Xi Jinping Unveils Plans to Restructure China's Financial System and Boost Economic Growth

Xi Vows to Rewire China's Finances, Help Indebted Regions

President Xi Jinping unveiled sweeping plans to bolster the finances of China's indebted 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 for fixing the debt crisis facing regional authorities in a near-22,200 character resolution published 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. Xi's proposals mark the "third major taxation and fiscal 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 string of decisions starting in 2013 that allowed localities to issue bonds on their own, as the other major shifts. "The central government's income was set too high and now it's being adjusted," Ding said of the framework set under then President Jiang Zemin. The changes "will alleviate the imbalance between the central and local government's spending responsibilities and income," he added. The yuan was little changed in early Monday trading as investors digested the plenum statement and a surprise cut to short-term interest rates. 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's $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. Chinese policymakers are under pressure to resolve local governments' 66 trillion yuan 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. Slapping additional taxes on goods, however, risks stifling sentiment further among Chinese consumers already reluctant to spend due to a property slump that's hitting their primary store of wealth. Retail sales rose at the slowest pace last month since December 2022, as China's second-quarter growth figures undershot expectations. 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. China's most-powerful leader since Mao Zedong said in a separate explanation that national security had been put in a "more prominent" position by the four-day conclave, suggesting its preeminence over the economy. The official resolution, however, stated Beijing would strive to "achieve positive interactions" between development and security. Officials also signaled a potential expansion to Beijing's surveillance architecture, vowing to "explore and establish a national unified population management mechanism." That marked the first use of that phrase by senior leaders. "Xi's emphasis on security shows that the development is eventually aimed at protecting national security," said Alfred Wu, an associate professor at the National University of Singapore's Lee Kuan Yew School of Public Policy. Investors may find their hopes were too high for the Third Plenum, he added, noting the report was mostly "sprinkling" vague measures rather than signaling concrete changes. Markets reacted poorly to 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. 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 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. Advancing "high quality development" featured prominently in the report -- a vague slogan typically interpreted to emphasize the quality of economic growth over its absolute pace. It centers on Xi's ambitions to propel China's economy by moving up the value chain through tech innovation. China will also strive for "revolutionary breakthroughs in technologies," 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. Developing chips and AI is central to Beijing's 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. "I think the third plenum did not change the government's policy objectives," said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, "but it introduced new measures to achieve such objectives." With assistance from James Mayger, Yujing Liu, Lucille Liu, Josh Xiao, Tian Ying, Alan Wong, Jessica Sui and Cormac Mullen.

Xi Jinping unveils sweeping plans to fix China's $9 trillion hidden debt crisis

China's top leader mapped out measures for fixing the debt crisis facing regional authorities in a near-22,200 character resolution published 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. Xi's proposals mark the "third major taxation and fiscal 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 string of decisions starting in 2013 that allowed localities to issue bonds on their own, as the other major shifts. "The central government's income was set too high and now it's being adjusted," Ding said of the framework set under then President Jiang Zemin. The changes "will alleviate the imbalance between the central and local government's spending responsibilities and income," he added. 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's $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. Chinese policymakers are under pressure to resolve local governments' 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. Slapping additional taxes on goods, however, risks stifling sentiment further among Chinese consumers already reluctant to spend due to a property slump that's hitting their primary store of wealth. Retail sales rose at the slowest pace last month since December 2022, as China's second-quarter growth figures undershot expectations. 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. China's most-powerful leader since Mao Zedong said in a separate explanation that national security had been put in a "more prominent" position by the four-day conclave, suggesting its preeminence over the economy. The official resolution, however, stated Beijing would strive to "achieve positive interactions" between development and security. Officials also signaled a potential expansion to Beijing's surveillance architecture, vowing to "explore and establish a national unified population management mechanism." That marked the first use of that phrase by senior leaders. "Xi's emphasis on security shows that the development is eventually aimed at protecting national security," said Alfred Wu, an associate professor at the National University of Singapore's Lee Kuan Yew School of Public Policy. Investors may find their hopes were too high for the Third Plenum, he added, noting the report was mostly "sprinkling" vague measures rather than signaling concrete changes. Markets reacted poorly to 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. 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 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. Advancing "high quality development" featured prominently in the report -- a vague slogan typically interpreted to emphasize the quality of economic growth over its absolute pace. It centers on Xi's ambitions to propel China's economy by moving up the value chain through tech innovation. China will also strive for "revolutionary breakthroughs in technologies," 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. Developing chips and AI is central to Beijing's 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. "I think the third plenum did not change the government's policy objectives," said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, "but it introduced new measures to achieve such objectives."

Xi Jinping stresses on 'new productive forces' in policy road map

BEIJING: China released a policy document on Sunday, outlining known ambitions, from developing advanced industries to improving the business environment, with analysts spotting no sign of imminent structural shifts in the world's second biggest economy. The 60-point document's publication follows the closed-doors meeting of the Communist Party's Central Committee, led by President Xi Jinping, which takes place roughly every five years, and is known as a plenum. It was held from July 15-18 as China verges on deflation and faces a prolonged property crisis, surging debt and weak consumer and business sentiment. Trade tensions are also flaring, as global leaders grow increasingly wary of China's export dominance. These challenges have led some economists to urge Beijing to shift focus to boosting consumer demand and away from a debt-fuelled, investment-led model that funnels resources into manufacturing and infrastructure at the expense of households. China's long-term growth potential is at stake, these economists say. But the plenum reasserted China's quest for "new productive forces", a term Xi coined last year that envisions scientific research and technological upgrades of the country's sprawling industrial complex. It set out to "promote revolutionary breakthroughs in technology, innovative allocation of production factors, and in-depth industrial transformation and upgrading," the policy document said. It listed as strategic industries "new generation information technology, artificial intelligence, aviation and aerospace, new energy, new materials, high-end equipment, biomedicine, and quantum technology". "The overall industrial system is large but not strong, comprehensive but not refined, key and core technologies are controlled by others," state media quoted Xi as telling the plenum. The plenum was initially expected late last year but was postponed without explanation. Lacking details The document also reiterated that markets would play a decisive role in resource allocation, that the government will work on legislation to improve conditions for the private sector, and flagged fiscal as well as financial reforms. Other policy targets included boosting affordable housing, improving job opportunities for young people and the standard of living for the elderly. Like most documents of this kind, it did not say how Chinese leaders intended to reach those goals, many of which would require policies that are contradictory in nature, as Party officials acknowledged on Friday. Tax changes One area where analysts expect to see new measures soon is local government finances, as policymakers look to ease concerns over municipal debt of more than $13 trillion that poses risks to financial institutions and economic growth. In 2023, local governments' fiscal revenues accounted for 54% of the nation's total, while their expenditure accounted for 86%, finance ministry data showed.