Xi's Third Plenum: A user's guide

China and, these days, the world are being prepared for another Communist Party grand spectacle.  This one matters more than most as the world’s second biggest economy, and single most important source of Australia’s wellbeing, prepares for a major economic transition.

From November 9-12 Party Secretary Xi Jinping will chair the Third Plenary Session of the Eighteenth Party Congress, attended by the 205 members of the Central Committee of the CPC and 171 Alternatives.  It will be a grand event and television extravaganza of red and gold flags, black limousines, shiny military personal and breathless gangs of reporters and camera crews packing select media briefings.

On this occasion, the theatrics will be justified by the substance. It is clear from the backgrounding and pre-publicity that this Plenum is going to be a significant event in the long journey of China’s economic reform, which began with the return to power of Deng Xiaoping in 1978.

The Third Plenum of each Congress is set aside to deal with major economic policy issues.  Not all saw significant policy developments – previous Party Secretary Hu Jintao’s Third Plenums were eminently forgettable. The memorable ones have been Deng’s in 1978, which launched the agricultural reforms, and again in 1984 when reform was extended to all sectors of the economy, and in 1993 when Jiang Zemin set out a program for creating the “socialist market economy”. These Plenums changed the course of China’s economic development. This one is likely to do so again.

Xi Jinping’s report will have been finished by now.  A carefully staged conference on the weekend had Xi and Li addressing the participants and outlining themes that are likely to appear in the Plenum document. 

The public too are being prepared. State-controlled media gave Xi and Li’s speeches blanket coverage.  The media are also educating the population with histories of plenums and their importance in China’s “socialist economic development”.

While the Plenum is scheduled to last for three days, the main event will be Xi’s opening address to the meeting. Here he will set out, in broad terms, future policy directions for China. The emphasis will be on strengthening the role of the market, removing and reducing central government regulations and controls, seeking to promote greater competition with the state-owned sector, promoting financial sector reform, addressing fiscal arrangements, and agricultural land reform.

As for other major Plenums, many of the initiatives have already begun. Take the area of financial sector reform – it has already been announced that the central bank now has greater flexibility in setting both deposit and lending rates. Concrete measures have been taken to open the capital account further, for example with a substantial expansion of QFII quotas which allow registered foreign financial enterprises to buy local equities. And of course the path to internationalisation of the renminbi has begun.  (A couple of years ago discussion of the internationalisation of the renminbi was seen as fanciful, now its internationalisation is seen as inevitable.)

It’s a similar story on regulatory reform, with which Premier Li Keqiang has closely associated himself.  This year, several hundred central government regulations or approvals process have either been abolished or devolved to localities.  The all powerful National Development and Reform Commission has been pushed back to some extent from engagement in day-to-day approvals of projects to its intended role of longer-term policy guidance.

The document, however, is likely to disappoint many commentators – especially foreigners – who will be looking for specific, implementable, policies. But this is not its purpose, it is to set out broad directions for policy development.

One thing to watch for is the so-called 3-8-3 policy. On October 27, the Development Research Center of the State Council, a key government think tank, released its proposal for the Plenum’s reform framework, which has been dubbed the “3-8-3” project.

It involves three key themes – improve the market system, transform the role of government and build an innovative corporate structure; eight key reform areas – government, monopoly sectors, the land system, financial sector, the tax system, management of state assets, innovation and further opening up of the economy; and three areas of breakthrough – further opening up the economy, social security reform and land reform.

Many of these issues have been under discussion for years, some are easier to tackle than others and some proposals, such as “innovation”, are well meaning but largely beyond the reach of government.  Even if the politics won’t allow much to be done for the time being, putting reform on the Party’s formal agenda for such things as “monopoly sectors” (read power utilities, energy, transport and telecoms) gives a very clear indication that over time things will need to change.

The DRC 3-8-3 project essentially encapsulates many of the key recommendations from the major joint study between the DRC and World Bank, which was closely supported by Premier Li.  But don’t expect to see explicit reference to 3-8-3 in the text on November 9. The Plenum document is the Party Secretary’s, not a government department’s.

Some foreign commentators have speculated that urban registration or hukou reform, or the one-child policy, or even political reform might be addressed. This Plenum is not the place for such matters, even if they have big economic impacts.

Among the razzle dazzle of the preparations for the Plenum one thing stands out.  The Party and government leadership are projecting an image of supreme confidence in their capacity to manage the economy and embark on a period of complex transition. Economic issues are, and have always been, the strong suit of China’s leaders in the reform era. And for a while it helps to divert attention from far more intractable challenges the leadership faces with political reform, nascent separatist forces, and truculent neighbours.

Dr Geoff Raby is chairman and CEO of Beijing-based advisory firm Geoff Raby & Associates, and a former Australian ambassador to China. He is vice chairman of Macquarie Group China and a Vice Chancellor's Professorial Fellow at Monash University.