2024-07-20 11:29:08
China’s economy is in trouble and the Communist Party is making this unusually clear. For head of state Xi Jinping, the future is a balancing act.
When the Central Committee of the Communist Party of China (CP) meets, not much usually gets out. The 194 men and eleven women are a tight-knit group. They implement the decisions of the party congress and represent China to the outside world. Above them is the only party’s Politburo, headed by President Xi Jinping. So if anything does get out, it is only closely coordinated messages. Most of them are little more than empty political phrases. Not so this year.
The party is in trouble because China’s economy is weakening. The deputy director of political research of the Central Committee, Tang Fangyu, made this unusually clear on Friday: “We have to overcome numerous difficulties and obstacles,” he explained after the so-called Third Plenum of the body. The main problems are with modernizing industry and promoting economic growth.
So much openness is unusual. The political leadership in Beijing seems alarmed. China’s government is under pressure to stimulate the economy, which is suffering from a real estate crisis, uncertainty on the labor market and a slump in consumption. You can read more about the Chinese real estate crisis here. In the second quarter, economic growth fell short of expectations. Gross domestic product rose by 4.7 percent from April to June compared to the same period last year. This is the slowest rate of increase since the first quarter of 2023.
Reforms are therefore needed: President Xi Jinping must therefore attempt a balancing act that he will probably not like. And many questions remain unanswered.
At the so-called Third Plenum of the Central Committee, the party sets new lines for economic and foreign policy every five years. This meeting normally takes place in the autumn, so it should have been held last year. But this time the party let much more time pass – around nine months. This can probably be attributed to conflicting ideas about economic policy. “The deeper the reform goes, the more complex and acute the conflicts of interest it touches on become,” said Tang.
Contrary to what experts initially expected, China’s economy has not yet fully recovered from the coronavirus pandemic. The strict zero-Covid policy with isolationist measures still weighs heavily on it. Since the 2008 financial crisis, the state has also taken on high levels of debt, particularly for extensive infrastructure projects: more than 40 percent of economic output goes into roads, housing construction or railway lines. It remains questionable whether all of these investments are profitable.
The previous focus of Xi’s politics makes matters worse: at the Third Plenum in 2013, the head of state prescribed a course for China that focused primarily on national security. For the state, this primarily meant strengthening the party as the ruling body, but for the population it meant even more extensive measures for social control. This prevented innovation in the economy – and deterred foreign investors.
This is the balancing act that Xi apparently wants to attempt in the future. In its communiqué on the Third Plenum, the Communist Party writes that it is necessary to implement “the positive interaction between high-quality development and high-level security.” Up to now, security has always taken priority in this Chinese symbiosis, but that may change in the future. On the other hand, the party makes it clear in its communiqué that it wants to continue to exercise strong control over public opinion in the coming years.
This conflict is one of the many open questions that the Third Plenum of the Communist Party has left behind. The party is not yet revealing details of reforms for an economic recovery. These will probably only follow in the coming weeks and months.