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THIS WEEK:

Upcoming Third Plenum outcomes likely modest; contaminated tankers transport cooking oil; People’s Bank of China’s unprecedented bond strategy; Hungarian shuttle diplomacy brings Orbán to Beijing; and tornadoes tear through Shandong Province.

1. Upcoming Third Plenum Outcomes Likely Modest

What Will Happen: General Secretary Xi Jinping will preside over the Third Plenum of the 20th Central Committee of the Chinese Communist Party in Beijing on July 15–18. The meeting will issue a decision on “further comprehensively deepening reform” amid pessimism about China’s economic future.

Look to History: Reform expectations should be modest. History suggests that third plenums are overrated as catalysts for transformational change — they usually outline policies to implement reform directions already introduced by Party leaders.

Staying the Course: Xi will use the plenum to advance his existing policy agenda focused on Party control, tech self-reliance, financial de-risking, social welfare, and supply-side industrial policy, but the political dimension of economic troubles could lead to some modest surprises. Xi’s recent speeches hint at the possibility of more pro-business policies in high-tech domains, although he will not unleash entrepreneurs and markets but rather harness them to the Party’s own ends. Other likely moves include adjusting central-local finances, relaxing the household registration system, cutting foreign investment limits, and building data and rural land markets.

Why It Matters: The plenum should guide policymaking for years to come. Firms and investors will respond accordingly to the level of pledged reform. However, the incomplete promises of the 2013 Third Plenum show that actions speak louder than words when it comes to economic policy.

By Neil Thomas, Fellow on Chinese Politics, Center for China Analysis

Learn More: Read the new article by Neil and CCA Co-Founder and Managing Director Jing Qian, Politics First: The Key to Understanding China’s Third Plenum. 

2. Contaminated Tankers Transport Cooking Oil

What Happened: On July 2, the state-backed newspaper Beijing News broke a story that tankers used to transport coal-derived products were also being used to move cooking oil and syrup without being cleaned to save costs. The report identified several companies, including a subsidiary of state-owned Sinograin and privately owned Hopefull Grain and Oil Group.

Public Outcry: The scandal has created a social media firestorm in China, where food and drug safety has long been a problem. Investigative reports exposing governance challenges and prominent industry malfeasances have also become rarer in recent years in lieu of positive narratives receiving greater official endorsement. 

Government Responds: Following a week of silence, the State Council’s Food Safety Commission, the National Development and Reform Commission, the Ministry of Public Security, the Ministry of Transport, the State Administration for Market Regulation, and the State Administration of Grain and Reserves announced an investigation and assured its results would be released “promptly.” Censors have also now begun taking down discussions related to the scandal.

Why It Matters: This scandal has ignited legitimate anger among China’s citizens, presenting a challenge that the government must address swiftly and decisively. For a central government that has repeatedly emphasized people’s welfare, state broadcaster CCTV posted an unusually pointed commentary stating that the issue posed “extreme disregard” for people’s health and that such malpractice could “consume the lives” of citizens. A China Daily opinion called for a thorough investigation, warning that while it might restore some lost public trust, “not all” could be regained.

By Jennifer Choo, Director of Research and Strategy, Center for China Analysis

Learn More: Watch a conversation with CCA Senior Fellow Lynette Ong and other experts assessing China one year after the “White Paper” protests. 

3. People’s Bank of China’s Unprecedented Bond Strategy

What Happened: China’s central bank, the People’s Bank of China (PBOC), implemented a new strategy to manage the bond market by borrowing government bonds worth hundreds of billions of yuan from major financial institutions. 

Implementing the Strategy: This credit-based borrowing is collateral-free, without a fixed term, and aims to temper a record-breaking bond rally spurred by a bleak economic outlook and rate-cut expectations. Deals with institutions like the Industrial and Commercial Bank of China provide the PBOC with a substantial pool of bonds to borrow and sell as needed.

Revamping the Toolbox: By actively trading bonds, the PBOC can directly and flexibly influence market interest rates, thus supporting economic stability. This strategy reflects a broader initiative to modernize China’s monetary governance for more efficient allocation of credit and capital to critical sectors. The PBOC is also moving toward consolidating multiple policy rates into a single short-term rate to more effectively manage them.

Why It Matters: The recent bond market rally risks increasing capital outflows and depreciating the yuan. Borrowing and selling bonds aims to prevent low yields that could destabilize the financial system and threaten the yuan’s value. Streamlining policy rates and adopting bond trading align the PBOC’s operations with global best practices, enhancing its ability to respond dynamically to changing economic conditions and amidst domestic and global challenges.

By Lizzi C. Lee, Fellow on Chinese Economy, Center for China Analysis

Learn More: In a recent op-ed for the Diplomat, Lizzi broke down the 2024 Lujiazui Forum in Shanghai and its continued tradition as a pivotal platform for China’s financial discourse.

4. Hungarian Shuttle Diplomacy Brings Orbán to Beijing

What Happened: Hungarian prime minister Viktor Orbán made a surprise visit to Beijing on Monday, meeting with Chinese president Xi Jinping after trips to Russia and Ukraine last week.
 
“Peace Mission”: Orbán billed the visit as a “peace mission,” saying that “China is a key power in creating the conditions for peace in the Russia-Ukraine war” and signaling an effort to find a diplomatic solution to the conflict. However, his stopover in Moscow last week drew criticism from Ukraine and EU officials, who insisted Orbán was not acting on behalf of the European Union.
 
Xi’s Response: Xi Jinping stressed that “there are no geopolitical contradictions and no fundamental conflicts of interest between China and Europe.” China’s Ministry of Foreign Affairs added that “China commends Hungary for the constructive role it has played in finding a political solution to the Ukraine crisis.”

Why It Matters: Hungary remains one of a handful of diplomatic partners showcasing China’s neutrality and willingness to find a peaceful solution to the conflict in Ukraine. Under Orbán, Hungary has built substantial political and economic ties with China, including hosting a number of Chinese electric vehicle battery factories.

By Lyle J. Morris, Senior Fellow on Foreign Policy and National Security, Center for China Analysis

Learn More: Lyle moderated a discussion on China’s EU diplomacy following President Xi Jinping’s visit to Europe in May.

5. Tornadoes Tear Through Shandong Province

What Happened: Last Friday, a pair of tornadoes struck China’s Shandong Province in the latest series of extreme weather events impacting the region.
 
Damages Done: One of the tornadoes touched down in the city of Heze, claiming the lives of 5 people and injuring 88. The tornado caused significant damage to 2,820 houses, 4,060 hectares of crops, and 48 power lines. A week of torrential rain in Shandong followed the disaster.
 
Rapid Response: Local rescue teams evacuated and relocated those affected as overnight crews worked to repair and restore local roads, telecommunications, water, and power. A taskforce has been deployed to carry out a comprehensive survey of the damage sustained to homes and infrastructure.
 
Why It Matters: The day before the tornadoes hit, the China Meteorological Administration published its annual Blue Book on Climate Change of China 2024, which reported that 2023 was the warmest year the country had experienced since 1901. The tornadoes are just one example in a string of climate disasters impacting southern China this summer. For instance, rising water levels at Dongting Lake, a drainage basin for the Yangtze River, underscore the consequences of extreme rainfall. The pragmatism and success of local response efforts in Shandong reinforce the importance of prioritizing preparedness and resilience amid a rapidly changing climate landscape.
 
By Taylah Bland, Fellow on Climate and the Environment, Center for China Analysis
 
Learn More: Taylah explains why "China Will Accelerate Climate Resilience as a Security Priority" in China 2024: What to Watch.