Our podcast on China. This week, following the recent third plenum, we unpack the ruling party’s vision of economic reform

Is Xi Jinping doing enough to fix China’s economy?

Drum Tower - Is Xi Jinping doing enough to fix China’s economy? | Podcasts | The Economist

gv_safe

china

gb_safe

gb_safe_from_high

gb_safe_from_high_med

pos_goldman_inclusion_2024

pos_israel-hamas_war

gs_politics

gs_politics_issues_policy

gs_politics_misc

neg_goldmansachs_brandsafety

ibm_blacklist

gs_economy_misc

gs_economy

america_department_commerce

cigna_healthyhybridworkplace

cigna_puttingfamilyfirst

future_of_work_test

gs_science

gs_science_geography

neg_cartier

fidelity_blacklist

bhp_covid

covid_bhp

ssga_euro_elections_resiliency

neg_google_youtube_2020

bayer_investment

business_engineering

custom_punkt

gs_science_misc

america_civil_rights

China’s economy: is Xi listening?

Members of the Politburo Standing Committee from left, , Li Xi, Cai Qi, Zhao Leji, Xi Jinping, Li Qiang, Wang Huning and Ding Xuexiang attend the third plenary session of the 20th Communist Party of China (CPC) Central Committee, Beijing.

span

small

Twice a decade, China’s Communist Party leaders convene at Beijing’s Jingxi Hotel for the “third plenum”, a meeting focused on long-term reforms that has, at times, changed the course of Chinese history. Last week’s plenum took place against a backdrop of economic troubles and growing doubts about Xi Jinping’s ability to address them. David Rennie, The Economist’s Beijing bureau chief, and Simon Cox, our China economics editor, unpack what has come out of the meeting. They ask: is China doing enough to fix its economy and is Xi Jinping finally listening?

Twice a decade, China’s Communist Party leaders convene at Beijing’s Jingxi Hotel for <a href="https://www.economist.com/the-economist-explains/2024/07/16/what-is-the-chinese-communist-partys-third-plenum?utm_campaign=a.io&utm_medium=audio.podcast.np&utm_source=drumtower&utm_content=discovery.content.anonymous.tr_shownotes_na-na_article&utm_term=sa.listeners">the “third plenum”</a>, a meeting focused on long-term reforms that has, at times, changed the course of Chinese history. Last week’s <a href="https://www.economist.com/china/2024/07/18/chinas-ruling-party-sets-out-its-vision-of-economic-reform?utm_campaign=a.io&utm_medium=audio.podcast.np&utm_source=drumtower&utm_content=discovery.content.anonymous.tr_shownotes_na-na_article&utm_term=sa.listeners">plenum</a> took place against a backdrop of economic troubles and growing doubts about Xi Jinping’s ability to address them. David Rennie, The Economist’s Beijing bureau chief, and Simon Cox, our China economics editor, unpack what has come out of the meeting. They ask: is China doing enough to fix its economy and is Xi Jinping finally listening?

Listen to what matters most, from global politics and business to science and technology—subscribe to Economist Podcasts+.

Listen to what matters most, from global politics and business to science and technology—<a href="https://subscribenow.economist.com/podcasts-plus">subscribe to Economist Podcasts+</a>.

Drum Tower

This podcast transcript is generated by third-party AI. It has not been reviewed prior to publication. We make no representations or warranties in relation to the transcript, its accuracy or its completeness, and we disclaim all liability regarding its receipt, content and use. If you have any concerns about the transcript, please email us at podcasts@economist.com.

This podcast transcript is generated by third-party AI. It has not been reviewed prior to publication. We make no representations or warranties in relation to the transcript, its accuracy or its completeness, and we disclaim all liability regarding its receipt, content and use. If you have any concerns about the transcript, please email us at <a href="mailto:podcasts@economist.com">podcasts@economist.com</a>.

Read more about how we handle AI-generated content.

<a href="https://myaccount.economist.com/s/article/How-we-handle-AI-generated-content">Read more about how we handle AI-generated content</a>.

David Rennie [00:00:17] Twice a decade, Communist party leaders head to the Jingxi Hotel in Beijing for a big meeting. The third plenum, as it’s called, is devoted to long term reform, and some third plenums have changed the course of Chinese history. Last week’s came at a time of deepening problems for the world’s second biggest economy, and amidst a sense that Xi Jinping is either unwilling or unable to address them. I’m David Rennie, The Economist’s Beijing bureau chief, and I’m here with Simon Cox, our China economics editor. Today we’re decoding the announcements that followed the third plenum. And we’re asking, Is China doing enough to fix its economy? And is Xi Jinping finally listening? This is Drum Tower, from The Economist.

David Rennie [00:00:17] Twice a decade, Communist party leaders head to the Jingxi Hotel in Beijing for a big meeting. The third plenum, as it’s called, is devoted to long term reform, and some third plenums have changed the course of Chinese history. Last week’s came at a time of deepening problems for the world’s second biggest economy, and amidst a sense that Xi Jinping is either unwilling or unable to address them. I’m David Rennie, The Economist’s Beijing bureau chief, and I’m here with Simon Cox, our China economics editor. Today we’re decoding the announcements that followed the third plenum. And we’re asking, Is China doing enough to fix its economy? And is Xi Jinping finally listening? This is Drum Tower, from The Economist.

David Rennie [00:01:05] Simon. Hello. How are you doing?

David Rennie [00:01:05] Simon. Hello. How are you doing?

Simon Cox [00:01:16] Hi, David. Very happy to be here.

Simon Cox [00:01:16] Hi, David. Very happy to be here.

David Rennie [00:01:18] You’ve been wading through communiques, decisions, explanations. It’s been a lot of party speak for you the last few days.

David Rennie [00:01:18] You’ve been wading through communiques, decisions, explanations. It’s been a lot of party speak for you the last few days.

Simon Cox [00:01:25] Well, not just that. I’ve also been looking at old TripAdvisor reviews for the Jingxi hotel you mentioned where this whole event took place.

Simon Cox [00:01:25] Well, not just that. I’ve also been looking at old TripAdvisor reviews for the Jingxi hotel you mentioned where this whole event took place.

David Rennie [00:01:33] Is there any evidence that people can go and stay there? It’s pretty secure, no?

David Rennie [00:01:33] Is there any evidence that people can go and stay there? It’s pretty secure, no?

Simon Cox [00:01:37] That’s right. But they hold conferences throughout the year. They quite often have foreign delegations, and some of those people have a bit of a thrill in entering the place where so many big decisions have been made, and they leave little reviews on TripAdvisor about the carpets, the décor, the staff and the yoghurt.

Simon Cox [00:01:37] That’s right. But they hold conferences throughout the year. They quite often have foreign delegations, and some of those people have a bit of a thrill in entering the place where so many big decisions have been made, and they leave little reviews on TripAdvisor about the carpets, the décor, the staff and the yoghurt.

David Rennie [00:01:54] The homemade yoghurt. Is that the thing?

David Rennie [00:01:54] The homemade yoghurt. Is that the thing?

Simon Cox [00:01:56] Apparently so. Yes, it’s famous for its homemade yoghurt. One reviewer said that even his colleagues from Inner Mongolia recommend it.

Simon Cox [00:01:56] Apparently so. Yes, it’s famous for its homemade yoghurt. One reviewer said that even his colleagues from Inner Mongolia recommend it.

David Rennie [00:02:02] That is high praise, having just been to Inner Mongolia and eaten their yoghurt.

David Rennie [00:02:02] That is high praise, having just been to Inner Mongolia and eaten their yoghurt.

Simon Cox [00:02:06] What about you, David? What have you been up to?

Simon Cox [00:02:06] What about you, David? What have you been up to?

David Rennie [00:02:08] Well, I’ve been wading through Foreign Ministry statements from the Chinese and the Filipino side. So on Drum Tower, recently, we’re talking about this really dangerous stand off between China and the Philippines, down the South China Sea. They do seem to have agreed some sort of system where the Filipino side can at least send food and humanitarian supplies to this outpost on a disputed reef. So hopefully that will avoid some of the really nasty, violent scenes we’ve seen in the last few weeks and months.

