This fairytale village in ruins symbolises state of China’s economy

But this year, despite the country’s economic woes, many China watchers and analysts hold low expectations that President Xi Jinping will use the third plenum to lay out a blueprint for major policy reform after more than a decade in power.

“Xi cares about the economy but he cares more about national security and his No.1 priority right now is reducing China’s dependence on Western technology,” says Neil Thomas, a fellow at the Asia Society Policy Institute’s Centre for China Analysis.

China’s economy is not doing well, Thomas says, but nor is it on the verge of collapse, though there are obvious longer-term risks for Xi in failing to lay out a pathway for arresting the downturn.

“A plenum that fails to deliver a convincing reform plan will further damage business confidence in Xi’s leadership and create new challenges for China’s growth trajectory,” he says.

Details are scant about the agenda to be discussed by the roughly 400 members of the CCP’s Central Committee, one of the party’s top governing bodies, when they meet for the third plenum over three days from July 15-18.

But a recent meeting of the party’s 24-member Politburo, led by Xi, concluded there would be a “resolution on comprehensively deepening reform and advancing Chinese modernisation”, with the aim of establishing a “a high-level socialist market economy system” by 2035.

In the lead-up to plenum, Chinese state media has quoted Xi emphasising the goal of “high-level opening up” through scientific and technology advancements, which the party has seen as key to self-sufficiency as the US and its allies look to reduce reliance on Chinese supply chains.

In one report by state media group Xinhua news agency, Xi highlighted property security, employment, income growth, education and healthcare as being among key areas of pressing concern to the public and in need of reform.

This has led many analysts to predict that the plenum will produce sweeping pledges of reform in areas such as manufacturing, social safety net, taxation, and boosting private sector investment, but these would not be matched by a transformative policy strategy.

“That may excite hope of substantial change but, in the Party’s eyes, it has been engaged in comprehensive reform for the past decade. China’s leadership shows no sign ahead of the plenum of thinking that a change of direction is needed,” Capital Economics chief Asia economist Mark Williams said in recent research note.

The CCP’s central committee typically holds seven plenary meetings during each five-year term, with the third plenum historically devoted to the economy. Ever since Deng Xiaoping used the 1978 third plenum to lay out his landmark plan for “reform and opening up”, the meeting has been associated with expectations of substantial long-term reform, but it has struggled to live up to this legacy in recent times.

Alfred Wu, a Chinese politics expert at Singapore’s Lee Kuan Yew School of Public Policy, said he expected the third plenum to be infused with a heavy propaganda narrative putting a rosy spin on the economic situation.

“The Chinese central government is out of touch with the market. The market has suggested that the situation is bad, they need to do something, but they will say people just need to have a better mindset,” he says.

In the space of several decades, the Chinese economic “miracle” has lifted hundreds of millions of people out of poverty through its model of state-powered capitalism. But this model has been heavily strained by the property market collapse, which has hammered the country’s rising middle classes, with reverberations felt across the economy and all levels of Chinese society.

At its peak in 2020, the real estate sector accounted for as much as 30 per cent of China’s GDP, while Chinese households had 80 per cent of their wealth tied up in property.

The boom and then bust has left an oversupply of tens of millions of unsold homes across the country, while hundreds of thousands of Chinese investors were left stuck paying mortgages on properties that may never be completed or occupied.

In May, the Chinese government took dramatic steps to try and rescue the sector, including a 300 billion yuan ($61.2 billion) central bank loan program for local governments to buy unsold residential stock and convert it into affordable housing.

The bank also abolished the national mortgage interest rate for first and second-home buyers and slashed the minimum down payment requirements.

Rory Green, chief China economist at GlobalData TS Lombard, says the Chinese economy was now running at multiple speeds, with advanced manufacturing industries like electric vehicles and solar panels surging with investment while the real estate sector languished.

The broader Chinese population was not feeling the impact of the high-tech boom because those industries didn’t employ as many people or have the same deep connections to the economy as the property sector.

“It’s all very well that China is going to be an advanced manufacturing superpower,” Green says. “But the [government’s] slogans are quite hollow for everyone in China – the property drag overwhelms any kind of feel good sentiment that comes off the EV side.”

Green says that while the plenum was unlikely to deliver a big-hitting policy agenda that would get people excited about China’s growth model once again, he was optimistic that it would plant roots for longer-term structural reform. This could include raising taxes to fund changes to the Hukou system (the internal passport system that determines where people can live and work), and pension reform, he says.

‘Each year is worse than the previous one. I have no confidence in my future income.’

Chinese bean stand owner Mr Wei

For those caught in the ebbing tide of China’s economic miracle, each day is a grind.

Mr Wei, 52, who owns a smelly bean curd stand in Huaguoyuan, lives in a 90 square-metre flat with seven of his family members, including his four grandchildren. Even with the collapse in property prices, he doesn’t have enough money to buy a bigger home.

“Each year is worse than the previous one. I have no confidence in my future income,” he says.

For Zhang Xiaogang, 40, a father-of-two who resorted to working as a taxi driver after he was forced to close his Sichuan restaurant during the pandemic, the dream of purchasing a home has evaporated as he struggles to make ends meet.

“I feel like I’m drifting along now. Every living person knows the economy is bad. For example, I could make 300 yuan a day before pandemic but now I’m making less than a third of that,” he says.

As for Evergrande’s abandoned fairytale wonderland in Guiyang, a proposal by architecture student Fan Yunheng to turn the sprawling ruins into a cemetery won top prize at the Central Academy of Fine Arts, China’s most prestigious art academy.

A moribund result for the broken real estate dream that has become a nightmare for so many in China.

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