China Needs Detailed Reform Solutions Post-Third Plenum

The Third Plenum of the Chinese Communist Party has outlined the strategic framework for reform, setting forth key directions and principles. However, the ultimate success of these reforms will depend on the specifics of the reform plans and their effective implementation.

It is crucial for the Chinese authorities to recognize that refining reform solutions must address several fundamental, often overlooked conditions that reflect the current social realities in China:

The aging population is a significant concern, with projections indicating that the elderly will make up 30% of the population. This demographic shift is impacting both older and younger age groups. Urban shrinkage is another issue; despite an urbanization rate of 66%, the trend is likely to decline, leading to reverse urbanization.

At the same time, declining incomes and the influx of rural populations into cities due to past urbanization are expected to lead to a downgrade in consumption. Additionally, Chinese enterprises are increasingly looking to global markets as a result of excess production capacity and the need for survival and growth.

The decline in fiscal revenue is another pressing challenge, as the downturn in the real estate sector reduces various forms of debt and tax revenue. Geopolitical risks and social pressures are also causing a steady outflow of foreign companies from China. The real estate market itself is suffering from issues related to aging, land finance, income changes, debt, and oversupply.

Likewise, the decline in the economic growth rate, driven by structural changes, has significant implications. The depreciation of the Renminbi is reducing its purchasing power and affecting imports, while rising social costs are creating an unsustainable burden that is likely to worsen.

These conditions create a complex web of interrelated challenges that complicate the implementation of the Third Plenum’s major policies, affecting system integration, overall coordination, and convergence. Addressing these contradictions will be crucial for developing effective reform plans.

To tackle the challenge of increasing consumption amidst declining incomes, innovative strategies are crucial. Similarly, boosting revenue despite widespread business closures is essential. Managing the balance between delaying retirement and rising unemployment presents a significant challenge. It is also imperative to increase non-tax revenue despite reduced tax revenue and to encourage home purchases despite new property taxes.

For China, careful planning is required to build a unified large market while expanding local tax powers. Enhancing state-owned enterprises while promoting private sector growth, addressing unsold homes while maintaining financial stability, and expanding direct financing while tightening securities regulation are all important tasks. Additionally, transforming small-scale experimental technologies into productive forces is vital.

With only five years remaining until the 2029 reform deadline and numerous emerging possibilities, the task of reform is extraordinarily challenging. Whether the Chinese economy can stabilize, avoid risks, and regain vitality will largely depend on the effectiveness and success of the reform plans introduced during this period.

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