David Rennie [00:02:08] Well, I’ve been wading through Foreign Ministry statements from the Chinese and the Filipino side. So on Drum Tower, recently, we’re talking about this really dangerous stand off between China and the Philippines, down the South China Sea. They do seem to have agreed some sort of system where the Filipino side can at least send food and humanitarian supplies to this outpost on a disputed reef. So hopefully that will avoid some of the really nasty, violent scenes we’ve seen in the last few weeks and months.

Simon Cox [00:02:36] That’s a relief.

David Rennie [00:02:37] So, Simon, I’m told that there were no TripAdvisor reviewers in the Jingxi hotel during the plenum. In fact, one of our colleagues went down, couldn’t get closer than the other side of the main road because there were police everywhere. The third plenum does have a history that gets economics specialists like you pretty excited.

David Rennie [00:02:37] So, Simon, I’m told that there were no TripAdvisor reviewers in the Jingxi hotel during the plenum. In fact, one of our colleagues went down, couldn’t get closer than the other side of the main road because there were police everywhere. The third plenum does have a history that gets economics specialists like you pretty excited.

Simon Cox [00:02:55] Yeah, that’s largely the result of the plenum in 1978, when Deng Xiaoping confirmed his rise to power and also confirmed China’s opening up to the outside world. And that was genuinely an epoch making few months, capped off by the meeting in the Jingxi Hotel, where they communicated the changes that had taken place to the Central Committee of China’s Communist Party. And there was also the one in 2013, which was the first one that Xi Jinping presided over, which excited a lot of people and made it seem as if Xi Jinping might be serious about economic reform. And the legacy of that plenum still stays with us today and shadows the interpretation of this one.

Simon Cox [00:02:55] Yeah, that’s largely the result of the plenum in 1978, when Deng Xiaoping confirmed his rise to power and also confirmed China’s opening up to the outside world. And that was genuinely an epoch making few months, capped off by the meeting in the Jingxi Hotel, where they communicated the changes that had taken place to the Central Committee of China’s Communist Party. And there was also the one in 2013, which was the first one that Xi Jinping presided over, which excited a lot of people and made it seem as if Xi Jinping might be serious about economic reform. And the legacy of that plenum still stays with us today and shadows the interpretation of this one.

David Rennie [00:03:38] And, you know, this is about the giant ship of state or the ship of the Communist Party. Is it going to change course or is it going to stay on its current heading with just some minor adjustments? I mean, that’s why these meetings matter, right? And they can be an opportunity for a pretty serious course correction. As we saw the end of the Mao era, as you said in 78. But they can also be a moment where the ship basically ploughs on, even though plenty of voices might be calling for a change.

David Rennie [00:03:38] And, you know, this is about the giant ship of state or the ship of the Communist Party. Is it going to change course or is it going to stay on its current heading with just some minor adjustments? I mean, that’s why these meetings matter, right? And they can be an opportunity for a pretty serious course correction. As we saw the end of the Mao era, as you said in 78. But they can also be a moment where the ship basically ploughs on, even though plenty of voices might be calling for a change.

Simon Cox [00:04:08] Yeah, and the context for this meeting is also important. I mean, it arrived at a time when there are quite a lot of doubts about China’s economic policy. The economy itself is still struggling to recover from the zero-Covid era. The housing market is in a deep crisis that’s been dragging on now for about three years. Consumer confidence is low and deflation remains a threat. Prices are falling across the economy and the private sector feels still wary and unloved. And so this was an opportunity, if you like, for the party to communicate to all of the investors, all of the entrepreneurs who will be eavesdropping on this event, that they get it, that the policies have been inadequate and that they want to do more.

Simon Cox [00:04:08] Yeah, and the context for this meeting is also important. I mean, it arrived at a time when there are quite a lot of doubts about China’s economic policy. The economy itself is still struggling to recover from the zero-Covid era. The housing market is in a deep crisis that’s been dragging on now for about three years. Consumer confidence is low and deflation remains a threat. Prices are falling across the economy and the private sector feels still wary and unloved. And so this was an opportunity, if you like, for the party to communicate to all of the investors, all of the entrepreneurs who will be eavesdropping on this event, that they get it, that the policies have been inadequate and that they want to do more.

David Rennie [00:04:52] Right. So this is a kind of meeting which produces this very high level doctrine. It has multiple audiences, as you say. You know, the Communist Party is a very large organisation, nearly 100 million members. They will be studying this for weeks to come, months to come. But also inside China, as you just mentioned, entrepreneurs, economists, investors and outside businesses investors. And the context for that is that morale is pretty bad inside China’s private sector, but also where you’re based in Hong Kong, you know, international markets that depend on China are also in a bit of a funk right now.

David Rennie [00:04:52] Right. So this is a kind of meeting which produces this very high level doctrine. It has multiple audiences, as you say. You know, the Communist Party is a very large organisation, nearly 100 million members. They will be studying this for weeks to come, months to come. But also inside China, as you just mentioned, entrepreneurs, economists, investors and outside businesses investors. And the context for that is that morale is pretty bad inside China’s private sector, but also where you’re based in Hong Kong, you know, international markets that depend on China are also in a bit of a funk right now.

Simon Cox [00:05:26] That’s right. And there’s a drafting process for this several months long in which they apparently, you know, canvass opinion from outside. And we’ve seen a number of these events being talked about in official media where Xi Jinping has met entrepreneurs. He’s met people from Hong Kong, for example, he’s met economists. And it’s not just outside foreign economists that says that economic policy is falling short. There’s a reasonably broad range of people, party loyalists, people with some influence who also think that the economic policy, particularly in terms of reviving confidence, fixing the housing slump, lifting spending, those kinds of policies, they’re not absent, but they’re not doing enough right now.

Simon Cox [00:05:26] That’s right. And there’s a drafting process for this several months long in which they apparently, you know, canvass opinion from outside. And we’ve seen a number of these events being talked about in official media where Xi Jinping has met entrepreneurs. He’s met people from Hong Kong, for example, he’s met economists. And it’s not just outside foreign economists that says that economic policy is falling short. There’s a reasonably broad range of people, party loyalists, people with some influence who also think that the economic policy, particularly in terms of reviving confidence, fixing the housing slump, lifting spending, those kinds of policies, they’re not absent, but they’re not doing enough right now.

David Rennie [00:06:06] So here’s a clip of David Daokui Li, former advisor at the People’s Bank of China, and he’s talking about the property slump to Bloomberg.

David Rennie [00:06:06] So here’s a clip of David Daokui Li, former advisor at the People’s Bank of China, and he’s talking about the property slump to Bloomberg.

Daokui Li [00:06:13] Well there are two things Chinese authorities can do, which they are doing, but I would argue they are doing too slow. Number one is to provide more liquidity to the largest developers of the property market, to actually make sure that they are not further defaulting on any debt. The other thing is to issue much, much more central government debt.

Daokui Li [00:06:13] Well there are two things Chinese authorities can do, which they are doing, but I would argue they are doing too slow. Number one is to provide more liquidity to the largest developers of the property market, to actually make sure that they are not further defaulting on any debt. The other thing is to issue much, much more central government debt.

Simon Cox [00:06:34] So he’s hearing this kind of advice from a broad range of economists. And I guess the question is, is he listening?

Simon Cox [00:06:34] So he’s hearing this kind of advice from a broad range of economists. And I guess the question is, is he listening?

David Rennie [00:06:40] Yeah, I have to say, I’ve been at meetings in Beijing where big, serious Chinese reformers have said exactly that, that the problem is not that there’s nobody telling the government that it needs to change course, it’s that the top leadership doesn’t want to heed these voices, calling for a more liberal direction. And there’s a history of this that XI Jinping, as power, has been intensely centralised and personalised around him. That has led to him clearly ignoring expert advice. And we saw this in the final year, I would say, of the pandemic. Essentially, you had some very, very senior scientists, medical advisers to the government saying that there needs to be an exit strategy, saying there needs to be much more, for example, vaccination and the politics overrode the science. And so this is a live memory for many people, the idea that Xi Jinping has retreated into this extremely closed inch of the world, where expert advice either doesn’t penetrate or isn’t taken that seriously.

