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President Xi Jinping unveiled sweeping plans to bolster the finances of China\u2019s indebted local governments, as the ruling Communist Party announced its long-term blueprint for the world\u2019s second-largest economy.<\/p>\n
China\u2019s top leader mapped out measures for fixing the debt crisis facing regional authorities in a near-22,200 character\u00a0resolution<\/a>\u00a0published by the official Xinhua News Agency on Sunday. Those plans centered around shifting more revenue from the central to local coffers, such as by allowing regional governments to receive a larger share of consumption tax.<\/p>\n Xi\u2019s proposals mark the \u201cthird major taxation and fiscal reform\u201d in recent history, said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered<\/a> Plc. He cited the 1994 move to increase central governments\u2019 share of revenue over regional authorities, and a string of decisions starting in 2013 that allowed localities to issue bonds on their own, as the other major shifts.<\/p>\n \u201cThe central government\u2019s income was set too high and now it\u2019s being adjusted,\u201d Ding said of the framework set under then President Jiang Zemin. The changes \u201cwill alleviate the imbalance between the central and local government\u2019s spending responsibilities and income,\u201d he added.<\/p>\n Xi presided over a twice-a-decade conclave in Beijing this month, where some 400 senior officials endorsed his vision for advanced manufacturing to propel China\u2019s $17 trillion economy. The resolution from that conclave signaled that while the top leader is fine-tuning policies to manage risks, no major shifts are afoot in his overarching plans.\u00a0<\/p>\n Chinese policymakers are under pressure to resolve local governments\u2019 66 trillion yuan ($9.1 trillion) hidden debt crisis and rebalance the economy, as foreign leaders accuse Beijing of using exports to compensate for weak demand at home. Giving a larger portion of consumption tax to regions could address both issues by incentivizing officials to lift consumer spending and offering them a new finance stream.<\/p>\n Slapping additional taxes on goods, however, risks stifling sentiment further among Chinese consumers already reluctant to spend due to a property slump that\u2019s hitting their primary store of wealth. Retail sales rose at the slowest pace last month since December 2022, as China\u2019s second-quarter growth figures undershot expectations.<\/p>\n Officials also pledged to give city governments more autonomy in regulating local property markets, in line with policies over the past two years that allowed localities to better arrest the housing downturn. They also vowed to build more subsidized housing, as well as reforming the pre-sale model, which has led to developers being unable to deliver millions of homes already paid for by residents.<\/p>\n China\u2019s most-powerful leader since Mao Zedong said in a separate explanation that national security had been put in a \u201cmore prominent\u201d position by the four-day conclave, suggesting its preeminence over the economy. The official resolution, however, stated Beijing would strive to \u201cachieve positive interactions\u201d between development and security.\u00a0<\/p>\n Officials also signaled a potential expansion to Beijing\u2019s surveillance architecture, vowing to \u201cexplore and establish a national unified population management mechanism.\u201d That marked the first use of that phrase by senior leaders.\u00a0<\/p>\n \u201cXi\u2019s emphasis on security shows that the development is eventually aimed at protecting national security,\u201d said\u00a0Alfred Wu<\/a>, an associate professor at the National University of Singapore\u2019s Lee Kuan Yew School of Public Policy.<\/p>\n Investors may find their hopes were too high for the Third Plenum, he added, noting the report was mostly \u201csprinkling\u201d vague measures rather than signaling concrete changes.<\/p>\n Markets reacted\u00a0poorly<\/a>\u00a0to the lack of policy signals in an initial communique published after the gathering wrapped Thursday. More specific policies could be unveiled later this month by a meeting of the 24-man Politburo which focuses on economic policies for the year in July.\u00a0<\/p>\n Xi last used the Third Plenum to chart economic reform in 2013, when investors were waiting for the new president\u2019s long-term vision to become clear. The top leader has since consolidated power with a precedent-defying third term and well-telegraphed his vision for weaning the nation off boom-and-bust debt cycles. That was reflected in the resolution, which served as a continuation of his long-term vision.\u00a0<\/p>\n Advancing \u201chigh quality development\u201d featured prominently in the report \u2014 a vague slogan typically interpreted to emphasize the quality of economic growth over its absolute pace. It centers on Xi\u2019s ambitions to propel China\u2019s economy by moving up the value chain through tech innovation.<\/p>\n China will also strive for \u201crevolutionary breakthroughs in technologies,\u201d top leaders said, vowing policy improvements for developing sectors including artificial intelligence, new materials and quantum technology. The nation also pledged to develop more controllable supply chains for areas including integrated circuits and advanced materials.<\/p>\n Developing chips and AI is central to Beijing\u2019s broader vision of replacing technology from the US, which is increasingly trying to ring-fence China. Economists have listed technology self-sufficiency as among the top three economic issues Chinese leaders must tackle in the medium-to-long term.<\/p>\n \u201cI think the third plenum did not change the government\u2019s policy objectives,\u201d said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, \u201cbut it introduced new measures to achieve such objectives.\u201d<\/p>\n<\/div>\nRecommended Newsletter: <\/strong>CEO Daily provides key context for the news leaders need to know from across the world of business. Every weekday morning, more than 125,000 readers trust CEO Daily for insights about\u2013and from inside\u2013the C-suite. Subscribe Now<\/a>.<\/div>\n