Wolf Worriers: Repeated Cries for Reform Fail to Convince at Third Plenum

Executive Summary:

• The Resolution from the Third Plenum focused primarily on economic reform but reinforced the Party’s existing strategy rather than announcing a change in overall direction.
• The Resolution does nothing to mitigate concerns about the real estate sector, weak domestic demand, subsidized export-oriented manufacturing, and plans to achieve dominance in critical technologies. The two longest 60 “specific tasks” focus on “deepening reform of the science and technology system” and emphasizing the role of the state in the economy.
• A new section on national security, absent in the equivalent document from 2013, indicates the increasing integration of economic and military strategy, suggesting the balance between development and security remains tilted toward security.
• Language on foreign affairs, rare for a third plenum document, also indicates growing concerns about the international environment and a need to actively reshape the global system.

The Central Committee of the 20th Party Congress held its third plenary session last week from July 15 to July 18. The results of the meetings, which focused on comprehensively deepening reform and achieving Chinese-style modernization, resulted in a “Communiqué (公报)” published at the conclusion of the session last week, followed by a more substantive “Resolution (决定)” on Sunday evening and an “Explanation (说明)” from Chinese Communist Party (CCP) General Secretary Xi Jinping, who oversaw all aspects of the plenum.

The Third Plenum was the first such meeting since November 2013, and the first since 1989 to be held in the summer. [1] Anticipation was high in some quarters that the July meetings would prove to be a breakthrough for economic reform, as third plena usually focus on economic issues, the 2013 iteration had unveiled an ambitious economic policy agenda, and the economy of the People’s Republic of China (PRC) has been beset by extensive problems of late. Such anticipation proved to be misplaced, however. Third plena are rarely catalysts for transformational change. Instead, they cement and expand on existing policy themes (China Brief, November 20, 2013; Asia Society, July 10). Domestic projections from outside the propaganda apparatus were cautious in their assessments prior to the meetings (Gelonghui, July 11). That these predictions were largely borne out by the Resolution underlines this fact. Consequently, markets reacted in negative tones once financial analysts found “little signs of a major pivot or reassessment,” with Chinese stocks suffering their biggest decline in six months (Barrons, July 22; Bloomberg, July 23).

There are two key drivers of the consensus reaction from the Third Plenum. One is disappointment at Xi’s decision to double down on policies that have done so much to exacerbate structural problems within the PRC economy. The other is a lack of trust in Xi’s leadership and his ability to execute. Part of this latter reason stems from precedent. The Third Plenum of the 18th Party Congress in 2013 was unveiled to much fanfare, but according to some analyses, reforms in most of the touted areas “stalled or were eventually reversed” (Rhodium Group, July 9). Another part of this is the increasing lack of transparency within the PRC system, of which last week’s plenum is illustrative. Originally expected to take place last November, no mention of a timeline for the meetings appeared until June, and no explanation was given for the unusual schedule. Such apparent volatility and uncertainty do little to reassure. [2]

Resolution Prioritizes the State in Economic Reforms

The Resolution (or “Decision”) published at the end of last week provided a comprehensive overview of reforms, running the gamut from economic to cultural policy and from fiscal instruments to military procurement (People’s Daily, July 22). The document already has its own hagiography. According to Party mouthpiece People’s Daily, the Resolution was drafted by a team of around 70 individuals, beginning back in December 2023. Input came from 78 research reports produced by 55 central departments and units alongside 16 regional investigative research groups. Several rounds of gathering opinions and revising the draft eventually led to the final version, which arrived on July 18 (People’s Daily, July 23).

In terms of structure, the roughly 20,000 characters-long document is organized into 15 sections, each of which contains three to five “specific tasks (具体任务)” that number 60 in total, [3] covering 336 reform measures (People’s Daily Online, July 24). According to Xi’s Explanation, the Resolution should be read as having three parts: Part one, a general exposition of the plenum’s themes, found in the first section of the document; part two, which includes the specific policy measures laid out in sections two through 14; and part three, which discusses strengthening the Party’s leadership over reform, found in section 15 (People’s Daily, July 22).