David Rennie [00:06:40] Yeah, I have to say, I’ve been at meetings in Beijing where big, serious Chinese reformers have said exactly that, that the problem is not that there’s nobody telling the government that it needs to change course, it’s that the top leadership doesn’t want to heed these voices, calling for a more liberal direction. And there’s a history of this that XI Jinping, as power, has been intensely centralised and personalised around him. That has led to him clearly ignoring expert advice. And we saw this in the final year, I would say, of the pandemic. Essentially, you had some very, very senior scientists, medical advisers to the government saying that there needs to be an exit strategy, saying there needs to be much more, for example, vaccination and the politics overrode the science. And so this is a live memory for many people, the idea that Xi Jinping has retreated into this extremely closed inch of the world, where expert advice either doesn’t penetrate or isn’t taken that seriously.

Simon Cox [00:07:38] And so this third plenum and the documents that have emerged from it is a clue as to whether this advice is finally getting through and finally being heeded.

Simon Cox [00:07:38] And so this third plenum and the documents that have emerged from it is a clue as to whether this advice is finally getting through and finally being heeded.

David Rennie [00:07:46] Although I think be an exaggeration to say that everyone in China was sort of waiting with bated breath for the outcome of the third plenum. The decisions that are being made by the party leaders there have an absolutely direct impact on the level of real gloom and uncertainty that I think a lot of people out in regular China feel. You know, for some young people, the first really uncertain, anxious time that they’ve known in their conscious lifetimes. And so I think that raises the stakes even more. Right. They are waiting to see that the leaders know what they’re doing and understand how anxious people are.

David Rennie [00:07:46] Although I think be an exaggeration to say that everyone in China was sort of waiting with bated breath for the outcome of the third plenum. The decisions that are being made by the party leaders there have an absolutely direct impact on the level of real gloom and uncertainty that I think a lot of people out in regular China feel. You know, for some young people, the first really uncertain, anxious time that they’ve known in their conscious lifetimes. And so I think that raises the stakes even more. Right. They are waiting to see that the leaders know what they’re doing and understand how anxious people are.

Simon Cox [00:08:20] That’s right. So it’s a set piece occasion in which some of the doubts sown by the zero-Covid mistakes you mentioned could be addressed. And there are people who’ve spent large amounts of money on homes who are waiting to see if those houses are ever completed. We’ve seen a spike in youth unemployment. People who especially have gone to college with great aspirations and have found it very difficult to find a job that meets those expectations.

Simon Cox [00:08:20] That’s right. So it’s a set piece occasion in which some of the doubts sown by the zero-Covid mistakes you mentioned could be addressed. And there are people who’ve spent large amounts of money on homes who are waiting to see if those houses are ever completed. We’ve seen a spike in youth unemployment. People who especially have gone to college with great aspirations and have found it very difficult to find a job that meets those expectations.

David Rennie [00:08:44] So, Simon, when you looked at the documents coming out of this plenum, what was your kind of sense? Was Xi Jinping feeling the pain of that anxious Chinese population? Was he hearing the calls for urgent reforms from experts?

David Rennie [00:08:44] So, Simon, when you looked at the documents coming out of this plenum, what was your kind of sense? Was Xi Jinping feeling the pain of that anxious Chinese population? Was he hearing the calls for urgent reforms from experts?

Simon Cox [00:08:58] So the communique, the shorter document that came out at the end of the meeting, was largely a repetition of dogma, of buzzwords, the slogans with a few suggestive tweaks of language, which then were fleshed out in the decision document that arrived a few days later.

Simon Cox [00:08:58] So the communique, the shorter document that came out at the end of the meeting, was largely a repetition of dogma, of buzzwords, the slogans with a few suggestive tweaks of language, which then were fleshed out in the decision document that arrived a few days later.

David Rennie [00:09:15] And that’s what we’re going to try and do now. You and I need to try and decode some of the bits of language that are getting attention as this paperwork emerges.

David Rennie [00:09:15] And that’s what we’re going to try and do now. You and I need to try and decode some of the bits of language that are getting attention as this paperwork emerges.

Simon Cox [00:09:31] Sir David, I’m going to read you out a bit of the 5000 word communique that came out of the plenum. Quote, we must acquire a deep understanding of the decisive significance of establishing comrade Xi Jinping’s core position on the Party Central Committee and in the Party as a whole, and establishing the guiding role of Xi Jinping Thought on Socialism with Chinese Characteristics for a New era, be more conscious of the need to maintain political integrity, think in big picture terms, follow the leadership core and keep an alignment with the central party leadership. Stay confident in the path, theory, system and culture of socialism with Chinese characteristics, and uphold comrade Xi Jinping’s core position on the Party Central Committee and in the Party as a whole, and uphold the Central Committee’s authority and its centralised, unified leadership. Full stop.

Simon Cox [00:09:31] Sir David, I’m going to read you out a bit of the 5000 word communique that came out of the plenum. Quote, we must acquire a deep understanding of the decisive significance of establishing comrade Xi Jinping’s core position on the Party Central Committee and in the Party as a whole, and establishing the guiding role of Xi Jinping Thought on Socialism with Chinese Characteristics for a New era, be more conscious of the need to maintain political integrity, think in big picture terms, follow the leadership core and keep an alignment with the central party leadership. Stay confident in the path, theory, system and culture of socialism with Chinese characteristics, and uphold comrade Xi Jinping’s core position on the Party Central Committee and in the Party as a whole, and uphold the Central Committee’s authority and its centralised, unified leadership. Full stop.

David Rennie [00:10:23] Well done you. So I’m always reminded of the very fine Belgian sinologist Simon Leys, who says that reading Communist Party documents is like, quote, munching rhinoceros sausage or swallowing sawdust by the bucketful. But of course, this stuff matters. People have compared the Communist Party to the Vatican, and I don’t think that’s wholly unfair. And, you know, at various times in Vatican history, if you defined the Holy Trinity incorrectly, they tied you to a stake and set you on fire. And there’s pretty high stakes, some of this stuff. So the two establishments that you mention there, that’s about absolute loyalty to Xi Jinping. So this is serious, if exceedingly arcane stuff. And of course, that means that the job of everyone who’s paid to try and understand this stuff is to see if the language has changed in some way that signals that something is up. So how did you set out trying to decode not just the communique, but the even longer resolution, the decision, the explanation, the commentaries?

David Rennie [00:10:23] Well done you. So I’m always reminded of the very fine Belgian sinologist Simon Leys, who says that reading Communist Party documents is like, quote, munching rhinoceros sausage or swallowing sawdust by the bucketful. But of course, this stuff matters. People have compared the Communist Party to the Vatican, and I don’t think that’s wholly unfair. And, you know, at various times in Vatican history, if you defined the Holy Trinity incorrectly, they tied you to a stake and set you on fire. And there’s pretty high stakes, some of this stuff. So the two establishments that you mention there, that’s about absolute loyalty to Xi Jinping. So this is serious, if exceedingly arcane stuff. And of course, that means that the job of everyone who’s paid to try and understand this stuff is to see if the language has changed in some way that signals that something is up. So how did you set out trying to decode not just the communique, but the even longer resolution, the decision, the explanation, the commentaries?

Simon Cox [00:11:19] Yeah. So I decided that the 16,000 words of the decision was not enough to get me through my weekend. So I went back to the 16,000 words they published after the 2013 third plenum to see what had changed, what had been dropped, what had been introduced. Often what’s not said is as important as what is said. Now, let me give you a couple of examples. So if you go back to the 2013 plenum, the key overall goal was reform and opening up, Deng Xiaoping’s goal. Now there’s two goals. One is reform and opening up. The other is Chinese style modernisation. And if you look at some of the surrounding editorials in the run up to the third plenum, it was a lot of emphasis on the fact that China has to go its own way. There’s nice little anecdotes about China’s uniqueness and its idiosyncrasies. There’s a famous phrase that “oranges that are grown south of the Huai river are sweet, north of the river they’re bitter. Given how big China is, given how diverse it is. What country could possibly show it what to do? So the Chinese style modernisation is clearly very important and comes through in the language.

