverse the downturn, but the final Decision document offers few new ideas. • Political reform stagnation: Focus remained on centralized, unified rule under Xi Jinping, with increased Party building and stricter state control over various sectors. • Addressing poor policy execution: Party leadership believes the current direction to be the correct one; the main problem lies in poor policy implementation. Despite this acknowledgement, virtually none of the ‘reform deepening’ ideas address implementation. • Focus on modernization: The Decision aligns with Xi’s long-term strategy, emphasizing Chinese-style modernization over Western models, and aims to avoid the pitfalls experienced by countries that adopted neoliberal reforms. • Role of the market: The document reiterates the decisive role of the market but maintains strong support for state-owned enterprises. • Fiscal reforms: Vague measures to address the fiscal mismatch between local and central governments were identified, including expanding local tax revenue sources and increasing central government contributions to public expenditures. • Urbanization and social welfare: Increasing urbanization, improving pension and healthcare systems are mentioned, which implies a future easing of the hukou household registration system to enhance social welfare for migrant workers. • High-quality economic development: High-tech industries such as AI, aerospace, new energy materials, and quantum technology are emphasized, with scant attention paid to traditional heavy-industrial sectors. • Continuing the push for innovation-driven development: R&D at the company level will be strengthened and SMEs that produce specialized technologies will be supported. The document does not explain how this will be accomplished. • Party leadership and Party building: The Decision underscores the importance of CCP leadership and focuses on maintaining centralized control and improving Party building in all organizations. • Anti-corruption measures: National legislation to combat both corporate and political corruption will be advanced. Efforts to prevent allegedly corrupt officials from fleeing the country will be intensified. • National security: National security is presented as a pivotal foundation for modernization. The concept is equated with the security of the CCP and its leadership. • Personnel changes: The plenary session confirmed the expulsion of former defense minister Li Shangfu and other officials for “serious violations”, and the resignation of former foreign minister Qin Gang. • EU implications: The continuation of innovation and modernization policies without political liberalization suggests that China’s approach will increasingly conflict with EU priorities, particularly in fostering green technology and high-tech industries in the EU. - 4 - Old wine in new bottles? Following China’s reopening after two years of Covid-19 restrictions, the domestic economy entered a period of sluggish development. In 2022, the growth rate slowed to 2.4 percent. Driven by strong exports, it increased to 5.2 percent year-over-year in 2023, but then slowed to 4.7 percent in the second quarter of 2024. Many Western observers have dubbed the downturn an economic crisis characterized primarily by setbacks in the property sector, stagnant household consumption and insufficient private sector stimulus. There was much speculation as to whether the Third Plenum in China’s five-year governance cycle, which is normally devoted to economic issues, would issue directives indicating fundamental reforms of an ailing economy. Interest was heightened when the plenum, scheduled for Fall 2023, was postponed. The meeting was finally held July 15–18, 2024 and a long document, “Decision of the Central Committee of the Communist Party of China on Further Deepening Reform Comprehensively to Advance Chinese Modernization” was released. 1 The Decision 2 includes 300 proposals, spread among 60 sections in 15 chapters. All of these are wrapped in the context of “Chinese modernization”. “Reform” is mentioned 141 times, but more than half of these are qualified by “deepening” (50) or “further” (38). It seems that the Party has resolved to tinker with the system rather than attempt any sort of fundamental reform. The Decision seems to affirm that the Party leadership believes they are on the right course, with the main issue being poor implementation or execution. Curiously, few insights are offered into how their intentions will be realized. Indeed, the Decision reads more like a vision statement than an action plan. One or another form of the phrase “we will” appears in almost every sentence – a whopping 589 repetitions! Third plenum meetings The plenary sessions of the Central Committee usually follow a fixed pattern 3 throughout each five-year governing cycle. The first plenary session, held immediately after the conclusion of the five-year National Party Congress, elects the new Party leadership including the Politburo, its standing committee and the general secretary of the CCP. The second plenary session, held in the spring before the annual meeting of the National People’s Congress (NPC), discusses and approves the list of candidates for the country’s next government. The third session held in the fall, one year after the Party Congress, lays out economic policy directions and reform. The fourth usually focuses on Party building or legal work, and the fifth reviews the draft of the upcoming five-year plan, which is formally adopted at the next National People’s Congress. The sixth plenary session often focuses on cultural themes and broad societal goals, such as creating a “harmonious society” or adopting “scientific development”. The seventh 1 “Resolution of CPC Central Committee on Further Deepening Reform Comprehensively to Advance Chinese Modernization,” Xinhua, July 21, 2024. Available at: https://english.www.gov.cn/policies/latestreleases/202407/21/content_WS669d0255c6d0868f4e8e94f8.html. 2 The official translation of the Chinese version calls the document a “resolution”. I have chosen “decision” which is the normal translation of the Chinese jueding ( 决定 ). 