Plenum Means Full
How the October "Fifth Plenum" Filled China's Agenda
William C. McCahill Jr. offers his take on the recent “fifth plenum” of the Chinese Communist Party’s 19th Central Committee, which will inform the Chinese leadership’s strategy and policy on key social and economic issues.
The Central Committee of the Chinese Communist Party (CCP) met in full complement in late October for the fifth time in this 19th Central Committee’s term. At its end, this “fifth plenum” issued the communiqué traditional for such meetings, along with a raft of ancillary reports. To no one’s surprise, party media like the People’s Daily and the Global Times enthusiastically have endorsed the documents. But nonpartisan coverage of the meeting has been harder to come by this time around. With a score or more of the most experienced foreign journalists having been expelled from China, international media coverage of the plenum was slim compared to reporting on previous years’ plenums. This commentary will consider key outcomes from the meeting and provide a primer on the plenum format.
THE FIFTH PLENUM: DETERMINED SELF-RELIANCE
Devoid of quantitative targets (those will come later) and written in the CCP’s inimitable combination of cant, code, and cliché, the documents produced from the 19th Central Committee’s fifth plenum catalogued the party leaders’ aims for economic growth and social change over the next five years. Their plans had a familiar ring. Technological innovation came first on the list. It was followed by balanced economic growth emphasizing domestic consumption (now dubbed the “dual circulation” theory), “green” development, and “optimizing the spatial layout of the country in a new type of urbanization.” These goals were then complemented by promises of “a high level of opening up to the outside world…in a new situation of win-win cooperation,” social stability and domestic tranquility, and continued strengthening of military capabilities.
The world has heard all this before. Balanced growth and environmental remediation have been the stuff of party communiqués for at least a dozen years, since the duumvirate of Hu Jintao and Wen Jiabao led the party-state well before Xi Jinping came to the throne. Substantial state funds (i.e., taxpayer money) have been used to buy foreign “green” technologies that could be deployed in China to control air and water pollution, and were subsequently copied and exported. With cities constantly absorbing peripheral rural land in order to fund themselves by auctioning land use rights to developers, “new type of urbanization” means further amalgamation of villages into urban sprawl.
As for “dual circulation” theory—which sounds like a perpetual motion machine or your fridge on the fritz—the term is an imaginative locution for promoting domestic consumption, even as exports continue to pump wealth into the economy. Stimulating domestic consumption to complement China’s powerful export economy is an old canard, long recognized as one key to future economic growth in an aging and shrinking population. The problem is there is not that much domestic consumer purchasing power to be mustered.
A broad study of income distribution across 70,000 households in China estimated that 600 million people—43% of the nation’s population—lived on $150 per month or less, with many folk eking out an existence on considerably less. The study, moreover, was completed before the Covid-19 pandemic hit the Chinese economy, bringing massive unemployment and underemployment. While the survey separated Chinese social strata by varying disposable income levels, it gave no absolute definition of “middle class.” But if that group were defined as persons with a disposable monthly income between $715 and $1,430, the middle class in China would number only around 60 million people. Though an impressive testament to China’s growth, these numbers hardly suggest a large reservoir of consumer spending power. They do, however, raise questions about how Chinese consumers find the means to consume. The answers appear to be intergenerational transfers—thrifty parents give spendthrift children and grandchildren their money—and loans such as those offered through Ant Financial and its Tencent analogue. Reality check: do such numbers point to a viable economic trend?
If the plenum communiqué contained familiar content, its tone carried stronger notes of determination and self-reliance than previous statements of the genre. This urgency no doubt stems from the CCP leadership’s having recognized the deep, and increasingly precarious, degree of China’s economic dependence on foreign, particularly U.S., technologies. Nowhere is that dependence deeper or more precarious than in the semiconductor chips essential to virtually every electronic product China makes—from smartphones and telecom networks to military gear and the ubiquitous surveillance systems used to track its people, and even to the elevators whisking workers up Shanghai skyscrapers.
The Trump administration’s dogged and increasingly effective measures to control Chinese access to semiconductor technologies have not only fired loud warning shots across the CCP’s bows; they also have shredded the mainsails of China’s “national champions” of technology, most notably of Huawei, that telecom behemoth of mysterious ownership and a longtime thief of intellectual property from Cisco, Ericsson, and other victims. Although Beijing no longer speaks openly of its “Made in China 2025” scheme for subsidizing domestic chip production, state money continues to flow to putative producers, some 1,500 according to one recent count. Many chameleon companies can almost instantly change their “core” businesses in order to feast on whatever state subsidies might be offered by government economic plans. Most of the chipmakers will prove to be no different. Although more serious, mostly state-owned, chipmakers will endure, they will not likely be able to satisfy China’s needs, let alone to prosper, without the U.S., Korean, and Taiwan inputs now banned by U.S. sanctions. The CCP battle cries have been so loud that diaspora observers have begun comparing the state’s chip catch-up policies with the 1958 Great Leap Forward during which Mao’s call for China to exceed British steel production led to peasants melting down their pots, pans, and plows in backyard furnaces in order to meet national quotas. As has been well documented, most of the resulting lumps of metal were useless, and agriculture output suffered.
As for the “high level of opening up” and the “new situation of win-win cooperation,” foreign investors will be forgiven their déjà vu cynicism. Wags in the foreign business community in China have long understood “win-win cooperation” to mean “China wins twice.” Now, given their anxieties over “decoupling” and U.S. big business’s souring on China, CCP leaders have turned to Wall Street for both financial and political support. Hence, the weekend before the plenum, a large group of foreign bankers was invited to Shanghai to hear a pep talk from Wang Qishan. Still nominally state vice president, but no longer in the Politburo and reportedly having fallen from Xi’s grace, Wang emerged from political purdah to encourage his audience to take up China’s latest “opening up” of its financial markets.
