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Xi vows to restructure China’s finances, help debt-ridden regions
President Xi Jinping unveiled sweeping plans to shore up the finances of China’s debt-ridden local governments as the ruling Communist Party announced its long-term blueprint for the world’s second-largest economy.
China’s top leader mapped out measures to fix the debt crisis facing regional authorities in a nearly 22,200-character resolution published by the official Xinhua News Agency on Sunday. Those plans focused on shifting more revenue from central to local coffers, such as allowing regional governments to take a bigger share of consumption tax.
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Xi’s proposals mark the “third major fiscal and tax reform” in recent history, said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc. He cited the 1994 move to increase central governments’ share of revenue over regional authorities and a series of decisions starting in 2013 that allowed localities to issue bonds on their own as the other major changes.
“The central government’s revenue was set too high and is now being adjusted,” Ding said of the framework set by then-President Jiang Zemin. The changes “will ease the imbalance between the spending and revenue responsibilities of the central and local governments,” he added.
The yuan was little changed in early trading on Monday as investors digested the plenary statement and a surprise cut in short-term interest rates.
Xi presided over a twice-a-decade conclave in Beijing this month where about 400 top officials endorsed his vision of advanced manufacturing to boost China’s $17 trillion economy. The resolution from that conclave signaled that while the top leader is adjusting policies to manage risks, no major changes are underway to his overarching plans.
Chinese policymakers are under pressure to resolve a 66 trillion yuan hidden debt crisis for local governments and rebalance the economy, while foreign leaders accuse Beijing of using exports to offset weak domestic demand. Giving a larger share of the consumption tax to regions could address both problems, encouraging authorities to boost consumer spending and providing them with a new cash flow.
However, slapping additional taxes on goods risks further dampening sentiment among Chinese consumers, already reluctant to spend due to the housing slump hitting their main store of wealth. Retail sales rose at the slowest pace last month since December 2022 as China’s second-quarter growth figures fell short of expectations.
Officials also promised to give city governments more autonomy in regulating local housing markets, in line with policies over the past two years that have allowed localities to better stem the housing crisis. They also promised to build more subsidized housing and reform the pre-sale model that has led to developers failing to deliver millions of homes already paid for by residents.
China’s most powerful leader since Mao Zedong said in a separate statement that national security had been given a “more prominent” position by the four-day conclave, suggesting its preeminence over the economy. The official resolution, however, said Beijing would strive to “achieve positive interactions” between development and security.
Officials also signaled a potential expansion of Beijing’s surveillance architecture, vowing to “explore and establish a unified national population management mechanism.” It marked the first use of that phrase by senior leaders.
“Xi’s emphasis on security shows that development is ultimately about protecting national security,” said Alfred Wu, associate professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore.
Investors may feel their hopes were too high for the Third Plenum, he added, noting that the report was mostly “spewing out” vague measures rather than signaling concrete changes.
Markets reacted poorly to the lack of policy signals in an initial statement issued after the meeting ended on Thursday. More specific policies could be unveiled later this month by a meeting of the 24-man Politburo that focuses on economic policies for the year in July.
Xi last used the Third Plenum to chart economic reform in 2013, when investors were waiting for the new president’s long-term vision to become clear. The top leader consolidated power with a precedent-defying third term and telegraphed his vision to free the nation from boom-bust debt cycles. That was reflected in the resolution, which served as a continuation of his long-term vision.
The report’s push for “high-quality development” was highlighted — a vague slogan typically interpreted to emphasize the quality of economic growth rather than its absolute pace. It focuses on Xi’s ambitions to boost China’s economy by moving up the value chain through technological innovation.
China will also strive for “revolutionary breakthroughs in technologies,” the top leaders said, promising policy improvements for developing sectors including artificial intelligence, new materials and quantum technology. The nation also vowed to develop more controllable supply chains for areas such as integrated circuits and advanced materials.
Chip and AI development are central to Beijing’s broader vision of replacing U.S. technology, which is increasingly trying to encircle China. Economists have listed technological self-sufficiency as one of the three main economic issues Chinese leaders must address in the medium to long term.
“I believe the third plenum did not change the government’s policy objectives,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, “but introduced new measures to achieve those objectives.”
With assistance from James Mayger, Yujing Liu, Lucille Liu, Josh Xiao, Tian Ying, Alan Wong, Jessica Sui and Cormac Mullen.
This article was generated from an automated news agency feed, with no modifications to the text.
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