Some Grand Strategy? – Third Plenum Concludes
Covering Chinese policy and rhetoric on external events and actors, military and security issues, economy and technology, and bilateral relations with India.
A couple hours ago, the authorised Communiqué of the Third Plenary Session of the 20th Central Committee of the Communist Party of China was published, and in this edition, I am doing a quick breakdown of some of the narrative discussed therein, and will eventually delve into points of interest in subsequent editions.
To begin with, the Communiqué declares that the Third Plenum reviewed and approved the “Decision of the Central Committee of the CPC on Further Comprehensively Deepening Reform and Advancing Chinese Modernization,” the document that was intended to be released with the conclusion of the Plenum.
Next, and last in order, was a discussion on dismissals and investigative cases. Given the slew of corruption-related cases that have been under deliberation specifically in the Chinese People’s Liberation Army in the past year, a mention of the cases under review was a must. And as per the Communiqué, “The plenary session reviewed and approved the Central Military Commission's investigation report on the serious violations of discipline and law by Li Shangfu, Li Yuchao, and Sun Jinming, and confirmed the disciplinary actions of expulsion from the Party for Li Shangfu, Li Yuchao, and Sun Jinming previously decided by the Political Bureau.” The announcements surrounding the dismissal of PLA Rocket force commander Li Yuchao and Chief of Staff Lieutenant General Sun Jinming from their respective posts have been around for a while. Li Shangfu’s dismissal for corruption came about at a Politburo meeting in June. Interestingly, the crimes of Wei Fenghe, the defence minister preceding Li Shangfu, were also announced at this meeting. However, Wei finds no mention in the Plenum Communiqué.
The highlight, in this regard, is that former Foreign Minister Qin Gang was not dismissed for corruption, but rather, his “resignation from the Central Committee was accepted.” He retains his party membership, while the PLA and MoD officials (discussed above) have been dismissed dishonourably through and through. I guess Qin was much closer to Xi Jinping than Li ever was, even though both their promotions were considered possible because of their proximity to Xi.
The Communiqué begins by acknowledging the context in which China must place its reforms and economic trajectory – a “a severe and complex international environment,” and an “arduous environment” that does not bode well for the “heavy tasks of domestic reform, development, and stability.” Since 2021, China’s articulation of its external environment has been grim, and the narrative surrounding a “severe and complex” external environment (read: the People’s Daily’s QnA on ‘Xi Jinping Thought’ from August 2021) is oft repeated. Another element of such rhetoric is that the external environment is “unpredictable” (read: the People’s Daily report on Xi’s address to a Central People’s Political Consultative Conference meeting in 2023) which is missing from the Communiqué. This maybe because the challenges facing China vis-à-vis the global markets shrinking, US and its allies practicing ‘de-risking’, and China’s military belligerence creating repercussions, are starkly clear.
Next, it is argued that the “current and future period is a critical time for fully advancing the great cause of building a strong country and national rejuvenation through Chinese modernization.” At a time when the domestic and foreign environment is so grim, the criticality of the timing lies in the idea that soon, the impacts of complex elements such as ‘de-risking’, protectionism, etc. will materialise, and that will create domestic hurdles vis-à-vis growth of export, investment and consumption. Given also that the US-China technological competition is in full swing, China has to seize the moment, lest it miss the bus. The articulation, in this regard, is again starkly different from what was perhaps iterated by Xi at the 19th Party Congress in 2017, where he said, “China is still in an important period of strategic opportunity for development; the prospects are bright but the challenges are severe.” Today, the prospects seem bleak and challenges, irreversible.
In articulating the direction of comprehensive reforms, the Communiqué lays emphasis on “emancipating and developing social productivity,” and “stimulating and enhancing social vitality.” It was in 2015 itself that Chinese scholars began acknowledging that China is in a higher stage of catch-up process vis-à-vis developing countries, where rapid rates of growth cannot be sustained for a long time. During this period, traditional markets are saturated, production factors cost much more, and the entrepreneurial focus is on innovation rather than high-quantity production. In this light, because growth deceleration becomes the key phenomenon, a shift in growth models becomes pertinent. It is precisely this shift that calls for “unleashing productivity and social vitality,” and in the context of the Third Plenum, this is equated directly with the creation of “new quality productive forces.”
Xi Jinping has defined new quality productive forces as those in which innovation plays a leading role, allowing one to break away from the traditional economic growth mode. New quality productive forces also are defined as having characteristics of high technology, high efficiency and high quality. The emphasis on this concept has essentially meant stronger calls for investments in original and disruptive technologies along with basic research. The goal is not only to ensure self-reliance but also self-strengthening, given that technological innovation is increasingly being viewed as not just critical for China’s future growth but also key to geopolitical contestation. In the run up to the Plenum, inspection tours by key Politburo Standing Committee members, Premier Li Qiang and Vice-Premier Ding Xuexiang, have also stressed on the significance of technological development.
In this regard, “high-quality development,” too, found special emphasis at the Third Plenum. As explained by the State Council Information Office in May 2024, high-quality development means shifting the growth model from “crude to intensive,” with a focus on innovation. It will no longer be mainly driven by traditional factors such as labor, capital and land but by new innovative factors such as information technology, big data and artificial intelligence. In this regard, the Plenum upheld high-quality development as a “top priority for building a modern socialist country in all respects,” while linking its achievement with factors such as the “integration of the real economy and the digital economy,” improved services industry, and “enhancing the resilience and security level of industrial and supply chains.” The vitality of this shift is well-understood, given that China has both the shrinking global markets and declining productivity to face, coupled with a potential issue of overcapacity.
