Chinese Communist Party to unveil new reforms to stem economic slowdown | World News

China's ruling Communist Party, led by President Xi Jinping, will begin its key four-day economic meeting on Monday to finalize a new round of economic reforms aimed at revitalizing the country's economy crippled by a persistent slowdown that has sparked concerns at home and abroad.

The meeting convened for the third plenum, attended by 376 full and alternate members of the Communist Party of China (CPC) Central Committee, will convene from Monday to Thursday to mainly review issues related to deepening overall reforms and advancing China's modernization, according to an earlier official announcement.

The meeting, which will be chaired by President Xi, who also heads the party, has drawn global attention as the world's second-largest economy, worth $18 trillion, has failed to emerge from its slowdown mode, especially after COVID-19 lockdowns.

The party's powerful Politburo, chaired by Xi Jinping, finalized the draft resolution for discussion at the Plenum, the CCP's top economic policymaking body, on June 27.

The project deeply analyzed the new situations and problems related to China's modernization and scientifically planned the general arrangements for further deepening reforms, state media reported.

In announcing the meeting, the Politburo, in a rare admission, cited the country's gloomy economic outlook due to insufficient demand and an uncertain external environment.

The meeting participants discussed the difficult situation facing Chinese companies at home and abroad.

Referring to the increasing measures taken by the US and the EU to restrict Chinese high-tech products, especially electric vehicles (EVs), the meeting warned of challenges such as insufficient demand, high operational pressure faced by enterprises and a more complicated, gloomy and uncertain external environment.

To emerge from its stagnant economy, China has focused its resources in recent years on creating a massive overcapacity of electric vehicles that it hopes to sell around the world. But the United States and the European Union have imposed heavy tariffs and restrictions to limit Chinese imports.

In a difficult economic environment, the CCP aims to build a high-level socialist market economy by 2035.

“The governance system and capacity will be fundamentally modernized, and socialist modernization will be fundamentally realized by 2035,” the statement said.

Senior IMF officials, who reviewed the state of the Chinese economy with Chinese officials in May, warned Chinese leaders that the country's economy faces a further slowdown and could contract to 3.3% by 2029 due to aging and slower productivity growth.

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

“In the medium term, growth is expected to slow to 3.3% by 2029 due to population ageing and slower productivity growth,” she said.

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

China's real estate sector, a dominant component of the Chinese economy, has proven to be its Achilles heel in recent years, causing a widespread crisis with many leading builders going bankrupt.

After much hesitation, China has finally acted to address the near collapse of its massive real estate sector by pouring billions of dollars into buying up unsold homes and vacant land to resuscitate its bankrupt real estate sector, once the mainstay of its economic growth.

The People's Bank of China has set up a 300 billion yuan (about $42.25 billion) lending facility for government-subsidized housing projects.

Gopinath said the current correction in the housing market, which is necessary to steer the sector onto a more sustainable path, is likely to continue, she said.

“China faces significant fiscal challenges, especially for local governments,” she said, “referring to the huge debt burden of the country's provincial and local governments.”

“Sustained medium-term fiscal consolidation is needed to stabilise debt, while restructuring unsustainable debt of local government financing vehicles can help reduce fiscal pressures,” she said.

China's hidden local debt has been estimated at $4.44 trillion, according to Luo Zhiheng, chief economist at Guangzhou-based Yuekai Securities.

Gopinath also highlighted concerns in the US, EU and around the world about overcapacity in China's manufacturing sector, particularly electric vehicles that China is pushing massively into global markets, driving down their prices, and urged Beijing to scale back such policies.

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

“Reducing these policies and removing restrictions on trade and investment would increase domestic productivity and ease fragmentation pressures. In this context, China should continue its efforts to strengthen the multilateral trading system, especially the World Trade Organization,” Gopinath said.

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

“If we consider the third plenum as a moment to examine medium- and long-term reforms, if I could choose just one, [pressing issue to focus on]”It's to increase productivity,” Barnett said.

“The solution to achieve this is to continue economic reforms,” ​​he added.

First published: July 14, 2024 | 9:29 a.m. EAST