These “new” policies promising greater access to China’s heavily protected financial services mark the fourth time in the past two decades that the country has “finally opened its financial market” to foreign players. This time the intended beneficiaries are investment banks and asset managers, who will now be invited to buy the debts of bankrupt Chinese companies and local governments, to bet more money in China’s stock exchanges, and somehow to help the country’s chimerical middle class invest their savings outside China. The investment bankers might well consult the retail bankers, insurance brokers, and credit card companies snookered in previous “openings” to foreign financial firms. Some of those firms made some money for some time, but most eventually realized that they could not compete with the Chinese party-state nor with the domestic rivals like Ping An Insurance that the state and the unwitting foreigners themselves had nurtured.
WHAT IS A PLENUM?
What can we expect to follow from the 19th Central Committee’s fifth plenum? Given the party-state’s increasing opacity under Xi Jinping, the following primer on the role of plenums in Chinese policymaking aims to provide context for interested observers watching developments in China over the coming months.
The CCP’s liturgical calendar comprises two overlapping five-year cycles: the term of a Central Committee and the party-state’s five-year plan. As the party returned to its more normal routines following the death of Mao Zedong in 1976, Deng Xiaoping and other leaders restored the rhythm of major party and central government meetings that had prevailed in the “nation-building” days of the 1950s and early 1960s. In this pattern, the party’s National Congress, including around 2,300 delegates in the current count, convenes once every five years. The Congress chooses the Central Committee, now around 300 full and alternate members, and from this committee is chosen the Political Bureau—or Politburo—as the top national leadership. To run the day-to-day affairs of the party-state, a smaller standing committee is named. The current Politburo Standing Committee numbers seven men, all lieges of the party’s head, General Secretary Xi Jinping. These seven live and work in Beijing, meeting frequently to direct China’s main organs of government: the State Council, the National People’s Congress, and the People’s Consultative Congress. The Politburo Standing Committee represents the pinnacle of political power, and Xi stands supreme atop it.
The CCP’s most recent National Congress, the 19th, met in October 2017; the 20th Congress will meet in the fall of 2022. As is customary, in the five-year period between these two national congresses, the 19th Central Committee serves as the party’s senior policymaking body. It ordinarily meets in a plenary session—a plenum—once a year, with two additional meetings in the first and fifth years of the Central Committee’s term, for a total of seven plenums. Although this has been the normal pattern over the past four decades, tumultuous events or dramatic policy shifts have occasionally been addressed in extraordinary plenums.
Also by custom, each of the annual plenums deals with a specific theme, such as social policies, party governance, or economic policy. The fifth plenums of Central Committees are devoted to outlining priorities for the five-year plan that will be promulgated the following year in the fifth year of the committee’s term. The plenum that met in Beijing in the last week of October was the fifth plenum of the 19th Central Committee, and its major public agenda item was sketching in broad strokes the 14th Five-Year Plan.
There are lots of seemingly repetitive numbers here, but the CCP loves numbers and numerology, and that is the way it keeps its calendar. The Central Committee chronology runs in five-year increments from the party’s founding in 1921. The five-year plan number series begins with the first such plan, installed on Soviet advice in 1952. The Chinese five-year plans once mimicked the Soviet style in amassing mountains of granular quantitative targets for industrial and agricultural output. More recent plans, however, have tended to outline broad macroeconomic and social policy objectives, leaving budget and other details to be filled in as policies evolve. The five-year plans run from the fifth year of one Central Committee through the fifth year of the subsequent committee. By spanning the political cycle, the plans allow some policy continuity and do not overload the political agenda surrounding the personnel transition from one Central Committee to the next.
Thus, the communiqué released from the 19th Central Committee’s fifth plenum should be read as a draft of a draft of the 14th Five-Year Plan. This notional draft will now be run through the party-state machinery, with each ministry, office, and locality having a crack at adding its pet projects and policies—or evading unwanted tasks. Early in the new year a more substantial draft will circulate among senior officials for revision, as well as for vetting to ensure ideological orthodoxy. The latter process is tricky but crucial in this “new era of Xi Jinping Thought.” If the normal schedule holds, in March 2021 the Politburo will baptize the bureaucratic camel and submit it to the National People’s Congress for its Potemkin endorsement.
Following the National Party Congress’s “legislative” approval, the 14th Five-Year Plan will be promulgated, with implementing guidelines and budget numbers subsequently added by the State Council as the plan’s goals are assigned to central and local government agencies. Assuming that precedent prevails, those agencies’ spending against targets will be highest in the plan’s first and fifth years: that is, in the first year as bureaucrats strive to show that they are “with the plan,” and in the final year as bureaucrats rush to spend any money left on the table. This process will sound familiar to anyone who has ever worked in the U.S. government. The key difference, however, is that the Chinese planners need not take voters’ views into account. But that is just more evidence of the “superiority of socialism with Chinese characteristics,” Xi Jinping and his paladins would contend.
William C. McCahill Jr. is a Senior Resident Fellow at the National Bureau of Asia Research (NBR). Before joining NBR, he worked in Hong Kong and China as the senior adviser for China at Mirabaud & Cie, and earlier in a similar capacity for Religare Capital Markets. A 25-year Foreign Service career preceded his business activities.