Simon Cox [00:11:19] Yeah. So I decided that the 16,000 words of the decision was not enough to get me through my weekend. So I went back to the 16,000 words they published after the 2013 third plenum to see what had changed, what had been dropped, what had been introduced. Often what’s not said is as important as what is said. Now, let me give you a couple of examples. So if you go back to the 2013 plenum, the key overall goal was reform and opening up, Deng Xiaoping’s goal. Now there’s two goals. One is reform and opening up. The other is Chinese style modernisation. And if you look at some of the surrounding editorials in the run up to the third plenum, it was a lot of emphasis on the fact that China has to go its own way. There’s nice little anecdotes about China’s uniqueness and its idiosyncrasies. There’s a famous phrase that “oranges that are grown south of the Huai river are sweet, north of the river they’re bitter. Given how big China is, given how diverse it is. What country could possibly show it what to do? So the Chinese style modernisation is clearly very important and comes through in the language.

David Rennie [00:12:25] And as foreign commentators on China’s economy, I think our ears are also supposed to be burning at that point, because an absolutely standard charge that we’ve both heard many times is that foreigners simply don’t get China, and if we think they’re making mistakes is because we are too ignorant or prejudiced to understand the genius of the Communist Party.

David Rennie [00:12:25] And as foreign commentators on China’s economy, I think our ears are also supposed to be burning at that point, because an absolutely standard charge that we’ve both heard many times is that foreigners simply don’t get China, and if we think they’re making mistakes is because we are too ignorant or prejudiced to understand the genius of the Communist Party.

Simon Cox [00:12:44] Yeah, we think there’s only one kind of orange, the other language that people have paid a lot of attention to, both in 2013 and this time, is language around the role of the market. And here there’s an interesting Chinese idiom that roughly translates as letting go to invigorate market forces while managing well to keep market order. They want to have a thriving market. They want to give the market enough autonomy to innovate and to unleash its vitality. But the same time, there’s this recognition that the market can be disorderly, another word they’ve used, and they want to kerb the disorderly expansion of capital. So I think this is actually quite a sort of honest reflection of their ambivalence about the market. And so anyone hoping for a sort of recantation of past mistakes, in particular, any kind of admission that the regulatory crackdowns we saw a few years ago on e-commerce platforms, they haven’t admitted that that’s a mistake. They’ve essentially tried to institutionalise it and say, these are the sort of competing priorities you need to deal with when handling the market.

Simon Cox [00:12:44] Yeah, we think there’s only one kind of orange, the other language that people have paid a lot of attention to, both in 2013 and this time, is language around the role of the market. And here there’s an interesting Chinese idiom that roughly translates as letting go to invigorate market forces while managing well to keep market order. They want to have a thriving market. They want to give the market enough autonomy to innovate and to unleash its vitality. But the same time, there’s this recognition that the market can be disorderly, another word they’ve used, and they want to kerb the disorderly expansion of capital. So I think this is actually quite a sort of honest reflection of their ambivalence about the market. And so anyone hoping for a sort of recantation of past mistakes, in particular, any kind of admission that the regulatory crackdowns we saw a few years ago on e-commerce platforms, they haven’t admitted that that’s a mistake. They’ve essentially tried to institutionalise it and say, these are the sort of competing priorities you need to deal with when handling the market.

David Rennie [00:13:51] And I’m glad you mentioned that, because sitting here in Beijing, I’m sure where you are in Hong Kong, there are an awful lot of Chinese investors, entrepreneurs and analysts who were waiting for much more reassuring language on the role in the private sector. They absolutely see this as a contest between economic reformers inside the machine, who want to see the market taking a decisive role, and those who think that the state knows best.

David Rennie [00:13:51] And I’m glad you mentioned that, because sitting here in Beijing, I’m sure where you are in Hong Kong, there are an awful lot of Chinese investors, entrepreneurs and analysts who were waiting for much more reassuring language on the role in the private sector. They absolutely see this as a contest between economic reformers inside the machine, who want to see the market taking a decisive role, and those who think that the state knows best.

Simon Cox [00:14:17] That’s right. And so there was some language in the bigger decision document which said that the regulation of the platform economies. So these are things like Alibaba, most famously, that are omnipresent in China, they deal with e-commerce.

Simon Cox [00:14:17] That’s right. And so there was some language in the bigger decision document which said that the regulation of the platform economies. So these are things like Alibaba, most famously, that are omnipresent in China, they deal with e-commerce.

David Rennie [00:14:30] Right, so the Amazon of China in some ways.

David Rennie [00:14:30] Right, so the Amazon of China in some ways.

Simon Cox [00:14:32] Yeah so crucial and fingers in many pies and seen as bellwethers for China’s private entrepreneurs. So there was a pretty severe crackdown on those companies a couple of years ago. And this decision does contain language that says that we want more routine regulation now. So instead of these crackdowns, we’ll just have steadier, stable regulation, which hopefully would be more predictable. There’s also a concession that when they’re doing these crackdowns, you need to pay attention to the overall macroeconomic situation, the overall sentiment of investors.

Simon Cox [00:14:32] Yeah so crucial and fingers in many pies and seen as bellwethers for China’s private entrepreneurs. So there was a pretty severe crackdown on those companies a couple of years ago. And this decision does contain language that says that we want more routine regulation now. So instead of these crackdowns, we’ll just have steadier, stable regulation, which hopefully would be more predictable. There’s also a concession that when they’re doing these crackdowns, you need to pay attention to the overall macroeconomic situation, the overall sentiment of investors.

David Rennie [00:15:06] So there’s hints there that they at least understand the process, arguments that people have been complaining for some years now about the way that the machine takes decisions, the way that policy signals come out. But let’s dig down. When you looked at the decision document, what did you see about the actual enumerated changes or policies that are coming out? And what did they tell you about whether XI Jinping and his inner circle are listening to those cries for something of a course correction?

David Rennie [00:15:06] So there’s hints there that they at least understand the process, arguments that people have been complaining for some years now about the way that the machine takes decisions, the way that policy signals come out. But let’s dig down. When you looked at the decision document, what did you see about the actual enumerated changes or policies that are coming out? And what did they tell you about whether XI Jinping and his inner circle are listening to those cries for something of a course correction?

Simon Cox [00:15:36] Yeah. So that document is divided up into 15 parts and 60 sections. You can think of them as 15 chapters and 60 verses, if you like. And you can gain some sense of Xi’s priorities from how much space he devotes to various things. So housing, which is the biggest problem facing China’s economy right now, gets only half of one section. But innovation, which has been a very important theme for Xi gets three sections of its own, including the longest one, which is seven paragraphs devoted to science and technology. And on top of that, there’s a new section devoted to the new productive forces. The new productive forces is a buzzword that’s emerged over the last ten months, which essentially means new high tech engines of growth that could replace some of the reliance in the past on investment in infrastructure and property.

Simon Cox [00:15:36] Yeah. So that document is divided up into 15 parts and 60 sections. You can think of them as 15 chapters and 60 verses, if you like. And you can gain some sense of Xi’s priorities from how much space he devotes to various things. So housing, which is the biggest problem facing China’s economy right now, gets only half of one section. But innovation, which has been a very important theme for Xi gets three sections of its own, including the longest one, which is seven paragraphs devoted to science and technology. And on top of that, there’s a new section devoted to the new productive forces. The new productive forces is a buzzword that’s emerged over the last ten months, which essentially means new high tech engines of growth that could replace some of the reliance in the past on investment in infrastructure and property.

David Rennie [00:16:24] And of course, you can’t separate the desire for China to be more innovative, to invent and control more of its own technology from China’s fears about national security and a threatening, fast changing world. Was that also a factor that jumped out at you when you read the third plenum documents?

David Rennie [00:16:24] And of course, you can’t separate the desire for China to be more innovative, to invent and control more of its own technology from China’s fears about national security and a threatening, fast changing world. Was that also a factor that jumped out at you when you read the third plenum documents?

Simon Cox [00:16:41] Yeah. That’s right. So back in 2013, so 11 years ago, they had three sections on national security and military reform, and this time they devoted seven. There’s also a passage on countering sanctions, which is obviously something that’s very high on their agenda at the moment.

