2023 third plenum: setting the context

some reflections in the run-up to the Plenum

aiming higher

The PRC economy always generates hype and concern. While its familiar features follow cycles, the dynamics at play in 2023 are different.

We expect the next twist of the plot will drop with the 2023 Third Plenum, likely set to follow the National Day holiday in early October. Every five-year administration has seven plenary sessions, each with a notional focus. Third plenums are typically devoted to updating broad load-bearing planks of Party doctrine, economic, political and societal.

In this post, we offer some reflections in the run-up to the Plenum.

changing course

Power, and long-term ‘rejuvenation’, overshadowing generic ‘economic growth’, have taken centre stage under Xi Jinping. These vectors appear to be driven by a conviction that genuine security and stability can only come from building new Party mechanisms that seek to make society sustainable in more than the growth dimension. 

This conviction is the essence of what Xi calls ‘deepening reform’. He set up the most active Party Commission with just this name and mission when he took charge a decade ago. He launched a National Security Commission in tandem. This security dimension is now distinctive, codified and applied across the policy board as ‘baseline thinking’ (底线思维). 

This shift is seen in changing Party doctrine. Deng’s maxim, 'development is the absolute principle' (发展才是硬道理), underwrote policy from the early 1990s. In 2017, Xi rewrote the formula as ‘development is an absolute principle, stability is also an absolute principle’ (发展是硬道理，稳定也是硬道理). Taking a step further at the 20th Party Congress (October 2022), he insisted that 'security is the premise of development’ (安全是发展的前提) while acknowledging the inverse notion that ‘development is the guarantee of security’ (发展是安全的保障). 

Questions arise: so what kind of security now, with what limits? Party thinktanks have for decades rehearsed advanced ideas of novel security threats—financial, biological, and climatic. Xi will have his own bucket list—separatism, colour revolution, espionage… threats now seem to come from everywhere.  

Deteriorating relations with the US drive much of this insecurity. Beijing’s economic trajectory was keyed to warmer US ties, intrinsic to Deng’s core policy of 'reform and opening'.

In an adverse feedback loop, a decade of tense US relations has raised the security stakes, impacting the PRC development trajectory and boosting resolve to ‘go it alone’. Mounting tension has entrenched the self-reliance narrative. 

But Xi is also emboldened by the potential he sees at home

• by 2020, society was ‘moderately prosperous’; Beijing could switch to ‘creating a modern socialist country’ 

• mastery of a ‘new industrial revolution’, declared a ‘patriotic imperative’ (国之大者), is believed will transform the PRC and underpin the global economy

grasping the initiative 

Xi frames these changes through a ‘new development pattern’ (新发展格局), which he first articulated in detail in 2020, also saying that ‘the strategy is to move first and grasp the initiative’. If it was not already clear, this flags a move away from Deng-era pro-market policy to the scitech high ground where his vision of a powerful, prosperous future lies for the PRC. 

Where this development pattern is ‘new’ is not straightforward, differing according to where one stands. In practice, Xi's statesmanship lies as much in harmonising warring interests and ironies between theory and practise. 

Some policy interest groups see no harm, indeed great virtue, in the early reform era defined by Deng Xiaoping 邓小平 and benefitting from US partnership. Others recall in glowing terms the later hypergrowth under Premier Zhu Rongji 朱镕基 and accession to the WTO. Xi is capable of turning away from either variant, providing a vaguely Marxian rationale as needed: the super-stretch garment ‘common prosperity’. 

When we consider the struggle to reinvent sino-Marxian redistributive doctrine, the imperative to meet rising expectations, and tension with the US, it is evident that the PRC is changing both economically and geopolitically. Other countries may be grappling with parallel forces, but more to the point is that Beijing has moved away from ‘hide and bide’ in the interests of gaining new advantage.

more meat on the bone

Many goals in Xi’s strategy have timelines. The current 5-year plan (2021-25) set some targets both for 2025 and 2035. But little meat has been put on the bone. Decisions of the Third Plenum should put more on it.

One element to watch is the deployment of new Party bodies (commissions) overseeing finance and scitech. Overhauling these two portfolios in sync at the last Plenum back in February is telling as to where the PRC is heading next.  

A wide rethink of political economy, not least concerning sino-Marxian productivity theory and factors of production (land, labour, capital, technology and the newest joker in the pack, data) is in motion. We expect more on this at the Plenum.  

How will Xi’s aspirations be rolled out? SOEs, both national and local, will as always be prime movers. Hints are for changing incentives, with certain SOEs transitioning from managing assets to managing capital (following Beijing’s preferences). These repurposed SOEs are already restructuring the economy, including addressing bottlenecks like real estate and fossil fuel dependency and nurturing strategic emerging industries.

balancing act

Will Beijing hunker down to prevail in the scitech race? Or will it opt for immediate fixes? Again, clues on what is in store should be offered at the Plenum.

Balancing short-term exigencies with structural adjustment is hard enough; the challenge mounts in the face of external pressure, not least geopolitical and trade headwinds and a global pandemic. Delivering Xi’s long-term vision may be more complex than his ‘cultural confidence’ and ‘baseline thinking’ allow. 

Many lament that private firms and international investors are being lost to the market. An editorial in Caixin recently warned: PRC economy and society have regrettably turned inwards; this blocks reform moving forward, boosting opening measures and supporting ‘high-quality’ development—implying pragmatism is still in demand. 

A Politburo meeting in July 2023 acknowledged that ongoing transition from the old growth calculus would entail wins and losses and tortuous advance—as well as mounting risk. Yet little time was taken to brief the commentariat about solutions to the current downturn; scant support was given sectors of society that are hurting.

Party-driven change

Political power and national rejuvenation clearly supersede popular economic gains in Xi’s strategic calculus. Instinctively autocratic as Xi and his team may prove, they cannot achieve any semblance of economic modernity without institutions that realise values over time and that allow policies to be enacted with minimal distortion and at least some exchange of trust. 

Mechanisms to drive Xi’s ‘new development pattern’ seem indeed to be taking shape but have few runs on the board.

This political shift underscores the need for a closer reading of deep changes at work in Beijing as they affect the world beyond. We will continue to reflect on this issue in future posts.