After endless speculation, analysis and discussion, we finally have specific dates for the Third Plenum of the 20th Communist Party Congress, at which the economy will be discussed and a slew of new policies will no doubt be announced. The dates are July 15 to July 17, and the announcement of the dates indicate that Those in Command have already decided precisely what will be said and announced at the actual Plenum.
Amongst all the articles reviewing the possibilities and prospects for the Third Plenum, there is an apparent consensus that there will be a revision to the complex tax relationship between the central government and local government. This has become a major concern in the past few years, given the dramatic downturn in the state of the property market, in that land sales used to be the primary revenue earner for local governments, but now this has almost entirely dried up.
Whatever the announcements are, they will be aimed at addressing the fundamental lack of confidence in the state of China’s current economic system and prospects for the future that infects investors and consumers alike. The degree of uncertainty and discontent may vary from one place to another, one person to another, but the almost unanimous view—that there is a problem—is in many ways unprecedented and the Center has to address it. It would appear from the announcements that they have got that point, but the fundamental difference as to the priorities in recent years has been whether national security or economic development should take first place. What the markets are looking for is a clear indication that economic development is back in the driving seat, and the assumption is that at least atmospherically the announcements at the Third Plenum will address that. But there is still a deep belief, it would seem, amongst Those in Command that national security should be the priority, and the markets will be looking to see how much substance there is behind the announcement. If it appears to be more or less a formalistic nod in the direction of economic development, then the markets are going to react accordingly. Beyond that, there is no point speculating, because we just have to wait.
The main other piece of news was the debate between Trump and Biden Friday morning China time which will be a key element in determining how the presidential election in November plays out. The result of that will have an enormous impact on China, just as it will impact on the rest of the world. We leave other commentators to take a view on how the debate played out.
And with that—have a great weekend.