Hundreds of Chinese Communist Party (CCP) officials are meeting for the secretive Third Plenum in Beijing, aiming to come up with plans to get the country’s economy back on track.
Much of the world’s media spotlight this week is on the 2024 Republican National Convention (RNC) in Milwaukee, where former President Donald Trump and his fellow party members are making their case to voters ahead of the November election.
But halfway around the world in Beijing, there’s another gathering of party leaders that likely will set the tone for the global economy for the next several years. While the RNC is likely to be a flashy affair broadcast around the globe, the meeting in Beijing is being conducted in secret, with observers only able to make educated guesses about what may take place.
Chinese Leader Xi Jinping and around 370 Chinese Communist Party (CCP) officials are meeting for the Third Plenum of the Central Committee. While the event itself is happening behind closed doors — it’s not even entirely clear which hotel the leaders are meeting at — they are expected to lay out a growth strategy for the country’s struggling economy.
But there are signs that Xi and his CCP cohorts may be struggling with coming up with an agenda. For one, the Third Plenum is typically held every five years, providing an opportunity for the government to unveil its economic policy plans and reforms. But this one has been delayed for months, perhaps signaling that leaders may not know exactly what sort of economic policy they even want to implement.
And there are plenty of problems to be tackled, something that is driving a lot of the unease in China. The country is in the midst of a real estate downturn, which is having a cascading effect throughout the economy. Growth has been sluggish, local government debt is high, and there’s weak consumer demand.
CNN outlined the stakes:
Economic problems on the back of years of stringent pandemic controls have triggered mounting social frustration, as well as questions about the direction of the country under Xi Jinping, its most powerful leader in decades.
Those questions have been underscored by a recent shake-up in the upper echelons of Xi’s government that saw three ministers and a handful of top military officers removed from posts or investigated, a situation that some observers of China’s opaque political system believe contributed to the plenum’s delay.
How Xi and his top officials choose to address the country’s economic challenges will have significant impact on whether they can continue to raise quality of life, and public confidence, within China.
Victor Shih, an expert in Chinese politics at the University of California San Diego, told Politico there’s a growing chorus of people within China calling for a “reorientation of economic policy.” But massive change is unlikely, and the tools that Xi does have at his disposal are limited:
Xi’s policy options include government spending cuts, which would cut into Beijing’s military expansion efforts and support for state industries, or raising corporate and personal income taxes. “But if you tax businesses a lot more, are they still going to want to be in China? And if you tax personal income tax more, then the wealthy people who are already leaving China will leave in droves,” Shih added.
Another scenario, then, is something that the CCP and Chinese government often fall back on when facing economic woes: Making lots of stuff and exporting it abroad. This is already happening, the New York Times explains:
Provincial governments and national ministries have been rushing for months to announce how they want to carry out Mr. Xi’s latest economic slogan: harnessing “new quality productive forces” to achieve more sustainable growth.
In practice, that has meant building factories. China already produces almost a third of the world’s manufactured goods, but is making a further push. Among its plans, China intends to deploy more robots and other automation to offset a shortage of workers willing to toil in factories.
The solar panel, electric car and battery industries, all favored by the government these days, are replacing older industries more closely tied to the real estate sector, like steel and cement manufacturing.
This is a problem for the United States. China already maintains massive industrial overcapacity in these sectors, producing far more of these goods than it needs for its own internal uses, and then prices these products far below their fair value in foreign markets. The goal isn’t to actually turn a profit, it’s market share. And it creates and maintains global monopolies that advance China’s geopolitical strength.
American industries like paper and glass were left devastated by Chinese overcapacity, while heavy industries like steel barely held on. Emerging U.S. industries like electric vehicles and solar panels aren’t likely to survive if Chinese overcapacity goes unchecked; it’s one of the reasons why we’ve been warning for months that allowing Chinese autos to enter the U.S. market will lead to an “extinction-level event” for the American auto industry.
U.S. officials are paying attention. Jay Shambaugh, the undersecretary for international affairs at the Treasury Department, gave a well-timed speech last week criticizing China’s overcapacity, noting that “Chinese policymakers’ clear preference today is to push manufacturing even further as China’s growth driver, which means taking on an increasingly outsized share of global production – with other countries’ manufacturing sectors needing to shrink to compensate.”
The Biden administration has taken steps to mitigate the damage of Chinese overcapacity, Shambaugh said, pointing to increased tariffs on Chinese imports in sectors like EVs, solar, and steel, along with investments in domestic manufacturing via the CHIPS and Science Act, Inflation Reduction Act, and the Bipartisan Infrastructure Law.
“We are not isolated in seeking to address negative spillovers from China’s non-market practices. The EU and Turkey have also recently imposed tariffs on Chinese EV imports; Mexico, Chile, and Brazil have taken trade actions on Chinese steel; and India uses tariffs and other trade tools to defend its solar manufacturers from Chinese dumping,” Shambaugh said. “And while each country had their own concerns and needs, the underlying reason is undeniable. As the G7 Leaders and Finance Ministers have stated – China’s overcapacity ‘undermines our workers, industries, and economic resilience and security.’ The United States will act, and we won’t be alone.”
Facing that expected global response, the CCP’s go-to option of making-more-stuff-and-exporting-it may not prove to be the reliable fix it has been in the past.
Regardless, whatever is announced from this week’s plenum will reverberate through global markets, and have a big impact on how the United States opts to deal with China moving ahead. We’ll keep a close eye on what’s happening in Beijing and provide an update accordingly.