Simon Cox [00:16:41] Yeah. That’s right. So back in 2013, so 11 years ago, they had three sections on national security and military reform, and this time they devoted seven. There’s also a passage on countering sanctions, which is obviously something that’s very high on their agenda at the moment.

David Rennie [00:16:56] And so if you had to come away more optimistic or pessimistic about the next few years, the Chinese economy, what’s your kind of big picture response?

David Rennie [00:16:56] And so if you had to come away more optimistic or pessimistic about the next few years, the Chinese economy, what’s your kind of big picture response?

Simon Cox [00:17:07] I mean, if you want to take a step back, a lot of the economic commentary on China invokes a distinction between the supply side and the demand side. It’s a very common bit of economic jargon. One way to describe it is imagine China is just one big restaurant. And so if you’re a restaurant owner, one thing you care about is, do I have the right staff, the right skills? Do I have the right ovens, the right cooking equipment? And have I secured the right foodstuffs for my larder? That’s the supply side that determines you know how much the restaurant can produce and what kind of dishes it can produce. But whether it produces all of that, it can. Whether it makes any of those dishes depends on whether any customers show up. That’s the demand side, is anyone’s spending. And obviously, the twist is that given that this restaurant represents the whole economy, very often the customers are the very same people you’re employing in the restaurant.

Simon Cox [00:17:07] I mean, if you want to take a step back, a lot of the economic commentary on China invokes a distinction between the supply side and the demand side. It’s a very common bit of economic jargon. One way to describe it is imagine China is just one big restaurant. And so if you’re a restaurant owner, one thing you care about is, do I have the right staff, the right skills? Do I have the right ovens, the right cooking equipment? And have I secured the right foodstuffs for my larder? That’s the supply side that determines you know how much the restaurant can produce and what kind of dishes it can produce. But whether it produces all of that, it can. Whether it makes any of those dishes depends on whether any customers show up. That’s the demand side, is anyone’s spending. And obviously, the twist is that given that this restaurant represents the whole economy, very often the customers are the very same people you’re employing in the restaurant.

David Rennie [00:18:05] And that’s where there’s been the loudest criticism I think, people are in a funk, to take the metaphor to very brink of overextension. You go to any restaurant, a third tier city in this country, and you ask the manager how things are going, or the owner and they’ll say, well, look, it’s busy. Sure. You know, that’s great. But actually people are buying the cheapest items on the menu. They don’t want to really have a kind of big feast. There’s a sense that actually people are being really cautious about what they do. And so this has been a giant consumer confidence crisis. And of course, that’s got many parts. And it’s not only people going and shopping, it’s also businesses investing and making investments. But I think the real dilemma that people have been talking about the last couple of years, right, is that, among other things, that the Communist Party has been just pouring investment into the fanciest, shiniest, most high tech manufacturing you can find, but is a lot less convincing about who’s going to buy all those shiny new EVs, whether they’re going to be bought at home or even can they be exported?

David Rennie [00:18:05] And that’s where there’s been the loudest criticism I think, people are in a funk, to take the metaphor to very brink of overextension. You go to any restaurant, a third tier city in this country, and you ask the manager how things are going, or the owner and they’ll say, well, look, it’s busy. Sure. You know, that’s great. But actually people are buying the cheapest items on the menu. They don’t want to really have a kind of big feast. There’s a sense that actually people are being really cautious about what they do. And so this has been a giant consumer confidence crisis. And of course, that’s got many parts. And it’s not only people going and shopping, it’s also businesses investing and making investments. But I think the real dilemma that people have been talking about the last couple of years, right, is that, among other things, that the Communist Party has been just pouring investment into the fanciest, shiniest, most high tech manufacturing you can find, but is a lot less convincing about who’s going to buy all those shiny new EVs, whether they’re going to be bought at home or even can they be exported?

Simon Cox [00:19:02] That’s right. So to put it very simply, the government seems preoccupied by the supply side, but it’s neglected the demand side. And so that imbalance is what people were hoping this third plenum might correct.

Simon Cox [00:19:02] That’s right. So to put it very simply, the government seems preoccupied by the supply side, but it’s neglected the demand side. And so that imbalance is what people were hoping this third plenum might correct.

David Rennie [00:19:12] So Simon, maybe it’s helpful to look at three specific areas where you’ve heard people saying there needs to be a change and Xi Jinping needs to listen.

David Rennie [00:19:12] So Simon, maybe it’s helpful to look at three specific areas where you’ve heard people saying there needs to be a change and Xi Jinping needs to listen.

Simon Cox [00:19:21] Yeah. So to pick three, I’d say first, low business confidence.

Simon Cox [00:19:21] Yeah. So to pick three, I’d say first, low business confidence.

David Rennie [00:19:25] That is a big thing.

David Rennie [00:19:25] That is a big thing.

Simon Cox [00:19:26] Second, the housing slump.

Simon Cox [00:19:26] Second, the housing slump.

David Rennie [00:19:27] Even bigger.

Simon Cox [00:19:28] And third. Consumers not buy enough stuff.

Simon Cox [00:19:28] And third. Consumers not buy enough stuff.

David Rennie [00:19:32] Which you hear all the time. So let’s start with the business confidence and the entrepreneurs. You’ve already explained the top level balance between the state controlling things, the market being allowed a decisive say. And you mentioned at least there’s language about being a bit more predictable or routine in the policymaking. Why is that so important to entrepreneurs in the China of 2024?

David Rennie [00:19:32] Which you hear all the time. So let’s start with the business confidence and the entrepreneurs. You’ve already explained the top level balance between the state controlling things, the market being allowed a decisive say. And you mentioned at least there’s language about being a bit more predictable or routine in the policymaking. Why is that so important to entrepreneurs in the China of 2024?

Simon Cox [00:19:54] So back in 2021, we saw what’s become called the regulatory storm. And this was a blizzard of new regulations, new fines, new punishments for some of China’s most high profile entrepreneurial companies, particularly in the tech sector. And we saw the whole of the edtech sector and for profit tutoring basically shut down by fiat. Now, each of those regulations taken in isolation probably had some legitimate rationale, but the introduction of them altogether, without a great deal of advance consultation and without any great sense of where they would end, meant that entrepreneurs just concluded the party didn’t want them to succeed, and that China was uninvestable, that it was just simply so unpredictable, and the policymaking was so capricious that you couldn’t build a business for the long term.

Simon Cox [00:19:54] So back in 2021, we saw what’s become called the regulatory storm. And this was a blizzard of new regulations, new fines, new punishments for some of China’s most high profile entrepreneurial companies, particularly in the tech sector. And we saw the whole of the edtech sector and for profit tutoring basically shut down by fiat. Now, each of those regulations taken in isolation probably had some legitimate rationale, but the introduction of them altogether, without a great deal of advance consultation and without any great sense of where they would end, meant that entrepreneurs just concluded the party didn’t want them to succeed, and that China was uninvestable, that it was just simply so unpredictable, and the policymaking was so capricious that you couldn’t build a business for the long term.

David Rennie [00:20:46] Yeah, I’m getting flashbacks. I think some of the very first episodes of Drum Tower, you know, Alice and I would be talking about there’s a pandemic underway that’s already a giant problem. And then at the same time, what are we seeing? We’re seeing loans available to housing developers being squeezed because they think that they’re over indebted. And then you see Xi Jinping deciding, as you say, that for profit tutoring sector that employed millions of graduates as English tutors, math teachers. They’re all banned overnight. And it was just one after the other of the big tech companies, huge multi multi-billion dollar IPO is where they were going to go to list on the stock exchange in Shanghai or even in New York. And suddenly the state, the party intervenes and says, no, you’re not allowed to. So do you see a kind of really strong, clear, unmistakeable response to that anxiety in this third plenum?

David Rennie [00:20:46] Yeah, I’m getting flashbacks. I think some of the very first episodes of Drum Tower, you know, Alice and I would be talking about there’s a pandemic underway that’s already a giant problem. And then at the same time, what are we seeing? We’re seeing loans available to housing developers being squeezed because they think that they’re over indebted. And then you see Xi Jinping deciding, as you say, that for profit tutoring sector that employed millions of graduates as English tutors, math teachers. They’re all banned overnight. And it was just one after the other of the big tech companies, huge multi multi-billion dollar IPO is where they were going to go to list on the stock exchange in Shanghai or even in New York. And suddenly the state, the party intervenes and says, no, you’re not allowed to. So do you see a kind of really strong, clear, unmistakeable response to that anxiety in this third plenum?

