july: third plenum: more ‘new era’ plans
month in focus
Warm welcome all…
Get a cup or two of caffeine ready—this is a long one.
Should you have failed to chomp all the way through the Resolution, we give you the short version highlights, plus the usual shifts for the (unusual) month.
We look around and beyond the Resolution’s finance and industry core. What comes into view is the massive momentum sweeping up all sectors (education, science, agriculture, energy, etc.) in service of Xi’s vision of a global tech presence.
For years, we have called his domestic play ‘trapeze economics’—the leap ever wider since COVID.
A swathe of global commentary brands the Plenum old wine in a not-very-new bottle.
We heard many of the prescriptions at the Plenums of 2013 and 2018 and the Party Congress in 2022. But times have changed. As local and domestic pressures converge, the urgency has never been greater for the state and Party to reach out and catch the trapeze.
Happy reading
Philippa
The Third Plenum proclaimed Beijing’s 5-year economic outlook. Fiscal and taxation reform is clarified: more resources for localities, more obligations for the central bureaucracy, an expanded role for ‘special’ bonds, etc. With finance urgently needed to serve the ‘real economy’, a Financial Law is to be legislated; assessment procedures for state capital (SOEs and government guidance funds) will be upgraded to ‘guide’ long-term investment to strategic sectors. National macro balance sheet management will be explored to better coordinate spending with the state’s desired outcomes.
July saw yet more major monetary policy. Early in the month, PBoC (People’s Bank of China) announced that it would narrow the band for short-term interest rates by becoming involved in repo markets. After the Plenum closed, the bank cut interest rates by ten basis points across the board, followed by a more significant (20 basis points) reduction in the mid-term lending facility. These were the first comprehensive cuts in policy rates since August 2023. They flag Beijing’s continued stress on monetary stimulus while spurning fiscal measures. With credit growth and overall financing shrinking in Q2 2024, it’s unlikely that they will have much impact.
The renewal and trade-in program—the solitary program in Beijing’s post-pandemic stimulus—received another boost in July. NDRC soon announced C¥300 bn ultra-long-term special government bonds to fund the initiative further, showing Bejing’s willingness to use debt to drive stimulus and industry upgrading. The program’s scope will be expanded, covering energy, power, old elevators, key industry energy-saving and safety renovations, etc.
On the trade front, June exports grew 8.6 percent y-o-y, surpassing forecasts and the fastest in fifteen months. Robust PRC production capacity and more exporters selling their goods ahead of another round of tariff hikes may have spurred the rally. Since domestic demand remains weak, imports underperformed even the forecast and shrank 2.3 percent y-o-y, a four-month low.
The Third Plenum delved extensively into geopolitical trade risk (often off-script at economic conclaves), revealing Beijing's worry over external challenges. Calling for institutional reform to address these risks, Beijing looks to add more tools to its legal and regulatory toolkit, bringing to mind the Tariff Law passed in April 2024. Greater coordination was flagged between trade policy and fiscal, financial and industrial goals, echoing econ pundit Liu Yuanchun 刘元春’s suggestion in early December 2023.
Other trade highlights at the Plenum were
further reform in foreign trade and investment
institutional opening and trade multilateralism
integration between domestic and global trade
bolstering services, digital and green trade
promoting BRI development
further opening the central-western and northeast regions
MofCOM reports that the utilisation of foreign investment fell some 29 percent in H1 2024 over 2023. Shanghai's Lingang New Area released ten measures to support foreign investment.
Completing a regular review of PRC trade policy, the WTO secretariat drew attention to Beijing's reliance on industry and manufacturing, the slow growth in services and the opacity of state support programs.
In the energy sector, the Plenum doubled down on the hot topics: accelerated power market reform, the shift to dual control of carbon emissions and removing barriers to renewable power consumption.