3 Kjeld Erik Brødsgaard, “Assessing the Fourth Plenum of the Chinese Communist Party: Personnel Managment and Corruption,” Asia Policy, No. 20 (2015), pp. 30-37. Indeed, the Decision reads more like a vision statement than an action plan. - 5 - plenary session, held a week before the National People’s Congress, approves the agenda and lays the groundwork for the event. The most famous Third Plenum, held in December 1978, shifted CCP work from class struggle to economic development and construction, signifying the beginning of China’s economic reform and opening-up policies. The plenum marked the decisive return to power of Deng Xiaoping, who remained China’s undisputed leader until his death in 1997. Other important third plenary sessions include that of the 14th Central Committee in November 1993, which decided to build a socialist system in which the market would play a “basic role” in resource allocation. To this end, it declared that a modern enterprise system would be established and the corporatization process within the state sector would be accelerated, eventually facilitating the creation of national industrial champions. In November 2013, one year after the 18th Party Congress elevated Xi Jinping to CCP General Secretary, the 18th Central Committee held its third plenary session. The meeting issued “The Decision of the CPC Central Committee on Some Important Questions Concerning Comprehensively Deepening Reform.” 4 This comprehensive document contains 22,000 characters divided into 16 chapters and 60 sections. Like the 2024 document, the 2013 Decision contains more than 300 reform proposals regarding finance, tax, real estate, hukou and urbanization, and more. It also redefines the role of the market, which it describes as “decisive” and no longer just “basic”. In a move towards a mixed ownership system, it promises ownership reforms in state-owned enterprises (SOEs). Importantly, the plenary session also decided to reform political governance by setting up two new leading bodies: a Central Leading Group on Comprehensively Deepening Reform and a Commission on National Security. Many of the economic reform initiatives were not implemented successfully, but the two new leadership bodies at the heart of the administrative initiative are now a crucial part of the Party organization at the highest level and play a key role in policy deliberation and decisionmaking. In 2018, the third plenum of the 19th Central Committee focused on stability and security, rather than economic policy. 4 “Zhonggong zhongyang guanyu quanmian shenhua gaige ruogan zhongda wenti de jueding” [CPC Central Committee Decision on Several Major Issues of Deepening Reform], Xinhua, November 15, 2013. Available at: http://news.xinhuanet.com/politics/201311/15/c_118164235.htm. For an English translation, see https://china.usc.edu/decision-central-committee-communist-party-chinasome-major-issues-concerning-comprehensively The plenary sessions of the Central Committee usually follow a fixed pattern. The third plenary session addresses basic economic issues and decides on economic policy directions and reform. The most famous Third Plenum, held in December 1978, signified the beginning of China’s economic reform and opening-up policies. - 6 - The 2024 third plenary session The drafting process for the Decision started in November 2023, when the Politburo established a document drafting group. 5 Xi Jinping was appointed chair and standing committee members Wang Huning, Cai Qi and Ding Xuexiang served as deputy chiefs. The composition of the group is revealing. It leaves out Premier Li Qiang, officially number 2 in the CCP, but overshadowed by his standing committee colleagues. It includes Wang Huning, a key drafter of ideological concepts and ideas during both the Jiang Zemin and Hu Jintao eras. Even though Wang was shifted to the Political Consultative Conference to take care of United Front Work in 2022, he remains active in formulating ideological and theoretical guidelines. Cai Qi’s presence shows the increasingly influential status of this former Beijing Party secretary. As head of the CCP Central Party Secretariat, he wields enormous organizational power. He is a strong Xi ally and often accompanies the general secretary in meetings with foreign dignitaries. Ding Xuexiang, the youngest member of the standing committee and executive vice premier, is also a close Xi ally. While head of the Central Committee’s general office (2017– 23), highest-level documents from throughout the Party crossed his desk. He has thus developed a comprehensive understanding of Xi’s overall project and its implementation. On November 27, 2023, the Central Committee issued a notice soliciting opinions on