Simon Cox [00:21:34] It does include suggestions that they recognise that private sector confidence has been hit, and that they need to proceed differently in the future. But they’ve said all of that several times over the last couple of years, and it’s not cutting through. And what this document doesn’t do is anything different. Basically, it says we’ll pass a private sector protection law. We’ll address arbitrary and capricious inspections and fees, mostly from lower levels of government, and we’ll try and scrutinise regulation. It doesn’t say we made a mistake. We’re sorry. We’re not going to do it again. It would be perhaps too much to expect them to do that. Although, of course, the big thing about the 1978 plenum was that they did admit mistakes they had made.

Simon Cox [00:21:34] It does include suggestions that they recognise that private sector confidence has been hit, and that they need to proceed differently in the future. But they’ve said all of that several times over the last couple of years, and it’s not cutting through. And what this document doesn’t do is anything different. Basically, it says we’ll pass a private sector protection law. We’ll address arbitrary and capricious inspections and fees, mostly from lower levels of government, and we’ll try and scrutinise regulation. It doesn’t say we made a mistake. We’re sorry. We’re not going to do it again. It would be perhaps too much to expect them to do that. Although, of course, the big thing about the 1978 plenum was that they did admit mistakes they had made.

David Rennie [00:22:21] So let’s talk about the second item on the list, which is the housing sector. It’s almost impossible to describe how important that is economically and politically right. It is a quarter of the Chinese economy is real estate roughly? And it is the vast majority of ordinary Chinese families, their savings are in apartments, maybe one, maybe one, 2 or 3 if they had extra savings. And so for that housing market to be either stagnant or in some cities in decline is just an absolutely extraordinarily big deal. And when I go out into kind of provincial China, you drive past these housing complexes, some of which where the work has sort of halted, or where the sales office is deserted because people are frightened to buy where they’re not sure what’s happening to prices and that’s exactly what you see all over Chinese social media, even with the censorship.

David Rennie [00:22:21] So let’s talk about the second item on the list, which is the housing sector. It’s almost impossible to describe how important that is economically and politically right. It is a quarter of the Chinese economy is real estate roughly? And it is the vast majority of ordinary Chinese families, their savings are in apartments, maybe one, maybe one, 2 or 3 if they had extra savings. And so for that housing market to be either stagnant or in some cities in decline is just an absolutely extraordinarily big deal. And when I go out into kind of provincial China, you drive past these housing complexes, some of which where the work has sort of halted, or where the sales office is deserted because people are frightened to buy where they’re not sure what’s happening to prices and that’s exactly what you see all over Chinese social media, even with the censorship.

David Rennie [00:23:14] This is an estate agent, a realtor from Xinxiang, from Henan province telling people not to buy houses because the prices are sliding and anyone who invests will lose their money.

David Rennie [00:23:14] This is an estate agent, a realtor from Xinxiang, from Henan province telling people not to buy houses because the prices are sliding and anyone who invests will lose their money.

Simon Cox [00:23:24] Yeah, and actually, it’s worse than that because even people who’ve already bought houses are waiting for them to be delivered. And the fact that there have been these delays that property developers have run out of cash with housing projects half built, that deters people who might otherwise buy a house.

Simon Cox [00:23:24] Yeah, and actually, it’s worse than that because even people who’ve already bought houses are waiting for them to be delivered. And the fact that there have been these delays that property developers have run out of cash with housing projects half built, that deters people who might otherwise buy a house.

David Rennie [00:23:39] And we’ve seen plenty of rhetorical pressure from top leaders calling on property developers to finish these apartments. There have been economists calling for more than rhetorical pressure. Did they get what they wanted from this party plenum?

David Rennie [00:23:39] And we’ve seen plenty of rhetorical pressure from top leaders calling on property developers to finish these apartments. There have been economists calling for more than rhetorical pressure. Did they get what they wanted from this party plenum?

Simon Cox [00:23:52] No. Emphatically not. This decision devoted only half of a section to housing directly. They’ve made the judgement that a plenum, which is supposed to handle long term reforms, is not the place to discuss crisis fighting measures. And they’ve clearly come to the judgement that the property crisis is not a long term issue. And let’s hope they’re right. But it’s been going on for three years already. So what economists have called for is much more direct central government intervention. We’re past the point where we can rely on local governments themselves to fix this problem, and it might require something quite blunt like a special fund with central government backing that just buys up unfinished properties and gives developers, therefore, the cash they need to complete them. We don’t see anything like that in this document.

Simon Cox [00:23:52] No. Emphatically not. This decision devoted only half of a section to housing directly. They’ve made the judgement that a plenum, which is supposed to handle long term reforms, is not the place to discuss crisis fighting measures. And they’ve clearly come to the judgement that the property crisis is not a long term issue. And let’s hope they’re right. But it’s been going on for three years already. So what economists have called for is much more direct central government intervention. We’re past the point where we can rely on local governments themselves to fix this problem, and it might require something quite blunt like a special fund with central government backing that just buys up unfinished properties and gives developers, therefore, the cash they need to complete them. We don’t see anything like that in this document.

David Rennie [00:24:43] And let’s talk about fiscal reform, a sentence not often said except on Drum Tower, we’re proud to say things like that. The way that many Chinese local governments, city governments, district governments have raised a really big chunk of their own revenues over the last few decades of boom year was that they sell land to developers, and those land sales, they gets to keep a lot of the proceeds. And if there’s no one building new apartments, there’s no one buying new plots of land at land auctions. And that has been just an enormous headache for already struggling, in many cases, heavily indebted local governments. Everyone was waiting to hear what the third plenum said about local government debt, local government finance. Did you see anything that you think will reassure a lot of Chinese officials and observers?

David Rennie [00:24:43] And let’s talk about fiscal reform, a sentence not often said except on Drum Tower, we’re proud to say things like that. The way that many Chinese local governments, city governments, district governments have raised a really big chunk of their own revenues over the last few decades of boom year was that they sell land to developers, and those land sales, they gets to keep a lot of the proceeds. And if there’s no one building new apartments, there’s no one buying new plots of land at land auctions. And that has been just an enormous headache for already struggling, in many cases, heavily indebted local governments. Everyone was waiting to hear what the third plenum said about local government debt, local government finance. Did you see anything that you think will reassure a lot of Chinese officials and observers?

Simon Cox [00:25:30] I thought it was better on that issue. Yes. I think there was quite a lot of discussion about how local governments could finance themselves. There was discussion about bigger transfers from the central government. There was discussion that the central government itself should take on a bigger role in spending. And there are a couple of ideas on taxes, too. They’ve talked about combining three existing taxes into one, giving local governments the discretion to change the rate for that tax within a certain range. So, you know, it’s in the weeds stuff, but at least there is some recognition that some new revenue model will be needed.

Simon Cox [00:25:30] I thought it was better on that issue. Yes. I think there was quite a lot of discussion about how local governments could finance themselves. There was discussion about bigger transfers from the central government. There was discussion that the central government itself should take on a bigger role in spending. And there are a couple of ideas on taxes, too. They’ve talked about combining three existing taxes into one, giving local governments the discretion to change the rate for that tax within a certain range. So, you know, it’s in the weeds stuff, but at least there is some recognition that some new revenue model will be needed.

David Rennie [00:26:04] And that’s politics too, right? Since the third plenum decision came out. I have seen commentators who are essentially kind of part of the party state apparatus saying, you see, that shows how the party is listening to economists. Remember David Li Daokui, who we heard talking about the housing sector. Well one of the things that he has been talking about recently is you create an incentive for local governments to try and improve consumption and consumer demand in their local area, if they get to keep a bit more of the sales taxes, when something like a kind of shiny new car is sold. That’s the message we’re hearing from the kind of the official approved commentators. You think that’s reasonable?

