A PIVOTAL MOMENT FOR CHINA´S COMMUNIST PARTY / THE ECONOMIST

Pointers for the plenum 

A pivotal moment for China’s Communist Party

Will Xi Jinping keep ignoring good advice at the party’s third plenum?

Will the Communist Party save China’s storm-blown economy? 

That is the question on the minds of investors, analysts and businessfolk—as well as ordinary Chinese. 

It is being asked with increasing urgency, as the sectors that powered the country’s long economic boom look ever more vulnerable. 

Doubts are growing whether China’s rulers are willing to design and execute an effective response. 

When the party’s 376-member Central Committee convenes on July 15th, it will be a chance for China’s leaders to ease such concerns. 

It seems as likely, though, that the meeting will only highlight the gap between the party’s lofty rhetoric and its disappointing actions.

The meeting in July will have all the same trappings of past party conclaves. 

Amid red carpets and party standards, men in drab suits (over 90% of the committee is male) will honour the latest party-speak about “high-quality development” and “new productive forces”. 

The outcome will then be summarised in a cryptic communiqué that will be pored over by analysts and party apparatchiks.

But this meeting is special, not only because the situation in China demands action. 

It will be the committee’s third plenary session since its members were selected for a five-year term in 2022. 

Previous third plenums have led to momentous changes. 

At such a meeting in 1978, Deng Xiaoping set a poor and insular China on a path to reform. 

The third plenum in 1993 entrenched the party’s goal of creating a “socialist market economy”. 

These gatherings do not draft the details of new policies. 

Rather, they set the party’s direction on big issues. 

And just now the issues that confront China are very big indeed.

The storm began in the property sector, once a pillar of China’s economic miracle. 

Now it is being buffeted by a years-long crisis which deepened in May, when prices of new homes suffered their biggest fall in nearly a decade and the decline in property investment gathered pace. 

That has hurt local governments, which rely on land sales to raise money. 

And it has left consumers depressed. 

Sales in the mid-year shopping festival, known as 618 (short for June 18th), declined this year for the first time ever. 

Consumer confidence remains near the depths to which it fell during the pandemic.

To hit its official annual growth target of 5%, China is leaning on exports and industrial investment. 

The authorities have bet on their ability to boost advanced manufacturing. 

Exports are booming for the time being. 

But weak demand at home and growing protectionism abroad make this a risky strategy. 

China’s trade partners increasingly complain that its industrial policy leads to overcapacity and the dumping of low-cost goods on their markets. 

From July, the European Union will impose new tariffs on Chinese electric vehicles. 

And no matter who wins the White House in November, America is likely to impose more restrictions on Chinese trade.

Xi Jinping, the party chief, is not short of advice on how to deal with China’s problems. 

Even party insiders are calling for changes to policy. 

Some want to see fiscal reforms to take the pressure off local governments. 

Others believe Mr Xi needs to show more trust in the market and to boost the confidence of disillusioned private companies, which account for 60% of GDP. 

Entrepreneurs have suffered through years of unpredictable rule-making, while hidden barriers make it nearly impossible for private firms to compete with state-backed behemoths. 

The government needs to give entrepreneurs dingxinwan, or “chill pills”, say some of its official advisers.

Stronger demand for their products might help entrepreneurs relax. 

On this front, too, insiders want the state to take stronger action. 

Mr Xi, who frowns on government handouts to ordinary citizens, refuses to spark the economy with a big consumer stimulus. 

But there are other ways to gin up demand. 

Some advisers advocate lower taxes, liberalising rural land sales or opening up the services sector. 

There are calls for reform of the hukou system, which bars rural migrants from many public services. 

Better state pensions and health care would free consumers to spend more and save less, say others.

A call to action

When the central committee produces its final report, it will probably include signs that China’s leaders are considering some reforms. 

But given the scale of China’s problems, vague allusions to new policies are unlikely to reassure investors or businesspeople. 

They have seen Mr Xi take half-measures when bold ones are needed and fail to pursue supposedly agreed-on new policies. 

As a result China’s leader will have to work harder to rekindle confidence in the economy. 

Rousing rhetoric isn’t enough. 

Action is needed.