Assessing the relative importance of each topic within the document is not an exact science. One method for intuiting the Party’s priorities is to analyze the ordering of topics and the space given to each. In the substantive, second part of the Resolution, the first half focuses on various aspects of economic policy (sections 2–7); the next portion is dedicated to sociopolitical concerns (sections 8–11); and a short addition on the environment (section 12) precedes a discussion on security and military matters (sections 13–14). From this, it is clear that economic concerns were the overriding focus of the meetings, something that tallies with Xi’s own précis, which highlighted economic structural reform, innovation, comprehensive reform, balancing development and security, and the Party’s leadership, as the key themes to emerge from the plenum (People’s Daily, July 22).

The sections themselves also vary in length and scope. Some, such as Section 12 on “deepening reform of the system of ecological civilization,” only comprise three tasks. Others, meanwhile, contain five. Those at the longer end include section 3 on “strengthening the mechanism for promoting high-quality economic development (健全推动经济高质量发展体制机制),” section 7 on “improving the mechanism for high-level opening up (完善高水平对外开放体制机制),” section 9 on “improving the system of socialist rule of law with Chinese characteristics (完善中国特色社会主义法治体系),” and section 11 on “improving the system for safeguarding and improving people’s livelihoods (健全保障和改善民生制度体系).” These all suggest a concerted institutional focus, specifically on refining and building on existing institutions rather than creating new ones. [4]

Finally, this analysis can be extended down to the 60 specific tasks, whose lengths also vary widely. [5] At this level, the longest is the 14th, which focuses on “deepening reform of the science and technology system (深化科技体制改革).” The Party’s plans for rescuing its economy and building up its comprehensive national power largely rest on a bet that it can capitalize on opportunities presented by emerging technologies to lead the world in a new round of techno-industrial revolution. To this end, almost 70 percent of local government industrial investment funds that have been set up are invested in S&T manufacturing, according to one domestic analysis (Gelonghui, July 11). In this light, the space dedicated to this specific task makes perfect sense. Two more lengthy tasks are (17) and (18), which focus on reforms to the fiscal systems and financial system, respectively, both of which will be crucial for improving the health of the PRC’s economy. An upcoming financial law, signaled here, will be worth watching out for.

Two other lengthy “specific tasks” are (5) and (6), the first two in the substantive second part of the Resolution. Both appear in section two, titled “building a high-level socialist market economic system (构建高水平社会主义市场经济体制).” In this, the first place in the Resolution that focuses on economic policy, task (5) is unambiguous about the primary importance of the state in the economy, and the prioritization of “strategic” sectors and industries. It starts out by referencing the “two unwaverings (两个毫不动摇),” which refer to “consolidating and developing the public sector of the economy; and encouraging, supporting, and guiding the development of the non-public sector of the economy (毫不动摇巩固和发展公有制经济，毫不动摇鼓励、支持、引导非公有制经济发展).” While this formulation does underline the importance of the private sector (the second “unwavering”), it nevertheless makes clear that it is considered secondary to the state sector. This prioritization is echoed in the policies that are discussed next. Instructions concerning state-owned assets, firms, and capital, which include “promoting the concentration of state-owned capital in important industries and key areas that have a bearing on national security and the lifeblood of the national economy (推动国有资本向关系国家安全、国民经济命脉的重要行业和关键领域集中),” are covered first. Only then are policies to support the private sector addressed.

Task (6) is mostly dedicated to creating a unified national market—something that was also promised in the 2013 Resolution but has been stymied by strong vested interests within the Party and the government. Xi now declares that he has been successful in “breaking down the barriers erected by vested interests (突破利益固化藩篱),” but proof of this will come in the implementation phase. Task (6) also includes a short paragraph at the end on improving domestic consumption. This is something that (mostly overseas) economists have called for over the last several years. However, buried at the end of this task, and as the only reference to consumption in the Resolution, it is clearly not perceived as a priority by the Party leadership.