Shoring up energy security notably lacked new language, signalling Beijing’s readiness to turn the dial up on energy transition. The 2023 meme ‘establishing first before breaking’ (先立后破) is still in vogue, however. NDRC issued a new plan for the low-carbon transition of coal power. Outlining three technical routes to cleaner emissions (biomass, green ammonia and carbon capture), it aims for coal power to be no dirtier than natural gas generators. As renewables keep growing, coal will transition to a support role. Unlike in many advanced states, gas-based power is a fraction of the total PRC electricity mix.
In scitech, pledging to boost incentive structures, the Plenum sought to ease the commercialisation of research output. Reforming tech SOEs and state key labs is hoped to motivate institutions; researcher staff are granted more autonomy to place their R&D on tech markets. The Plenum canvassed other routine topics: basic research, talent development, tech bottlenecks, self-reliance, fostering industry-academia linkages, alongside increasing funding for high-risk, high-reward R&D.
PRC regulations on rare earths, dropped on 29 June, codified state control for the first time. The point is to introduce a unified state planning system to protect resources and the industry via tighter trade control and tougher illicit mining and sales penalties.
In agriculture, the Plenum decreed that rural land contracts would be extended for 30 years. As expected, measures to boost rural development, curb urban-rural income gaps and make development sustainable were foreshadowed. Calls were renewed to coordinate industrialisation, urbanisation, and rural revitalisation alongside moves to unify urban and rural construction land markets.
Despite the summer grain harvest output rising 2.4 percent y-o-y, the 2024 wheat import forecast was revised up to 14 million tonnes, far exceeding the 9.36 million tonnes tariff-rate quota (in-quota tariff is 3 percent, out-of-quota is 65 percent).
The highest import volume since the 1990s is blamed on a global grain surplus driving down global prices, placing PRC producers under mounting pressure. Corn, barley, and sorghum are among imports undercutting domestic alternatives. In a spot of good news, however, the long-suffering pig-raising sector has been in profit for three consecutive months.
In governance, the Central Organisation Department called a nationwide work ‘advancement’ meeting for officials in early July. Ratcheting up political loyalty criteria, it also seeks to tighten examination requirements. Civil servant roles will be further categorised, as the Party imposes ‘scientific’ management on the state bureaucracy.
Political oversight tightened for the military. On 10 July, a CMC (Central Military Commission) Decision on ‘advancing political rectification’ was issued, glorifying the Party Centre’s holistic strategic arrangements for national rejuvenation. Military responsibility protocols around Xi were explained, with personnel selection reshaped to ‘rectify’ military-political culture. Similar policy rhetoric emerged in the Plenum Resolution. Yet the Decision placed an even stronger focus on the makeover of joint operations and civil-military integration.
Amended Emergency Response and Border Health Quarantine laws, passed by the NPC Standing Committee, sum up the COVID prevention/control experience. The command systems and emergency management have been improved; the law now explicitly protects press reporting and public opinion supervision activities. The Customs Administration gained greater clout in health inspections and quarantine; the final version was notably more moderate than the first.
Controversial penalties for acts 'undermining the Chinese national spirit' or 'hurting the feelings of the Chinese nation', not least wearing kimonos or ‘Japanese-style’ garb in public, were deleted in a second amended draft of the Public Security Administration Penalties Law. Citizens are granted a right of defence against unlawful violations.
The draft Civil Compulsory Enforcement Law has yet to have a second hearing, as scheduled. Controversy remains over attributing enforcement authority and balancing the protection of the various parties’ interests. Deemed the 'last mile' in delivering impartial justice, enforcement has long been in disarray in the PRC. The Third Plenum Resolution urges it to become a priority in judicial reform.
The Plenum tightened protection and safety provisions by reiterating the central agenda for environmental governance and climate adaptation. Surprisingly, the Resolution proposes replacing a water resource fee with a nationwide levy (a ‘fee-to-tax’ shift). Whether it would include agriculture remains moot. Tracking the carbon footprints of key items and bolstering compensation for protecting the environment were once again highlighted.