Legislative reform, too, finds special mention in the Communiqué. Its pillars include “coordinating the reforms of legislation, law enforcement, judiciary, and law compliance, improving mechanisms that ensure equality before the law, promoting the spirit of socialist rule of law, safeguarding social fairness and justice, and comprehensively advancing the rule of law in all aspects of national work.” This is not surprising considering the 2024 legislative plan that was released by the Standing Committee of the National People’s Congress in May clearly highlighted that “promoting comprehensively deepening reform, developing national defense and the armed forces, safeguarding national security, and improving the foreign-related legal system,” will remain consistent agenda items alongside usual reform and legal review measures.
Cultural confidence was also reiterated at the Plenum. Of the “four confidences” in the party-state’s path, theory, system, and culture, the confidence in China’s “fine culture and tradition” is a pillar of Xi Jinping’s legacy. With the announcement of a ‘Xi Jinping Thought on Culture’ last year, as well as the launch of a ‘Global Civilisation Initiative’, China has both domestically and externally promoted confidence in a nation’s own cultural path. The Plenum interestingly also mentioned that “adapting to the rapid development of information technology” is part of steering national culture, which effectively translates to more party control over how its citizens interact with online content, digital games, and more.
Last, but not the least, the list of economic and politico-ideological priorities highlighted is massive, but nothing is new, and the following is a brief overview of the same:
To begin with, the Plenum upheld that development and security are interlinked, which indicates that the securitisation of economic policy is not going anywhere. However rhetorical it may sound, the reality is that threat to security has become a ubiquitous concern in all aspects of governance in China. In that regard, the Communiqué instructs, “We must fully implement the overall national security concept [which is celebrating its 10-year anniversary in 2024], improve the systems and mechanisms for safeguarding national security, achieve a positive interaction between high-quality development and high-level security, and ensure long-term national stability.”
Further, no surprises in that the plenary session “emphasized that the leadership of the Party is the fundamental guarantee for further comprehensively deepening reform and advancing Chinese modernization.” Because economic reform is deeply interlinked with the leadership of the party-state, reaffirming commitment to the party and its leader is like a precursor to ensuring that reforms continue, whether they are stabilising or not.
The party cadres were clearly instructed to follow a few “selfs” – self-revolution, self-purification, self-improvement, self-innovation, and self-enhancement. The goal is to ensure that even though cadres feel free to innovate with party guidelines, they utilise incentives responsibly, reach intended outcomes, and improve if there is divergence.
The top-level economic priorities laid out are as follows – effectively implement macroeconomic policies, actively expand domestic demand, “develop new productive forces according to local conditions,” accelerate the cultivation of new momentum for foreign trade (indicating that exports will continue be important, regardless of the reduced global demand), steadily advance green and low-carbon development, effectively ensure and improve people’s livelihoods, and consolidate and expand the achievements of poverty alleviation.
On three crucial fronts, the Plenum discussed “implementing measures to prevent and resolve risks” – real estate, local government debt, and small and medium-sized financial institutions. It seems from the language that no bailouts are likely to be announced for either the property sector or provincial governments, given that the focus is on implementing current measures.
Foreign investment and the “high-quality development of the Belt and Road Initiative” have been laid focus on.
Foreign capital has been recognised as crucial for the continued growth and development of the Chinese economy. With foreign investor sentiment adversely affected by structural challenges, the Politburo meeting highlighted that the Third Plenum will intensify efforts to attract and use foreign investment. At the end of 2023, net foreign investment inflows into China stood at a historic low of US $42.7 billion, a number last seen in 2000. Further, in the first quarter of 2024, the number continues to show a decline, with a quarter-on-quarter decline of 56 per cent.
In this regard, steps have already been taken to address concerns related to foreign capital inflows, such as the latest “temporary adjustments” to various laws by the National People’s Congress Standing Committee in Pilot Free Trade Zones. Another such adjustment is to the PRC Law on Regulation and Supervision of the Banking Industry. As per the adjustment, foreign-invested financial institutions in the banking sector are no longer required to undergo an elaborate approval process to either establish a new branch or terminate operations of an existing branch at local levels in Pilot FTZs. The goal remains to “optimise the business environment” for foreign capital. However, this is likely to remain a challenge for China, considering adverse geopolitical currents.
On BRI, a new approach is in the making, which emphasises “small and beautiful projects.” Massive scale projects with huge funding amounts are both garnering backlash, and are becoming impractical amid a slowdown in the Chinese economy. Hence, the focus on “profitable projects” has become flagship of BRI in the “New Era”.
As the ‘Decisions’ document from the Plenum is awaited, it is significant to acknowledge that reforms will not materialise overnight, and neither will breakthrough announcements indicate a reversal of the structural slowdown of the Chinese economy. What is also unlikely to change is any relenting of political control over the economy. The Party’s grip over capital is not likely to ease. One should be on the lookout for specific statements around investments in science and technology and the system of technology governance, steps to attract foreign capital, demand-side measures to boost domestic consumption, tangible changes to the Hukou system, specific measures on boosting support for private sector and employment and any specific remarks around geo-economic environment, particularly the issue of overcapacity.
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