China's Economic Reforms: New Plans to Halt Slowdown

Beijing, July 14 (PTI) China's ruling Communist Party headed by President Xi Jinping will begin its four-day key economic review meeting on Monday to finalise a new set of economic reforms to revitalise the country's economy hamstrung by the persistent slowdown that has sparked concerns at home and abroad.

The meeting called the third Plenum to be attended by 376 full and alternate members of the Communist Party of China (CPC) Central Committee will meet from Monday to Thursday to primarily examine issues related to comprehensively deepening reforms and advancing Chinese modernisation, according to an official announcement earlier.

The meeting to be presided over by President Xi who also heads the party aroused global attention as the world's second-largest economy worth USD 18 trillion was unable to shake off its slowdown mode, especially after the COVID-19 lockdowns.

The party's powerful Politburo presided over by Xi finalised the draft for the discussion at the Plenum, CPC's top economic policy body on June 27.

The draft has thoroughly analysed the new situations and problems in advancing Chinese modernisation and scientifically planned the overall arrangements for further deepening reforms, official media reported.

While announcing the meeting, the Politburo, in a rare admission, spoke of the grim economic outlook in the country due to insufficient demand and uncertain external environment.

The meeting spoke of the difficult situation at home and abroad for Chinese enterprises.

Referring to the increasing measures by the US and EU to restrict Chinese high-tech products especially electric vehicles (EVs), the meeting “cautioned against challenges, such as insufficient demand, high operation pressure facing enterprises, and an external environment that is more complicated, grimmer and more uncertain”.

In a bid to come out of the stagnating economic situation, China in the last few years focussed its resources to build a massive overcapacity in EVs which it hopes to sell around the world. But both the US and EU have slapped heavy tariff duties and restrictions to limit Chinese imports.

Amid a difficult economic situation, the CPC wants to build a “high-standard” socialist market economy by 2035.

The system and capacity for governance will be basically modernised, and socialist modernisation will be basically achieved by 2035, the announcement said.

The IMF top brass which reviewed the status of China's economy with Chinese officials in May here cautioned Chinese leaders that the country's economy faces further slowdown and may contract to 3.3 per cent by 2029 due to ageing and slower productivity growth.

“China's economic growth is projected to remain resilient at 5 percent in 2024 and slow to 4.5 percent in 2025” IMF's First Deputy Managing Director Gita Gopinath told media after the IMF's annual review of China's economic policies.

Over the medium term, growth is expected to decelerate to 3.3 per cent by 2029 due to ageing and slower productivity growth, she said.

“Furthermore, risks are tilted to the downside, including a greater- or longer-than-expected property sector adjustment and increasing fragmentation pressures,” the Indian-American economist, said.

China's property sector, the dominant component of the Chinese economy, in the last few years turned out to be its Achilles heel causing widespread crisis as many of the top builders went bankrupt.

After prolonged dithering, China finally moved in to address the near collapse of its mammoth property sector by allotting billions of dollars to buy back unsold homes and repurchase idle lands to resurrect its bankrupt real estate sector, which once constituted the mainstay of its economic growth.

The People's Bank of China has established a 300-billion-yuan (about USD 42.25 billion) re-lending facility for government-subsidised housing projects.

Gopinath said the ongoing housing market correction, which is necessary for steering the sector towards a more sustainable path, should continue, she said.

"China faces significant fiscal challenges, especially for local governments” she said, referring to the huge debt burden by the provincial and local governments in the country.

Sustained fiscal consolidation over the medium term is needed to stabilise debt while restructuring the unsustainable debt of local government financing vehicles can help reduce fiscal strains, she said.

According to Luo Zhiheng, chief economist at Guangzhou-based Yuekai Securities, China's hidden local debt was estimated to be at a whopping USD 4.44 trillion.

Gopinath also underlined the US, EU and global concerns over overcapacity of the Chinese manufacturing sector especially, E-vehicles which China is pushing in a big way in the global markets bringing down their prices and urged Beijing to scale back such policies.

“China's use of industrial policies to support priority sectors can lead to a misallocation of domestic resources and potentially affect trading partners”, Gopinath said.

“Scaling back such policies and removing trade and investment restrictions would raise domestic productivity and ease fragmentation pressures. In this context, China should continue its efforts to strengthen the multilateral trading system, particularly the World Trade Organisation,” Gopinath said.

Steve Barnett, the IMF's senior resident representative in China, said the plenum should look to continue with economic reforms to boost productivity as it rolls out plans for the next decade.

“If we think of the third plenum as a time to look at medium- and long-term reforms, if I could pick just one [pressing issue to focus on], it's to boost productivity,” Barnett said.

The way to do that is to continue with economic reforms, he added.