the Third Plenum agenda from all localities, departments and sectors. The drafting group received 1911 opinions and suggestions. The drafting work started on December 8. The standing committee reviewed early drafts three times and the Politburo reviewed them twice. On May 7, 2024, the text of the resolution was issued to select Party members and retired senior Party officials for consultation. Opinions were also sought from the central committees of the so-called democratic parties and from the leaders of the All-China Federation of Industry and Commerce. In short, the drafting of the text underwent an extensive consultation and dialogue process, underscoring that key elements of the consultative policymaking system remain intact, even amidst the centralization of power under Xi. Guiding theme: Chinese Modernization The Decision wraps all of its ideas within the CCP’s socialist modernization vision. In fact, modernization is now placed on par with reform and opening up. Whereas the era of Deng Xiaoping was one of reform and opening, the Xi era underscores socialist modernization. Modernization already featured prominently in Xi Jinping’s July 1, 2021 speech at the 5 Xi jinping, “Explanation of resolution of CPC Central Committee on Further Deepening Reform Comprehensively to Advance Chinese Modernization,” Xinhua, July 21, 2024. Available at: https://english.news.cn/20240721/ed4b250e08a24fc69b025c6d6da56a8d/c.html Modernization is now placed on a par with reform and opening-up. - 7 - celebration of the 100th anniversary of the founding of the CCP. 6 He said that since 2012, China had begun to blaze a new modernization path that was unlike the Western model, which he compared to a “boxing match” where political parties fought each other and everything centered on votes. By contrast, the Chinese road toward rejuvenation and modernization includes a unique “relay model”, an upgraded version of the development of Chinese history and culture “under the guidance of Marxism.” In his report to the 20th National Congress of the CCP in October 2022, Xi Jinping again focused on Chinese modernization. 7 He mentioned the concept 56 times, claiming that China was embarking on a new journey, “building a modern socialist country in an all-round way and marching towards the second centenary goal” of creating a strong and modern China, indeed, a “new form of human civilization”. The speech emphasized nine requirements that must be met before modernity can be achieved. Most of these are repeated in the Decision: 1. Upholding the leadership of the Communist Party of China. 2. Upholding socialism with Chinese characteristics. 3. Adhering to high-quality development. 4. Developing whole-process people’s democracy. 5. Enriching the people’s spiritual world. 6. Achieving common prosperity for all people. 7. Promoting harmonious coexistence between man and nature. 8. Promote the building of a community with a share future for mankind. 9. Creating a new form of human civilization. The Decision’s organizing principle was foreshadowed in May this year, when a major report on “China’s road to modernization” published by Xinhua pondered the meaning, goals and path of the aims listed above. 8 Modernization is seen as the core content of the journey towards the goal of realizing “the great rejuvenation of the Chinese nation.” It asks whether there is a universal standard of modernization. Unsurprisingly the answer is no: every nation must pursue its own modernization path. However, China’s path “set[s] an example for developing countries as they “independently pursue … modernization”. The idea of pursuing modernity goes back at least to 1964, when Zhou Enlai announced the goal of achieving four modernizations, in agriculture, industry, national defense, and science 6 “Speech by Xi Jinping at a ceremony marking the centenary of the CPC,” Xinhua, July 1, 2021. Available at: http://www.xinhuanet.com/english/special/2021-07/01/c_1310038244.htm 7 Xi Jinping, “Report to the 20th National Congress of the Communist Party of China,” Xinhua October 25, 2022. Available at: https://english.www.gov.cn/news/topnews/202210/25/content_WS6357df20c6d0a757729e1bfc.html 8 “Chinese Modernization: The Way Forward”. Available at: https://english.news.cn/20240504/ae50c03d5f544ae8a651f146c08e5be9/20240504ae50c03d5f544ae8a651f146c08e5be9_332fa818c7 07734567b4c3c4f2ad406eb0.pdf - 8 - and technology. In 1987, the Central Committee formulated a three-step modernization strategy: the first step was to meet the people’s basic needs for food and clothing by the end of the 1980s, the second was to raise people’s lives to a moderately prosperous level by the end of the 20th century. The third step was to achieve basic modernity by the middle of the 21st century. The third plenary in 2024 revised the timetable for building a modern socialist country once again. It defines two steps: “a high-standard socialist market economy” will be realized by 2035 and, by mid-century, China will have become a “modern socialist country that is prosperous, strong, democratic, civilized, harmonious and beautiful.” “The key to [overall] modernization” is understood to lie in the “modernization of science and technology”. By implication, China must focus on developing so-called “new quality productive forces,” a phrase that appears 18 times. According to the report, accelerating the development of new quality productive forces is a strategic choice that will place China “at the forefront of a new round of global scientific and technological revolution and industrial transformation”. After missing out on the first (steam engine) and second (assembly line) revolutions, the report emphasizes that China will not be on the sidelines during the current (digital) revolution. For this reason, China has invested heavily. In terms of person-hours dedicated to R&D, China now ranks “first in the world” with 6.35 million man years in 2022. 