China’s Xi bets on high tech for ‘great rejuvenation’

Among the pantheon of Chinese Communist party heroes, Xi Jinping is often ranked by state propagandists alongside Mao Zedong, the strongman founder of the people’s republic. 

But this week, in a document listing resolutions made at the party’s flagship policy meeting — the quinquennial third plenum — the Chinese president aligned himself more closely with Deng Xiaoping, the former paramount leader whose “epoch-making” reforms of 1978 opened China to market forces.

The document gave “a bigger nod to Deng Xiaoping than I might have expected beforehand”, said Atlantic Council analyst Wen-Ti Sung, adding that the statement was intended to reassure business and consumers worried over the direction of China’s faltering economy.

But if Deng’s third plenum 46 years ago disrupted a then-moribund economy suffocating under state control, this year’s four-day meeting, which ended on Thursday, failed to reassure economists hoping for a structural shift to consumption to revive weak demand, analysts said.

The final document contained 60 subsections and more than 300 proposed reforms but few commitments for stronger government intervention to address the prolonged property downturn that has shaken consumer and investor confidence. 

Instead, Xi expounded on his vision of heavy investment in advanced manufacturing, dubbed “new quality productive forces” in party parlance, while brushing aside concerns about China’s increased output, which is driving deflation and creating a flood of exports, stoking trade tensions.

The third plenum final document mentioned terms related to technology, talent, science and innovation 160 times. But the property sector warranted only four mentions, and did not appear until two-thirds of the way through the document.

“Topics like supply-chain self-sufficiency, tech innovation — they probably take up most of the 22,000 words of the document,” said Robin Xing, chief China economist at Morgan Stanley. “That’s the top priority.”

There were some fillips for the private sector and efforts to rebalance the finances of China’s debt-stricken local governments. 

But Beijing’s overarching goal remained “the great rejuvenation of the Chinese nation”, which the document said would be achieved by promoting “scientific and technological self-reliance” amid a “complex” international situation, code for geopolitical tensions with the US, analysts said.

“What seems clear is that China’s leadership is quite happy about its supply-centric growth model, no matter the complaints from the rest of the world,” Natixis chief Asia-Pacific economist Alicia García-Herrero wrote in an analyst note. “Xi Jinping wants China to reduce its technological dependence from the US and . . . improve productivity.”

Attended by nearly 400 cadres about every five years, the Communist party’s Central Committee typically uses the third plenum to announce important medium- and long-term policies.

The backdrop to this year’s conclave is China’s deepening growth challenge. Xi needs to grow the economy at an annual rate of about 4.5-5 per cent to achieve his goal of “Chinese-style modernisation”, or doubling per capita income to about $25,000 by 2035, Chinese academics said.

Growth in the second quarter slipped to 4.7 per cent year on year, and the IMF has projected that it will fall to less than 4 per cent in the coming years.

By focusing on technology, infrastructure investment, the green transition and digital upgrades to its giant manufacturing sector — which is nearly 28 per cent of GDP, compared with 10.7 per cent in the US — China could maintain higher productivity than in other industrialised economies, said Liu Qiao, dean of Peking University’s Guanghua School of Management. 

This would help generate higher growth and overcome the drag on the economy from China’s demographic decline.

At Xi’s first third plenum as party general secretary in 2013, he excited business by promising to “give full play to the decisive role of the market in resource allocation” — hopes that were later dispelled when he instead promoted state-owned enterprises and cracked down on entrepreneurs.

That “decisive role” language was repeated this year, and Chinese academics noted that it was accompanied by initiatives to support China’s private sector.

These included ensuring private sector groups have equal access to loans, are allowed to participate in more important government projects and have a stronger role in research, which were “positive signals”, said Wang Yong, deputy dean of the Institute of New Structural Economics at Peking University.

The third plenum statement also proposed measures to reconcile the fiscal mismatch in revenue and expenditure between the central and local governments, whose finances were depleted by the property crisis. Among those steps were expanding local tax revenue sources, improving transfers to local governments from the central government and increasing the latter’s share of expenditure. 

The document included measures to encourage more urbanisation and boost China’s social welfare system, which economists have said is needed to give households confidence to spend more of their savings.

These include easing the hukou household registration system, which prevents migrant workers from rural areas from accessing full public services in China’s cities.

“We have seen a slightly more balanced tone on social welfare programmes,” said Morgan Stanley’s Xing, referring to the hukou proposals, which he said could benefit consumption in the long run.

But he added that the document was “very general, [and] there is no clear timeline on how to deliver and finance it”.

For China’s international trading partners, worried about industrial overcapacity in the markets and hoping for measures focused on stimulating domestic demand, the third plenum was a lost opportunity.

“The breakthrough did not happen,” said Maximilian Butek, executive director of the German Chamber of Commerce in East China. “Instead we see a policy marked by caution and continuity.”

Additional reporting by Wenjie Ding in Beijing