The Third Plenum of the Central Committee, held from July 15 to 18, is one of the most important political meetings of the Communist Party of China.
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BEIJING — China’s real estate problems could be huge, but analysts predict Third Plenary Session focus on other areas — such as high local government debt levels and promoting advanced manufacturing.
The long-awaited policy meeting, scheduled to take place from Monday to Thursday, is a key gathering of senior members of the ruling Chinese Communist Party that usually only occurs once every five years. The plenum was widely expected to be held last fall but was postponed.
“The key challenge facing Beijing is to find an alternative financing system, as the current financing system, which relies heavily on land sales, is under severe pressure due to the slump in the land market,” Larry Hu, chief China economist at Macquarie, said in an email to CNBC.
He expects next week’s meeting to focus on financial reform and other structural policies. Hu pointed out that countercyclical policies — which could include real estate — are typically discussed at more regular meetings like China’s Politburo meeting, scheduled for late July.
“In addition, policymakers are also likely to reiterate [their] commitment to innovation, that is, the so-called new productive forces,” Hu said, referring to Beijing’s efforts to support advanced manufacturing and high technology.
The ruling Communist Party of China’s Central Committee, made up of more than 300 members and alternates, typically holds seven plenary meetings during each five-year term.
The The political is a group of about 24 people on that committee.
The Politburo Standing Committee, consisting of seven key members, is the highest authority in China. Xi JinpingGeneral Secretary of the Communist Party and President of China.
The Third Plenum traditionally focused on economic policy. Under the leadership of Deng Xiaoping in 1978, the meeting officially signaled important changes for the communist state, such as China “reform and opening up.”
At next week’s plenary meeting, “what I’m looking forward to the most is the so-called financial reform,” Dan Wang, chief economist at Hang Seng Bank, told CNBC.
She will also monitor details of banking sector consolidation, as well as signals on local government fiscal and tax policies.
“As for the real estate market, I don’t think it should be the focus of the plenary session, because it has already been [in a] say that everyone has consensus [on]”It’s in a recession. It hasn’t hit bottom yet,” Wang said.
Link to local government finances
While regarding the wealth of Most households in ChinaThe real estate industry’s troubles are also linked to local government finances and their hidden debts.
Local governments used to rely heavily on sell land for money.
“In the medium and long term, the importance of creating sustainable revenue sources for local governments will increase,” HSBC analysts said in a June 28 report ahead of the third plenum.
“Expanding the application of direct taxes to, for example, consumption, personal income, property, etc., is often considered as a solution. Among these possibilities, a consumption tax may be the most effective solution,” the analysts said, noting that it could encourage local governments to boost consumption.
We believe that the transition needs to be carefully designed and implemented at this time, as the level of trust in the private sector is low…
But it hasn’t been easy to boost sentiment. In the weeks leading up to the plenum, Chinese stocks have slid closer to correction territory — or more than 10% from recent highs.
“We believe the transition needs to be carefully designed and executed at this point, given the low level of confidence in the private sector, otherwise it could go in the opposite direction to the accommodative fiscal stance,” HSBC analysts said.
Efforts to tackle broader financial risks have prompted more restrictions on the banking and broader financial sector. Since the latest Central Committee was formed in October 2022, the Chinese Communist Party has stepped up financial supervision and technology with new rose.
“The scale of real estate has become so large that it has absorbed all of China’s resources,” said Yao Yang, professor and director of the China Economic Research Center at Peking University. said last monthaccording to CNBC’s translation of his speech in Mandarin.
In his view, excessive growth of the financial sector was the cause of weaken US industry.
“In order for China to compete with the United States, we need to develop manufacturing and technology,” Yao said. “Therefore, we have to restrict the financial industry, including real estate. That is the fundamental reason for stricter regulations on both real estate and finance.”
Average salaries at brokerages, which cover about 0.1% of China’s urban population, fell nearly 20% by 2022 and continued to fall last year, Goldman Sachs analysts said in a report last month.
Coupled with the much larger impact of local government fiscal constraints, the analysts found that wage cuts in the financial and public sectors dragged down urban wage growth by about 0.5 percentage points each year in 2022 and 2023.
Separately, China is reportedly planning to cap the finance industry at an annual salary of around 3 million yuan (about $413,350) — a limit that would be applied retroactively and require workers to return excess earnings to their companies, The South China Morning Post reported. last week, citing people familiar with the matter.
China’s National Financial Regulatory Authority did not immediately respond to CNBC’s request for comment.
Long term goals, current challenges
Beijing’s official announcement of the Third Plenum said leaders would discuss “comprehensive reform and advancing China’s modernization.” The announcement noted China’s goal of building a “high standard” socialist market economy by 2035“
Beijing said in 2020 that “socialist modernization”“will include the GDP per capita of ‘moderately developed countries’, the expanding middle-income group and reduced disparities in living standards.
This will not be an easy task, especially after the shock of the Covid-19 pandemic and rising geopolitical tensions. China’s GDP per capita last year in constant US dollars was $12,174 — less than one-fifth of the United States according to the World Bank is $65,020.
Perhaps a slowing economy means fewer opportunities and raises more concerns about inequality and fairness than before.
While income inequality is a global problem, new research shows that people in China have become significantly discouraged by perceived “unequal opportunities”. According to surveys from 2004 by groups led by Martin King Whyte of Harvard University and Scott Rozelle of Stanford University.
The latest survey found that regardless of income level, more respondents said their family’s economic situation had deteriorated in 2023 than in previous years.
“It is possible that a slowing economy means fewer opportunities and raises more concerns about inequality and fairness than before,” the survey summary said. China Big Data said. “In other words, inequality may be more acceptable when the pie is growing very quickly, but it will no longer be so when the economy is in recession.”