300 reform proposals What, then, do the many, often vague, proposals intend to accomplish? Chapter 3 of the Decision is about promoting “high-quality economic development”. This means promoting the development of productive forces characterized by “high technology, high performance and high quality”. The government will push innovation in a variety of technologies – key generic technologies, cutting-edge technologies, modern engineering technologies and disruptive technologies – and give top priority to the development of strategic industries such as next-generation information technology, artificial intelligence, aviation and aerospace, new energy materials, high-end equipment, biomedicine and quantum technology. This “new industrialization” program thus represents a move away from traditional heavy-industrial industries such as chemicals, steel, coal, and machine-building. Indeed, with the exception of coal, which should be made more “clean and efficient”, traditional sectors are not mentioned. Chapter 4 is about talent development in science and technology. In addition to universities and other institutions of higher learning, R&D will be strengthened at the company level. SOEs will be expected to provide incentives, including remuneration, to encourage innovation and creativity among their research personnel. Interestingly, small and medium-sized enterprises (SMEs) that produce specialized and sophisticated technologies will also be supported. These …the key to modernization lies in the modernization of science and technology. The implication is to focus on the development of “new quality productive forces”. - 9 - endeavors seem to be intended to promote the growth of many so-called “little giants” in order to establish a Chinese version of the German Mittelstand. Arguably, there is nothing new in this. The push toward high-technology development was launched in 2015 and 2016, with the “Made in China 2025” and the “Internet+” programs under the umbrella “Innovation-Driven Development Strategy” (IDDS). What is noteworthy is that Xi’s and the CCP’s answer to the economic malaise is not to channel extra investment sources into the property sector and infrastructure development, as was the case in the past. This time, the answer is to stick to a strategy focusing on innovative high-technology development, i.e. “new quality productive forces” and using state steerage or industrial policies. The days of letting the economy gradually grow out of the plan are over. The decisive role of the market is acknowledged and some initiatives to support the private sector are mentioned, including better access to loans and government projects. However, strong measures will also be taken to “help state capital and SOEs get stronger, do better and grow bigger.” Clearly, support to the private sector will not happen at the expense of the state sector. SOEs will continue to enjoy preferential treatment. Several measures address the fiscal mismatch in revenue and expenditure between local and central governments, including expanding local tax revenue sources and making the central government pay a bigger share of public expenditures. Whether this will help improve the fiscal situation of local governments whose finances were depleted by the property crisis remains to be seen. Measures to increase urbanization and boost social welfare programs, including pension and health care, were also announced. Migrant workers will gain better access to social welfare and educational options for their children. This implies that Xi and the CCP envision some easing of the hukou system, but they do not spell out what they have in mind. The Decision also pledges to introduce economic incentive mechanisms for boosting the birth rate. Interestingly, the issue of retirement is formulated cautiously: “…we will advance reform to gradually raise the statutory retirement age in a prudent and orderly manner.” The average retirement age in China is 50 for women and 60 for men despite a life expectancy that has increased to 79. Xi and the CCP clearly realize that any attempt to change the retirement age would be met with widespread opposition. They also realize that reform in this area must be followed by post-retirement economic security. Consequently, the document announces that old age pension and insurance systems will be “refined”. Party leadership and Party building Chapter 15 opens, “Leadership by the Party provides a “fundamental guarantee for further deepening reform comprehensively to advance Chinese modernization”. Party leadership means upholding Xi’s core position on the Central Committee and in the Party as a whole as well as upholding the authority of the Central Committee and centralized, unified leadership. There is no room for political reform and liberalization. Clearly, support to the private sector will not happen at the expense of the state sector. SOEs will continue to enjoy preferential treatment.