If I uttered the word plenum, you might think I was a surgeon or arcane barrister, and not a casual observer of Chinese politics. The ‘Plenum’ is held seven times during the five yearly policy making cycle that aims to set the long-term direction of the development of China by the Communist Party.
Amidst the generalised chaos of Western politics in recent weeks, China held its most recent plenum (July 15-19), and this was the third plenum of this policy cycle, which typically focuses on economic policy. Though the outcome appeared to have been something of a damp squib, it is worth reflecting on .
To many international observers (note that China is becoming much less transparent in its policy process and in the availability of detailed macro data), there are three recurring threads.
The first is to ‘make China more like Denmark’ (my words not the CCP’s), in other words to deepen its social welfare net and to limit inequalities. This has long been a goal of the CCP. In 2018, in the last chapter of the Levelling we wrote that ‘Another approach is to develop social infrastructure that encompasses many of the elements of intangible infrastructure, such as health-care spending, education, pension plans, and broader financial services. ……Motivation for building social infrastructure in China may come from stress points uncovered during China’s next recession. As such, it would be a logical chapter in China’s path to development, and not at all unlike Franklin D. Roosevelt’s New Deal. The New Deal was a watershed in the United States in many respects, one of which was that it marked the full evolution of the United States from an emerging to a developed nation.
The building out of a social infrastructure in China remains a significant project, as does the flattening out of Chinese society. Granted that I wrote the above paragraph in 2017/18, it is striking that a number of basic reforms are still missing – there is very little reform of the hukou system (household registration system that allows internal migrants to work in cities) and children of migrant workers to cities do not receive the same social benefits and education as children of city parents do. In addition, little accommodation has been made for the fact that the ageing of the population will strain the social safety network. In that regard China looks a little like France!
So, like the US under Roosevelt, the creation of a formal ‘new deal’ type social infrastructure, if it happens, could be a (positive) turning point for China.
The second challenge is to make China more like Silicon Valley. The plenum underlined the importance of maintaining a laser-like focus on ‘high quality development’, which translates as the need to make China the leader in new, strategic technologies. In this respect it is conceptually like the EU’s idea of strategic autonomy, but far far more serious in implementation.
In addition, the wording of the plenum drafts references ‘fierce international competition’, which ultimately points to intense competition with European car manufacturers, and in the telecoms and AI sectors. In recent years the number of directives from the CCP on topics that fall under the ‘Strategic Innovation’ umbrella, has multiplied and state aid for sectors like AI and semiconductors is now burgeoning into the trillions of dollars.
The third element that bears flagging is the ongoing focus on ‘reform’, and to my limited experience there is a ‘lost in translation’ element where quite harsh Chinese policies end up being translated as positive, innocuous Western ones. As an example, I recall in the 2010’s a very senior Chinese trade diplomat explaining that ‘rule of law’ did not equate to a Western sense of adherence to established laws, but rather the imposition of the rule of the CCP on business, politics and society. In that context, the idea of ‘reform’ means the fitting of Chinese society to the will of CCP, and specifically Xi Jinping ‘thought’.
My interpretation of all of this is that Xi is shaping China in the form of a more closed state (which again to the tone of my recent note on globalization, makes for a less open world), that curbs the will of those inside, adopts a singularly selfish approach to those outside, and relies on several great strides in technological industrialisation for the prolongation of the ‘China Dream’.
The contradiction here, and specifically between the three strands to emerge from the plenum, is that in its policy making (social infrastructure) and economy (high quality development) China needs innovation but is creating a socio-political system that smothers it. This is the fallacy of authoritarian systems.
In this respect, the third plenum missed a trick in not outlining a Keynesian style stimulus for the economy (or even longer-run structural one). The property market is slowing, entrepreneurs are very cautious and the risks associated with local government debt are rising.
I am beginning to wonder if, in the carefully choreography world of Chinese policy making, they need to plan for an ‘emergency plenum’.
