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THIS WEEK:

Economic growth slower than expected, Xi sticking to his guns on economic strategy, steering China’s economic policy at the Third Plenum, China expands efforts to increase tourism, and China and Russia conduct joint naval drills in the South China Sea.

1. Economic Growth Slower than Expected

What Happened: On Monday, China’s National Bureau of Statistics (NBS) reported that the country’s second-quarter GDP rose by an annual rate of 4.7%, its lowest rate in five quarters. 
 
Relative Decline: The economy grew by a quarter-on-quarter rate of 0.7% for the April–June period, well below the annual rate of 5.3% posted in the year’s first quarter and short of the target growth of “around 5%” that Premier Li Qiang had pronounced at the National People’s Congress’s annual meeting in early March. While China’s slowing economic growth is worrisome, not all numbers spelled doom and gloom: exports grew by 8.6% year over year, factory output rose 5.3% in June, and January–May retail sales were up 4.1%.

Reasons Why: The world’s second-largest economy has suffered from a prolonged downturn in the property market as well as weak consumer demand. The NBS press release stressed that the “external environment is intertwined and complex,” “domestic effective demand remains insufficient,” and “the foundation for sound economic recovery and growth still needs to be strengthened” following the COVID-19 pandemic. To counteract these falters, China has increased investments in infrastructure and high-tech manufacturing.
 
Why It Matters: The NBS figures were released the same day as the start of the Third Plenum of the Chinese Communist Party’s Central Committee, and the economy was certainly a major topic discussed at the closed-door meeting. With the plenum’s conclusion, the Party will begin releasing key documents that lay out its policies against the backdrop of this slowing economic growth.
 
By Ian Lane Smith, Research Associate, Center for China Analysis
 
Learn More: Read Decoding China’s Economic Slowdown, a joint roundtable summary report by CCA and the Stanford Center on China’s Economy and Institutions.

2. Xi Sticking to His Guns on Economic Strategy

What Happened: On July 15, the first day of the Third Plenum of the 20th Central Committee, Qiushi, the Party’s top theoretical journal, issued a collection of quotes by General Secretary Xi Jinping on “the need to persist in self-confidence and self-reliance.”

Stay the Course: Xi’s quotes stress that the Party’s past achievements provide a solid foundation for strengthening its “socialism with Chinese characteristics” political philosophy. In them, he says that China must advance “Chinese-style modernization,” a key theme of the plenum, despite growing questions about economic policy and social stability.

Don’t Get It Wrong: Xi is unlikely to reprioritize shifting China from a high-growth economy to a quality-growth economy that relies less on the property sector and more on state-guided investment in technological innovation. But, he says, “we should continue to eradicate drawbacks in the system and make it more mature and enduring,” implying that rumored improvements in central-local fiscal relations, taxation policy, and the social welfare system may well be on the cards.

Why It Matters: Publishing the quotes on the plenum’s opening day was intended to set the broader tone of the meeting. Xi may be flexible on some reform measures that respond to potential political threats from bankrupt local governments, depressed corporate investment, and discontented social groups, but he will not abandon his vision for how to transform China.

By Neil Thomas, Fellow on Chinese Politics, Center for China Analysis, and Lobsang Tsering, Senior Research Associate, Center for China Analysis
    
Learn More: Read a preview of the Third Plenum by Neil and CCA Co-Founder and Managing Director Jing Qian titled Politics First: The Key to Understanding China’s Third Plenum.

3. Steering China’s Economic Policy at the Third Plenum

What Happened: On July 15–18, 2024, the Third Plenum of the 20th Central Committee met to tackle China’s economic challenges and chart a future growth strategy amidst domestic and international challenges.

Anticipated Key Policy Changes: The plenum outlined broad reforms expected to shape the next five-year plan (2026–2030), with more specific policies likely to emerge in subsequent government reports. Key policy changes likely to emerge include: supporting strategic industries such as semiconductors and artificial intelligence, enhancing R&D funding, upgrading the national energy grid, introducing new revenue sources to local governments, and facilitating greater work mobility to address regional disparities, thus invigorating the property market.

Dig Deeper: Understanding the Chinese leadership’s concept of “deepening reform” is crucial. Unlike market-oriented liberalization, China’s strategy focuses on mobilizing resources, optimizing coordination, adjusting regulatory frameworks, and redirecting capital flows to accelerate technological advancements and achieve higher growth potential. The leadership recognizes challenges such as weak demand, unemployment, and property market instability. Yet it believes these issues can be mitigated through long-term, supply-side solutions. Short-term measures, like relaxing housing purchase limits, are expected to serve as temporary stopgaps.

Why It Matters: The plenum underscores Xi’s vision for a tech-centric economy resilient to geopolitical pressures that prioritizes substantive growth over speculative gains. The plenum’s emphasis on innovation and high-tech industries may deepen regional and sectoral disparities and exacerbate inequality if not managed carefully, challenging Xi’s vision of common prosperity.

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

Learn More: Lizzi analyzed China’s shift from finance to technology in the Diplomat; read an excerpt here.

4. China Expands Efforts to Increase Tourism

What Happened: On Monday, the National Immigration Agency (NIA) announced an expansion of China’s 144-hour visa-free transit policy to include three more entry points.
 
China in Six Days: The three new locations, bringing the total number of entry points to 37, are Lijiang Sanyi International Airport and Mohan railway port, both in the southwestern province of Yunnan, and Zhengzhou Xinzheng International Airport in the central province of Henan.
 
Foreigner Boom: Foreign nationals from 54 countries, including the United States, are eligible for the 144-hour visa-free policy if they have a valid onward ticket to another country. According to the NIA, in “the first half of this year, 14.64 million foreigners visited China — up 152.7% year on year. Among them, 8.5 million were visa-free entries, accounting for 58% of inbound trips.”

Why It Matters: While the number of nonnative visitors has yet to return to pre-pandemic levels, the steady increase of foreigners taking advantage of these policies could incentivize the NIA to expand its city offerings. In addition to the economic benefits of these policies, opening up can also strengthen people-to-people exchanges and encourage greater cooperation between China and other countries.
 
By Taylah Bland, Fellow on Climate and the Environment, Center for China Analysis
 
Learn More: Global Co-Chair of Asia Society John L. Thornton noted the importance of people-to-people exchanges in his keynote speech at the Eighth Annual Global Think Tank Summit in Beijing, China.

5. China and Russia Conduct Joint Naval Drills in the South China Sea

What Happened: China and Russia kicked off a joint naval exercise on Sunday at a naval port in Zhanjiang, Guangdong.

Sea to Sea: The exercise, “China-Russia Joint Sea-2024,” is expected to last until mid-July and involve joint air defense, anti-submarine, and naval aviation from the PLA, according to reports from the PRC and Russian defense ministries. The drills began off the coast of southern China and proceeded to waters around South Korea’s Jeju Island in the East China Sea before transiting the Osumi Strait near Japan and heading out to the South China Sea.

Practical Cooperation: Wang Guangzheng of the PLA Navy’s Southern Theatre said that “the China-Russia joint patrol has promoted the deepening and practical cooperation between the two in multiple directions and fields and effectively enhanced the ability to the two sides to jointly respond to maritime security threats.”

Why It Matters: The joint drills come on the heels of a NATO summit last week, wherein an uncharacteristically critical statement called Beijing a “decisive enabler” of the war in Ukraine. The naval exercises showcase the close military ties that have evolved between China and Russia, which have taken on added significance with the latter’s war in Ukraine.

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

Learn More: CCA’s China-Russia project examines the rapidly evolving relationship between Russia and China through research, analysis, programs, and conversations with experts.