MEE (Ministry of Ecology and Environment), meanwhile, sought public comment on rules for carbon market allocation for 2023–24. While broadly aligned with rules from the previous cycle, the proposal will toughen criteria for firms seeking to carry allowances over and discourage hoarding of quotas.
NHC (the National Health Commission) changed directorship in early July, with Lei Haichao 雷海潮 replacing Ma Xiaowei 马晓伟. Lei has worked in healthcare for over 30 years. His expertise aligns with the Resolution's focus on multi-level care, ‘high quality’ public hospital development, and medical insurance payment reform.
Foreshadowing the Plenum’s support for ‘innovative’ medicines, a 5 July State Council executive meeting approved an ‘Enactment plan supporting a full development chain’ for them. The full text awaits issue; biopharma is deemed at a crossroads. Stepped-up R&D and cost reduction for innovative drugs are the hope, with more national-level policy support.
A national medical insurance standardisation group was set up on 18 July. Using 2020–22 data to recategorise medical services, NHSA (the National Health Security Administration) issued a reimbursement reform plan on 23 July.
Notwithstanding emphasis on education at the Third Plenum, the proportion of education expenditure to GDP dropped for the third consecutive year based on a recently released 2023 MoE budget report. The 2023 National Audit report revealed the extent of the education funding squeeze at the local level. Just short of C¥2 bn from a ‘Nutrition improvement plan' providing meals for rural students, was reportedly diverted in scores of counties to repay government debt, etc.
In a series of offshore visits in July, Huai Jinpeng 怀进鹏 Minister of Education met with the Swiss Minister of Economy, Education and Research and visited counterparts in Uzbekistan, Kazakhstan, and Tajikistan to confirm high-level vocational and STEM education collaboration. These visits aligned with the Plenum’s renewed stress on STEM education, which urged exchanges between top scitech campuses.
The world was jolted through July 2024 by geopolitical dramas involving the PRC, US, Russia and Ukraine. Beijing initially read Biden’s debate debacle and Trump’s assassination survival as presaging a Trump victory in the US election. Biden’s abrupt withdrawal from the race favouring Vice President Kamala Harris left Beijing wrongfooted, as it did much of the world.
The Plenum, in the past focused on long-term domestic economic and social policy, spoke out on geopolitics as well this year, demonstrating an ever-growing convergence of domestic and global concerns. Pledging to pursue the three global initiatives (GDI, GSI, and GCI), the Decision urges ‘leading ‘reform and development’ of the global governance system.’ Reinforcing mastery of foreign-related affairs and, above all, defending PRC presence, investment, and interests in global security governance, feature in the text.
Building neighbourhood ties, Xi Jinping 习近平 paid a state-level visit to Kazakhstan from 2 to 4 July. He attended the 24th SCO annual summit (Belarus joined as the 10th SCO member). On the sidelines, he met counterparts from Uzbekistan, Russia, Kyrgyzstan, Azerbaijan, Turkey, and Belarus, as well as UN Secretary-General Guterres.
In his keynote, Xi urged the SCO to uphold an ‘equal and orderly multipolar world’ and ‘universally beneficial and inclusive economic globalisation.’ Multipolarity and globalisation have lately moved up Beijing’s foreign policy hit parade: Wang Yi 王毅 expounded the two concepts in a January Qiushi article, returning to them at his Two Sessions March 2024 press conference. The Plenum Communiqué (18 July) featured a call for them. The Astana Declaration, adopted by the SCO, includes commitment to ‘creating a more representative, democratic, fair and multipolar world’ as well.
Xi made a further state visit to Tajikistan 4–6 July. The third in recent years, it saw ties promoted to a ‘comprehensive strategic partnership’. Counter to these minilateral advances in Central Asia and Eastern Europe, Beijing welcomed a visit by Ukraine’s Foreign Minister Kuleba 23-26 July.