National Security Additions

In a departure from the composition of the 2013 Resolution, the latest Resolution contains a new section on “advancing the national security system and the modernization of capacity (推进国家安全体系和能力现代化)” (section 13). While some have read the Resolution as readjusting the balance between security and development in the PRC system back toward the latter (see Twitter/ZhangTaisu, July 22), the addition of this section and its emphasis on the inseparability of the two suggest that security is increasingly factored in as an underlying economic consideration. For instance, this section contains calls for implementing the “mutual positive reinforcement of high-quality development and high-level security (高质量发展和高水平安全良性互动).” It is notable, too, that one of only two standalone references to Artificial Intelligence (AI) (that is, not part of a list of key technologies) appears here, in a pledge to establish an AI safety regulatory system.

In a related departure for third plena, this section also covers some foreign affairs-related issues. These include promoting security in “neighboring regions,” of overseas interests and investments, and by deepening law enforcement cooperation, global security governance, and safeguarding the PRC’s maritime rights and interests. Importantly, task (53) includes strengthening “mechanisms for countering foreign sanctions, interference, and long-arm jurisdiction (反制裁、反干涉、反‘长臂管辖’机制),” something that is at odds with the desire articulated in sections 3 to “improve the convenience for foreign investors to make equity and venture capital investments” and in section 5 to “foster a first-rate business environment that is market-oriented, law-based, and internationalized, and protect the rights and interests of foreign investors in accordance with the law (营造市场化、法治化、国际化一流营商环境，依法保护外商投资权益).” [6]

Other parts of the Resolution also touch on security-related issues. Section 14 covers national defense and military reform. Beyond reiterating requisite phrases, such as the People’s Liberation Army’s “centenary goal” and emphasizing the need for political loyalty within the PLA, much of this section is taken up by instructions for the military-industrial complex, especially for equipment development and procurement. The call to “accelerate the development of strategic deterrence forces (加快发展战略威慑力量)” likely refers to doubling down on amassing the PLA’s nuclear arsenal. This focus could also reflect recent corruption-related issues in the PLA Rocket Force that have impacted procurement—last week’s meetings also saw former defense minister Li Shangfu (李尚福), and former senior officers in the PLA Rocket Force Li Yuchao (李玉超) and Sun Jinming (孙金明), expelled from the Party for serious disciplinary offenses (Xinhua, July 18).

Conclusion

The inauspicious mood music that surrounded the lead-up to the plenum continued in the week after its conclusion. Observers worry that, as in 2013, the Party will be unable to pursue the more ambitious of its policy proposals and is crying wolf once more. Whether these concerns are justified will become clear in the weeks and months ahead. Indications of more specific policies and relative successes or failures of implementation will be judged by parsing Xi’s speeches from the plenum when they are published in Qiushi, the Party’s theory journal, statements from individual state ministries and local governmental organs, and economic indicators. For now, the Party will shift to mobilizing the government to meet Xi’s goals by 2029, an ambitious time frame compared to the schedule articulated in the 2013 Resolution, but one throughout which he will remain in power.

Notes

[1] The third plenum of the 19th Party Congress was held in February 2018, but focused on topics usually associated with second plena, namely, State Council leadership appointments and institutional reform.

[2] There has been speculation about whether the plenum was “delayed,” as it has been widely characterized in the media, or not. If it was delayed, there is even less clarity on why that might be. The academic Wu Guoguang has suggested that Xi could have intentionally postponed the plenum to resolve internal debates about the policy direction, only holding the plenum once consensus had been reached (Asia Society, July 25).

[3] The Decision document from 2013 also comprised 60 “specific tasks.”.

[4] This perhaps contrasts with the 18th Third Plenum, which saw the establishment of a National Security Council and a Leading Group on the Comprehensive Deepening of Reform (see China Brief, November 20, 2013).

[5] Other possible explanations are available. It is possible that length could also indicate more technical policies—domains do vary in the level of complexity of preexisting policies or those required to achieve the intended results.

[6] For a fascinating paper that looks at the conflicts between further opening up and the prerogatives of the Party-state, see: Jia, Mark (2022). “Special Courts, Global China.” Virginia Journal of International Law Vol. 63:3, 559–622. https://supremepeoplescourtmonitor.com/wp-content/uploads/2024/07/c860c-vol_62.3_article_jia.pdf