China’s third plenum begins this week, running from Monday to Thursday. China’s ruling Communist Party usually holds seven plenums every five years, and the third plenum has in the past been a forum for important economic and political announcements. This third plenum is attracting global attention for its potential to outline several key initiatives.
What is the third plenum?
The third plenum is a high-level plenary session where the Central Committee of the Communist Party of China gathers to discuss and announce its policies. Historically, it has rubber-stamped decisions made by the Committee’s Politburo. But recently it has formalised changes led by President Xi Jinping. Past meetings have marked important turning points, such as China's opening to foreign companies in 1978 and the yuan’s liberalisation in 1993.
Why is this third plenum special?
This plenary session is particularly important because it comes as China navigates a complex economic situation. An expected post-pandemic recovery has not occurred, and the real estate market, once nearly a third of China’s GDP, has lost significant value, negatively impacting citizens' savings and investments. Domestic consumption remains weak despite policymakers' efforts, and global challenges like falling export demand and tariffs from the US and Europe are exacerbating the situation.
However, investors hoping for policy measures to revive China's economy may be disappointed. Analysts at JPMorgan expect incremental changes, focused on securing supply chains and narrowing the urban-rural economic divide, rather than transformative reforms. Geopolitical tensions and Xi's emphasis on ideology over economic growth add to the uncertainty.
What should investors pay attention to?
Investors will be looking for signs of a policy reset. They’ll be gauging market trends and trying to determine if China has moved past the worst of its housing crisis and economic weakness. However, Xi's cautious approach could be an obstacle to any drastic changes.
Overall, the third plenary session will be crucial for China's economic future, but is perhaps more likely to deliver strategic adjustments than radical changes. Investors and observers will be monitoring developments closely to assess the direction and impact of any upcoming policy decisions.
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