The ponderously named Third Plenary Session of the 18th Central Committee of the Chinese Communist Party, which takes place this weekend, is a more important event for the world economy and for global geopolitics than the budget battles, central bank meetings and elections that attract infinitely more attention in the media and financial markets.
The obvious reason for this meeting’s importance is that China is destined in the long run to become the world’s biggest economy and a political superpower. And the Third Plenum, traditionally held roughly 12 months after the appointment of a new Party leadership, has been used twice before as an occasion for the new leaders to spell out the main strategies they hoped to implement as they consolidated their power. At the Third Plenum in 1978, Deng Xiaoping launched the market reforms that unleashed the power of the profit motive in China, and it was at the corresponding event in 1993 that Jiang Zemin accelerated the process of dismantling state-owned enterprises and integrating China into the world economy that culminated with China’s accession to the World Trade Organization in 2001.
A second, more immediate, reason for the world to pay attention to this weekend’s meeting is that China has recently become not just the strongest engine of growth in the world economy, but also the biggest source of potential economic surprises, both good and bad.
In 2009, China’s astonishingly ambitious economic stimulus program probably did more to prevent a depression than anything that happened in Washington, Frankfurt or Brussels — especially in Europe and Germany, which was the biggest beneficiary of the explosion in Chinese infrastructure investment. Last summer, by contrast, it was the panicky reaction of Chinese financial markets to Ben Bernanke’s hint of a “tapering” of the Fed’s monetary stimulus, that transformed what might have been an orderly correction of U.S. bond prices into the “taper tantrum” which slowed economic growth around the world. The lesson from this experience, and the subsequent downward revisions of global growth projections by the IMF and other forecasters this autumn, was that the biggest risks to the growth of the world economy now come from uncertainties about the strength of China and other emerging economies, not from the inevitable weakness of Europe, nor from the clear but disappointing recovery in the U.S.
What, then, might this weekend’s meeting imply for China’s future? Since China is far from a democracy or an open society and the Communist Party’s meetings are not open to the media or the public, the true answers may not emerge for months or even years. But expectations are running high. President Xi Jinping declared this week that the Third Plenum would offer a plan for “comprehensive reforms” that would transform China’s mode of development and readjust the economic structure through a “new style of industrialization, urbanization, technology and agricultural modernization.” One of Xi’s key allies, Politburo Standing Committee member Yu Zhengsheng, raised the stakes further by predicting “unprecedented” policy changes. And Li Keqiang, the prime minister, whose job is actually to put any new policies into practice, has already endorsed detailed blueprints presented by government think tanks, with considerable input from the World Bank and IMF, to transform the economy and double Chinese living standards by 2020.