Anticipation is growing for the Third Plenum to be held by the Chinese Communist Party next month. The meeting has usually taken place in the early part of the five-year Party Congress to define and articulate the reform agenda for that term of the party’s leadership. Its delay last year caused concern about a perceived lack of urgency to adopt new approaches during President Xi Jinping’s third term in office to stabilize China’s economy after several years of disappointing growth.
This lack of urgency contrasts with a surprisingly candid discussion among Chinese policymakers and academics about the need for significant reforms to bolster growth, restore confidence and address long-standing problems such as local protectionism and regional inequality. For example, former Finance Minister Lou Jiwei has called for the abolishment of the household registration system, known as hukou, which divides rural and urban Chinese into starkly different welfare regimes. Many have also called for significant changes to China’s taxation system to alleviate the burden of unfunded central mandates on local governments. The overall consensus seems to be that Xi has so far taken a wrong turn in guiding China’s economy, and the hope is that the Third Plenum will offer some signals that “Reform and Opening”—the term used since 1978 for China’s post-Mao economic liberalization—will return with a vengeance.
Those who expect significant reforms in this direction are likely to be disappointed. Insider speeches and official summaries of Xi’s policies continue to focus on supply-side expansion through investment in industry and manufacturing. The Third Plenum is therefore likely to lock in Xi’s rejection of a reform agenda that focuses more squarely on expansion of domestic demand, direct transfers to households and fundamental structural reform of institutions that cause inequality and regional development gaps.
It would be a mistake to conclude, however, that in rejecting Reform and Opening, Xi is rejecting reform and openness. In fact, Xi’s focus on industrial investment and manufacturing could yield both domestic and international benefits. Rather than being closed, China it will be open in a different way, with greater emphasis on the Global South and Beijing’s ideological partners, such as Russia and North Korea. Western policymakers and pundits that dismiss Xi’s gambit underestimate the advantages that could allow China to continue to compete economically, while outperforming Western governments politically in developing close ties with the rest of the Global South.
There is a domestic political logic for Xi’s chosen path, which I have written about in previous columns, here and here. However, there are also strong advantages that Beijing has, both economically and politically, in implementing a new vision for China’s globalism, built around relations with countries in the Global South. The importance of these countries to China’s foreign policy was previewed in the December 2023 Central Foreign Policy Work Conference. At that meeting, Xi reaffirmed China’s role as a leader and representative of the Global South in what he portrayed as a struggle against the United States and its hegemonic world order. These are more than just “new Cold War” talking points; they can be buttressed by concrete economic advantages that could shore up China’s bid to stay focused on manufacturing while also offering needed investment opportunities to important countries in the Global South. Xi’s centralization of power and strict limits on open dissent also insulate him from domestic political pressure.
China’s economic advantages could shore up its bid to stay focused on manufacturing while also offering needed investment opportunities to important countries in the Global South.
Principle among these economic advantages is that China now accounts for 35 percent of global manufacturing output. As a CEPR research report summarized, China is “world’s sole manufacturing superpower,” with its output larger than the next nine countries combined. This manufacturing prowess is what Xi is counting on to deliver China out of the economic doldrums, particularly through investment in industries that will solidify China’s leading position in green tech industries, such as electric vehicles, solar panels and batteries. China’s dominance in manufacturing goods also increases its leverage over countries, including the U.S., that are dependent on Chinese exports for many consumer items.
This economic advantage can also be used to build up strategic partnerships in other parts of the world, reducing China’s overall dependence on the U.S. for exports. Most importantly, China can offer to share this manufacturing strength with other countries through inbound Chinese investment, localizing supply chains and building up Chinese companies’ market share in important new markets. In some cases, localization can be used to divide trading blocs; for instance, opening EV factories in Hungary and Mexico will complicate Brussels’ and Washington’s efforts, respectively, to penalize China for the subsidies it offers its domestic manufacturers in that sector.
At a time when Western governments face unprecedented electoral challenges, including political polarization in the U.S. and the rise of far-right parties in France and Germany, China’s decentralized authoritarian political system offers Xi greater insulation from domestic political concerns. As a result, he can reject the advice from academics and pundits to deal with China’s domestic problems as he seeks instead to focus on China’s strength in manufacturing. And unlike Western governments, which must deal with voter backlash against the costs of the green transition and migration, Xi will face little social pressure for avoiding the redistributive reforms that China badly needs to reduce inequality.
Slow growth and problems with the pension and health insurance systems are real economic challenges in today’s China, but the country’s decentralized governance structure puts the onus of solving such concerns on the backs of local governments, not Beijing. Complaints that China is spending too much on external ventures such as the Belt and Road Initiative or Xi’s new Global Development Initiative will be muted if not suppressed outright.
Make no mistake, a Third Plenum that shores up Xi’s vision is unlikely to be good for Chinese citizens, who will face a diminished domestic economy, a depressed property sector and little change in China’s shallow welfare state. But a policy that continues to burnish China’s dominance in new export industries and gains China reputational wins in the Global South are more important to Xi, especially in a year when many Western governments will be focused on internal challenges.
Mary Gallagher is the incoming dean of the Keough School of Global Affairs at the University of Notre Dame.