David Rennie [00:26:04] And that’s politics too, right? Since the third plenum decision came out. I have seen commentators who are essentially kind of part of the party state apparatus saying, you see, that shows how the party is listening to economists. Remember David Li Daokui, who we heard talking about the housing sector. Well one of the things that he has been talking about recently is you create an incentive for local governments to try and improve consumption and consumer demand in their local area, if they get to keep a bit more of the sales taxes, when something like a kind of shiny new car is sold. That’s the message we’re hearing from the kind of the official approved commentators. You think that’s reasonable?

Simon Cox [00:26:41] Yeah, I think so. I mean, I think one, you know, charitable interpretation of this document is that it’s about long term reforms. And so it’s really looking ahead to what housing market will do and will look like after the crisis is over. And so they obviously want a more stable housing market, one in which rental housing plays a bigger role and one where local governments aren’t so dependent on housing to finance themselves.

Simon Cox [00:26:41] Yeah, I think so. I mean, I think one, you know, charitable interpretation of this document is that it’s about long term reforms. And so it’s really looking ahead to what housing market will do and will look like after the crisis is over. And so they obviously want a more stable housing market, one in which rental housing plays a bigger role and one where local governments aren’t so dependent on housing to finance themselves.

David Rennie [00:27:08] Let’s turn to the third item on the list, which is something much more immediate, which is this crisis of consumer confidence. And again, you see that all over Chinese social media.

David Rennie [00:27:08] Let’s turn to the third item on the list, which is something much more immediate, which is this crisis of consumer confidence. And again, you see that all over Chinese social media.

David Rennie [00:27:24] Here’s a vlogger called Kai Wen just talking about the crisis of confidence for business bosses and the people who work for them. So, Kai Wen there is talking about the most fashionable kind of buzz phrase of 2024, is that if you are a business owner who sells your own business, you’re going to end up in debt. And if you’re an employee working for a business, you’re going to end up delivering someone’s bubble tea to them on an electric scooter. And I think, you know that a lot of Chinese will be nodding along if they saw that video.

David Rennie [00:27:24] Here’s a vlogger called Kai Wen just talking about the crisis of confidence for business bosses and the people who work for them. So, Kai Wen there is talking about the most fashionable kind of buzz phrase of 2024, is that if you are a business owner who sells your own business, you’re going to end up in debt. And if you’re an employee working for a business, you’re going to end up delivering someone’s bubble tea to them on an electric scooter. And I think, you know that a lot of Chinese will be nodding along if they saw that video.

Simon Cox [00:27:49] So this is both a chronic and an acute problem. So for as long as I’ve been writing about China’s economy, economists have been complaining that consumer spending is too small a share of GDP. That is, China relies too much on exports and investment and not enough on its own consumption to buy the stuff it makes. But there’s also the acute problem, which was had - zero-Covid. We’ve had that property market downturn. And as a result, consumer confidence is much lower than it used to be and doesn’t show many signs of improving. And that also shows up in the spending figures, which did bounce back a bit after the Covid restrictions were lifted. But it’s still way below the trend you’d have expected pre-pandemic and has slowed down in recent months.

Simon Cox [00:27:49] So this is both a chronic and an acute problem. So for as long as I’ve been writing about China’s economy, economists have been complaining that consumer spending is too small a share of GDP. That is, China relies too much on exports and investment and not enough on its own consumption to buy the stuff it makes. But there’s also the acute problem, which was had - zero-Covid. We’ve had that property market downturn. And as a result, consumer confidence is much lower than it used to be and doesn’t show many signs of improving. And that also shows up in the spending figures, which did bounce back a bit after the Covid restrictions were lifted. But it’s still way below the trend you’d have expected pre-pandemic and has slowed down in recent months.

David Rennie [00:28:32] And there’s a link there, right, Simon, with the kind of the high level policy decided in the Jingxi Hotel and the lives of ordinary Chinese because one big, big reason ordinary Chinese don’t spend and they save incredible amounts is because they worry about the lack of a social safety net. They know that if someone gets sick in their family, that a lot of people have very skimpy public health insurance, particularly if they live in the countryside or they’re migrant workers, and it can bankrupt a family to have someone get sick. And so they save incredible amounts. And that makes China very resilient in ways that I think it’s easy to overlook from the outside. That’s why people could survive during the pandemic when they didn’t have any income for months on end. But it also makes them very cautious. And that’s the link with this high level policy, right? That if you want people to save less and spend more, you have to build some safety nets. And that means people are looking for signs of really. Pretty significant signals, at least on, you know, more generous pensions, more generous public services, particularly things like health. What was your reading of that signalling coming out of this third plenum?

David Rennie [00:28:32] And there’s a link there, right, Simon, with the kind of the high level policy decided in the Jingxi Hotel and the lives of ordinary Chinese because one big, big reason ordinary Chinese don’t spend and they save incredible amounts is because they worry about the lack of a social safety net. They know that if someone gets sick in their family, that a lot of people have very skimpy public health insurance, particularly if they live in the countryside or they’re migrant workers, and it can bankrupt a family to have someone get sick. And so they save incredible amounts. And that makes China very resilient in ways that I think it’s easy to overlook from the outside. That’s why people could survive during the pandemic when they didn’t have any income for months on end. But it also makes them very cautious. And that’s the link with this high level policy, right? That if you want people to save less and spend more, you have to build some safety nets. And that means people are looking for signs of really. Pretty significant signals, at least on, you know, more generous pensions, more generous public services, particularly things like health. What was your reading of that signalling coming out of this third plenum?

Simon Cox [00:29:42] So I think they did get the signals. There was a promise to weave a tighter safety net. There were specifics. So for example, one of the concerns has been that gig workers fall outside of the current pension system. And so there’s a recognition that the pension system needs to change to accommodate more flexible forms of employment. There was a commitment to raise pensions, albeit gradually, and there was some interesting discussion of hukou reform, and in particular, one of the reasons migrant workers don’t actually accept urban hukou, even when it’s offered, is that it would require them to forfeit their claims to collectively owned land in their home villages. And this document did talk about making it easier for people to sell or transfer those claims to collectively owned land, which might sever the link with the countryside and allow people to settle more permanently in the cities, which should then have follow-on effects on consumption. It means that they could actually settle permanently, furnish their homes, bring their family, and so on, which is one way in which consumption could be raised over the medium and long term.

Simon Cox [00:29:42] So I think they did get the signals. There was a promise to weave a tighter safety net. There were specifics. So for example, one of the concerns has been that gig workers fall outside of the current pension system. And so there’s a recognition that the pension system needs to change to accommodate more flexible forms of employment. There was a commitment to raise pensions, albeit gradually, and there was some interesting discussion of hukou reform, and in particular, one of the reasons migrant workers don’t actually accept urban hukou, even when it’s offered, is that it would require them to forfeit their claims to collectively owned land in their home villages. And this document did talk about making it easier for people to sell or transfer those claims to collectively owned land, which might sever the link with the countryside and allow people to settle more permanently in the cities, which should then have follow-on effects on consumption. It means that they could actually settle permanently, furnish their homes, bring their family, and so on, which is one way in which consumption could be raised over the medium and long term.

David Rennie [00:30:48] Simon, what did you make of the charge that I’ve seen over the last couple of days from some commentators that, once again, there was a kind of really odd level of caution, given how serious the headwinds are, given how stormy the seas are for the ship of state, with Xi Jinping at the helm. A classic example that people would give is raising the retirement age, because China has an incredibly low retirement age for sort of blue collar women. It’s 50. For white collar women, it’s 55. And you saw the party talking very, very kind of I think the languages with appropriate flexibility and voluntary participation, we will explore gradually raising the retirement age in a prudent and orderly manner. So we have this top down, all powerful Communist Party, but they sometimes seem a bit spooked by their own public opinion. Is that fair?

David Rennie [00:30:48] Simon, what did you make of the charge that I’ve seen over the last couple of days from some commentators that, once again, there was a kind of really odd level of caution, given how serious the headwinds are, given how stormy the seas are for the ship of state, with Xi Jinping at the helm. A classic example that people would give is raising the retirement age, because China has an incredibly low retirement age for sort of blue collar women. It’s 50. For white collar women, it’s 55. And you saw the party talking very, very kind of I think the languages with appropriate flexibility and voluntary participation, we will explore gradually raising the retirement age in a prudent and orderly manner. So we have this top down, all powerful Communist Party, but they sometimes seem a bit spooked by their own public opinion. Is that fair?

