China’s Top Policy Group Encourages Economic Opening, but on Political Terms
Chinese leaders are slowly realizing the post-COVID recovery they had counted on to revive growth this year is struggling to endure. Policy responses include limited supply-side stimulus, positive messages to private firms, and encouragement for foreign trade and investment. But a recent meeting of the country’s most powerful policy body signaled this fragility has not stopped efforts to build an economy that is secure, self-reliant, and coordinated by the Chinese Communist Party (CCP).
On July 11, General Secretary Xi Jinping chaired a meeting of the CCP Central Comprehensively Deepening Reform Commission (CCDRC), its second convening since the 20th Party Congress last October. The top focus was deliberating an “Opinion on Building a New Higher-Level Open Economic System to Promote the Construction of the New Development Paradigm.” While details were not released, Xi said he wanted to “proactively raise China's opening-up to a new level” and “deepen institutional reforms” in foreign cooperation on trade, investment, finance, and innovation.
This constructive language accords with recent moves to lift market sentiment. Last month top leaders warmly received visiting U.S. business titans, including Tesla’s Elon Musk and Tim Cook of Apple. Beijing then unexpectedly appointed Pan Gongsheng as Party Secretary of the People’s Bank of China, reportedly due to his international experience. Treasury Secretary Janet Yellen visited earlier this month, soon after officials in Shanghai paid a friendly visit to the U.S. consulting firm Bain, whose workers were questioned by security officials in April. Financial regulators are inviting foreign fund managers to Beijing this week to hear their concerns. The CCDRC readout suggests China will further appeal to overseas firms by expanding market access, cutting red tape, and “optimizing the business environment.”
However, efforts to stimulate economic exchanges are not coming at the expense of party direction or national security. The readout indicated that economic opening should “revolve around serving the construction of the new development paradigm.” This language refers to Beijing’s “dual circulation” strategy to grow China’s domestic market while making the world more reliant on Chinese supply chains. New opening measures will likely target high-tech firms and financial actors who the party believes can help domestic industries become global powerhouses, but without fundamentally altering the statist, mercantilist, and political orientations of Xi’s economic agenda.
Indeed, a meeting of the party’s economic commission had established in May that “strengthening the party's leadership of economic work is the right thing to do” and Beijing must “take the maintenance of industrial security as the top priority [and] strengthen the top-level design of strategic spheres.” The CCDRC readout said the party must “persist in bottom-line thinking and extreme thinking” and improve its capacity to “supervise opening,” implying that self-reliance efforts and security crackdowns are unlikely to be a thing of the past, even if they do moderate somewhat in the coming months.
The strategic nature of Xi’s call for greater opening was reinforced by the CCDRC readout saying the party must “closely link” the construction of an open economic system with the Belt and Road Initiative (BRI), Xi’s signature policy to enhance China’s global influence through infrastructure connectivity. This statement also represents a continued shift in the BRI’s emphasis, initiated by Xi in 2019, from rapid and risk-blind expansion through massive overseas lending to “high-quality development.” Beijing now aims to use the BRI to pursue economic cooperation with the developing world in ways that fortify China’s comparative advantage in industries such as green energy and digital connectivity.
The next watchpoint for economic policymaking is the July Politburo meeting, which typically focuses on the economy and is usually held toward the end of the month. The CCDRC meeting hints Xi will make upbeat statements about trade and foreign investment and signal modest expansionary moves that could include lowering interest rates, raising government spending, and supporting the property sector. But significant stimulus remains unlikely, as trying to rectify China’s debt-fueled growth model has been a key priority of Xi’s for many years, and a rationalization for him to centralize power. Plans released this week to boost consumer spending and encourage private firms offer little in the way of new initiatives.
The chances of bolder policies, such as an embrace of consumer stimulus or more meaningful income redistribution, are rising, but still seem doubtful. In 2021 Xi criticized “welfarism” in Latin America — described as populist policies of high welfare spending that create “lazy people” who do not contribute to the economy — which he says brought unbearable financial burdens and caused many countries to fall into the middle-income trap. He vowed to “not raise appetites” for welfare by focusing on better public services and the basic livelihood of people in need. Regardless of the merits of Xi’s arguments, it is easy to see how such views feed into skepticism about new cash transfers to ordinary citizens.
The Politburo meeting will also foreshadow the Third Plenum of the 20th CCP Central Committee, expected to be held in October, which should set the economic agenda for Xi’s third term. The big question is whether China’s outlook is deteriorating enough to elicit policies that would more effectively promote growth. But Xi is not an economist and appears less concerned than the market about the current dip in China’s economic performance — at least for now. He still has a longer-term perspective on Chinese development that is concentrated on the political benefit of reducing external dependency, addressing internal challenges, and strengthening the party’s ability to guide economic activity.
The CCDRC meeting also covered several other topics. The highlights included a pilot plan to reform the compensation of university professors and scientific researchers to encourage innovation, presumably by rewarding those who work on national priorities like semiconductors and biotechnology. Other reform plans that were approved included building systems to reduce the quantity and intensity of carbon emissions, as well as building a new electric power system that is adapted to new energy sources but ensures a smooth transition from traditional energy sources. The commission also passed policies on rural land use and on stricter supervision of oil and gas markets to ensure stable supplies.
Competing CCDRC imperatives — to advance opening and to strengthen control — encapsulate a balancing act between growth and security that may come to define policymaking during Xi’s third term. The likely outcome in the years ahead is more political uncertainty and policy volatility, as Beijing becomes increasingly torn between growth imperatives and ideological projects.