Simon Cox [00:31:41] Yeah, I think so. Especially old people. Right? I mean, we saw with the vaccination campaigns during the zero Covid era that it was surprisingly difficult for this all powerful party to get elderly people jabbed. And I think this language does also reflect a slight tentativeness about the unpopularity of this reform. Similarly, you know, when they talk about welfare spending, they say, you know, we have to act within our means and that pension spending would increase gradually. They don’t want to overcommit. So I think there is a set of tentativeness about this that you’re probably right. It isn’t commensurate with the difficulties they face on the retirement age. I mean, one question you might ask is if they raise the retirement age today when consumer confidence is low, would that make people even more depressed? It might have perverse effects. So perhaps they’re just being cautious because of the economic climate we’re in.

Simon Cox [00:31:41] Yeah, I think so. Especially old people. Right? I mean, we saw with the vaccination campaigns during the zero Covid era that it was surprisingly difficult for this all powerful party to get elderly people jabbed. And I think this language does also reflect a slight tentativeness about the unpopularity of this reform. Similarly, you know, when they talk about welfare spending, they say, you know, we have to act within our means and that pension spending would increase gradually. They don’t want to overcommit. So I think there is a set of tentativeness about this that you’re probably right. It isn’t commensurate with the difficulties they face on the retirement age. I mean, one question you might ask is if they raise the retirement age today when consumer confidence is low, would that make people even more depressed? It might have perverse effects. So perhaps they’re just being cautious because of the economic climate we’re in.

David Rennie [00:32:30] And demographics, right? I mean, I think, you know, we should not underestimate that running China is an incredibly complex and difficult job. And yes, they need to raise the retirement age because their pension schemes are going to go bust. But at the moment, all of those newly retired 50 something grandmothers, they’re out in the parks providing free childcare for their adult children.

David Rennie [00:32:30] And demographics, right? I mean, I think, you know, we should not underestimate that running China is an incredibly complex and difficult job. And yes, they need to raise the retirement age because their pension schemes are going to go bust. But at the moment, all of those newly retired 50 something grandmothers, they’re out in the parks providing free childcare for their adult children.

Simon Cox [00:32:50] Yeah. And this document did include some sections on fertility and trying to make China a more childbirth friendly society, including tax breaks and potentially subsidies for people to have kids. So there was some recognition of that end of the demographic burden as well.

Simon Cox [00:32:50] Yeah. And this document did include some sections on fertility and trying to make China a more childbirth friendly society, including tax breaks and potentially subsidies for people to have kids. So there was some recognition of that end of the demographic burden as well.

David Rennie [00:33:12] So in the past, we have had people trying to toss up what percentage of previous plenums actually got implemented. I saw some commentator today saying that that 2013 plenum, the first one of Xi Jinping’s term as supreme leader, you could make a case that maybe 40% of the reforms in that, we can’t actually show what’s working but that’s the kind of game that we all have to play. Let’s ask a much more political question, which is why don’t reforms happen? I mean, the Communist Party controls everything. Xi Jinping controls the Communist Party. He has said these things are going to happen and then they don’t. What is the reason that these long laundry lists actually end up only being very, very partially fulfilled?

David Rennie [00:33:12] So in the past, we have had people trying to toss up what percentage of previous plenums actually got implemented. I saw some commentator today saying that that 2013 plenum, the first one of Xi Jinping’s term as supreme leader, you could make a case that maybe 40% of the reforms in that, we can’t actually show what’s working but that’s the kind of game that we all have to play. Let’s ask a much more political question, which is why don’t reforms happen? I mean, the Communist Party controls everything. Xi Jinping controls the Communist Party. He has said these things are going to happen and then they don’t. What is the reason that these long laundry lists actually end up only being very, very partially fulfilled?

Simon Cox [00:33:55] One answer is that what we think of reform might not be the same as what China thinks of as reform. So the 2013 plenum is seen as a disappointment. It’s seen as a document that raised expectations that were not fulfilled. But state media says that actually they’ve done 2485 reforms in the ten years since then. I think a more recent tally was over 3000 reforms, and some of them are really quite micro. For example, what the state planning agency was recently emphasising the fact that governments spend less on their car fleets than they used to. And there have also been some genuinely big changes. One child policy was abandoned. We’ve seen obviously some changes in hukou. In the financial sector, we’ve probably seen more changes, such as interest rates being liberalised. We’ve also seen energy prices, in particular electricity prices substantially liberalised. And if you look broadly over the last ten years, China’s economy has become much greener. The massive investment in clean energy has obviously changed the world. So it’s not that nothing’s happened. But I think in particular, people were hoping for a change in the balance between the private sector and the state owned enterprise sector. And there the party really seems to have abandoned any pretence to substantially reform state owned enterprises in the way that Zhu Rongji did before them.

Simon Cox [00:33:55] One answer is that what we think of reform might not be the same as what China thinks of as reform. So the 2013 plenum is seen as a disappointment. It’s seen as a document that raised expectations that were not fulfilled. But state media says that actually they’ve done 2485 reforms in the ten years since then. I think a more recent tally was over 3000 reforms, and some of them are really quite micro. For example, what the state planning agency was recently emphasising the fact that governments spend less on their car fleets than they used to. And there have also been some genuinely big changes. One child policy was abandoned. We’ve seen obviously some changes in hukou. In the financial sector, we’ve probably seen more changes, such as interest rates being liberalised. We’ve also seen energy prices, in particular electricity prices substantially liberalised. And if you look broadly over the last ten years, China’s economy has become much greener. The massive investment in clean energy has obviously changed the world. So it’s not that nothing’s happened. But I think in particular, people were hoping for a change in the balance between the private sector and the state owned enterprise sector. And there the party really seems to have abandoned any pretence to substantially reform state owned enterprises in the way that Zhu Rongji did before them.

David Rennie [00:35:15] I must admit, I always winced a bit when I see sort of foreign commentators saying that Xi Jinping is simply ignorant, that he doesn’t understand how the Chinese economy works. It seems to me much more persuasive that he is ideological and that he sets different stall by different risks. He worries more about some risks than others. And I guess that’s where it all joins up, right? Is that if you think that you’re essentially running a country that is under siege, that is being attacked, that has to husband its resources, and like a general trying to work out where to move your troops, that helps you run the economy or that pushes you to run the economy in a very defensive way. But you are, I think, saying that they need to understand that when they talk about openness, they need to mean it. China isn’t a fortress. The drawbridge needs to stay down because they can actually grow the economy by staying open. They don’t have to think of this as a fixed pot of resources.

David Rennie [00:35:15] I must admit, I always winced a bit when I see sort of foreign commentators saying that Xi Jinping is simply ignorant, that he doesn’t understand how the Chinese economy works. It seems to me much more persuasive that he is ideological and that he sets different stall by different risks. He worries more about some risks than others. And I guess that’s where it all joins up, right? Is that if you think that you’re essentially running a country that is under siege, that is being attacked, that has to husband its resources, and like a general trying to work out where to move your troops, that helps you run the economy or that pushes you to run the economy in a very defensive way. But you are, I think, saying that they need to understand that when they talk about openness, they need to mean it. China isn’t a fortress. The drawbridge needs to stay down because they can actually grow the economy by staying open. They don’t have to think of this as a fixed pot of resources.

Simon Cox [00:36:04] Well, can I return to the restaurant metaphor one last time and say.

Simon Cox [00:36:04] Well, can I return to the restaurant metaphor one last time and say.

Is Xi Jinping doing enough to fix China’s economy?

Our podcast on China. This week, following the recent third plenum, we unpack the ruling party’s vision of economic reform

Transcript

Explore more

More from Podcasts

What China’s struggle with myopia reveals about the country

Africa did not need cables to go mobile. To keep up with AI, now it does

Why Europe needs Germany to step up

Are Israel and Hizbullah on the brink of all-out war?

Lessons on identity politics for Kamala Harris

A rock in a hard place