Opportunities for Benelux Companies with China's Third Plenum

Last week, from July 15th until Thursday July 18th, China’s Third Plenum was held in Beijing. The third plenum is a significant meeting held approximately once every five years to chart the overall direction of the country's long-term social and economic policies, and is convened by its Central Committee.

The party convenes this congress twice a decade to elect members of the Central Committee, the largest of its top decision-making bodies. Between these congresses, the Central Committee holds seven plenums, attended by all 205 current members and 171 alternate members. The first, second, and seventh plenums typically focus on the transition of power between Central Committees, while the fourth and sixth plenums generally focus on party ideology. In recent decades, the third plenum has concentrated on long-term economic reforms, and the fifth plenum is associated with the country's five-year development plans, with the current plan ending in 2025. Last week's third plenum introduced major initiatives to address the risks and challenges related to China's long-term social and economic development, according to Reuters. Usually, China’s Third plenums are held in the fall, hence this plenum was expected to occur in October 2023. No reasons were provided why this meeting was postponed. Some experts point to the recent concerns about the decline of economic growth, such as is explained by a recent published article from the Indian Express and a report from the South China Morning Post. However, multiple economists have predicted a significant slowdown in China's economy, a notion often referred to as the ‘Chinese Collapse’ theory. This theory generally implies that experts in Western media often predict major slowdowns in the Chinese economy, which are often wrong but still receive a lot of attention. A more in-depth analysis of this phenomenon is provided in a previously published article by our team.

This Plenum is centred around several key points. Last week's third plenum aims to help China better navigate the complexities of the global landscape, advance its economic transformation, and enhance the people's "sense of gain," according to state media citing Chinese think-tanks. The third plenum will outline efforts to promote advanced manufacturing, revise the tax system to curb debt risks, manage a vast property crisis, boost domestic consumption, and revitalise the private sector, policy advisers have indicated. However, it is important to note that plenums are usually quite vague. It is intended not to provide immediate solutions but to outline a comprehensive strategy, which is why it can be easily misread or misinterpreted. Moreover, generally statements about ideology and governance carry far more weight than specific according to other China watchers reform proposals. The Asia Society Policy Institute published a report outlining the main points and expectations. This article will further build on the main points and reflect on the implications for European and Benelux businesses.

The plenum's decisions advance Xi's established priorities. He asserts that "further comprehensively deepening reform" will support his signature strategy of "high-quality development," which he introduced at the 19th Party Congress in 2017 and elaborated on at the 20th Party Congress in 2022. This strategy shifts economic policy focus from rapid growth to quality growth, incorporating a "new development concept" aimed at fostering more innovative, coordinated, green, open, and equitable growth. Additionally, it includes a "new development paradigm" that emphasises domestic markets, indigenous technology, and increasing foreign dependencies on China. Chinese-style modernisation, the Party-centric methodology Xi introduced at the 20th Party Congress, aims to achieve China’s "national rejuvenation" and position it as a country that "leads the world in comprehensive national power and international influence.” Senior economic official Han Wenxiu wrote a plenum preview article emphasising Xi’s commitment to making China a “moderately developed country” by 2035, a benchmark typically linked with a per capita GDP of at least US$20,000. Achieving this goal would necessitate an average annual economic growth rate of nearly five percent until 2035, which is highly ambitious but indicates that leaders are still focused on raising living standards.

Science and Technology (S&T) is central to the Third Plenum. On June 24, Xi emphasised at a National Science and Technology Conference (NSTC) that "Chinese-style modernisation depends on S&T modernisation as a support" and that "high-quality development relies on S&T innovation to foster new momentum." He views the world as undergoing "a new round of S&T revolution and industrial change" focused on "cross-cutting technologies" like artificial intelligence, quantum technology, and biotechnology. However, Xi also notes that "high technology has become the frontline and main battleground of international competition," with some key core technologies controlled by others, necessitating enhanced innovation capabilities for China to "seize the high ground of S&T competition and future development."

Xi aims to transform China into a "science and technology great power" by 2035, achieving "world-leading S&T capabilities and innovation abilities" for "a high level of self-reliance" and "a holistic leap in our economic power, defense power, and comprehensive national power." He stresses the need for the Party to strengthen its "policymaking command system" and "organisational implementation system" to enhance the top-level design and overall planning of S&T policies, markets, and industries. Xi identifies "bottlenecks and constraints" in areas such as chips, software, seeds, advanced materials, machine tools, and scientific research instruments as top priorities for industrial self-reliance, as laid out by a report from the Asia Society Policy Institute.

The elevated importance of S&T is mirrored in the "New Quality Productive Forces" (NQPF) concept that Xi introduced in September 2023, describing it as an "inherent requirement" of high-quality development. In a Politburo speech on January 31, Xi defined NQPF as those driven by innovation, revolutionary breakthroughs in technology, innovative allocations of production factors, and the deep transformation and upgrading of industry. These are also "green productive forces" requiring "optimising the economic policy toolbox to support green and low-carbon development," including in innovation, industry, and finance. The "core measure" of NQPF is "a significant increase in total factor productivity," addressing both China's economic challenge of slowing growth and its strategic challenge of dependency on Western technology.

What does this mean for Benelux businesses?

The emphasis on Science and Technology, with New Quality Productive Forces focus, shows its overarching goal of improving the economy and strengthening the quality. This focus can open new doors for European and Benelux initiatives that are also focused on improving science and technology. This has already happened in Germany, the Sino-German Environmental Partnership is a collaborative initiative between China and Germany focused on enhancing environmental protection and promoting sustainable development. Commissioned by the German Federal Ministry for the Environment, Nature Conservation, and Nuclear Safety, and implemented in cooperation with China's Ministry of Ecology and Environment. The partnership aims to improve environmental policies, build capacities, and foster technological innovation. By integrating successful practices and experiences from Germany, the partnership helps China develop more effective environmental regulations, strengthens the capacities of Chinese environmental authorities through training and exchanges, and facilitates the adoption of advanced environmental technologies. This collaboration not only supports long-term economic growth by promoting sustainable development but also contributes to global environmental sustainability by addressing significant environmental challenges in one of the world's largest economies.

More specifically, the Sino-French Wuhan Ecological Demonstration City is a collaborative project between China and France aimed at creating a model for sustainable urban development in Wuhan. This initiative focuses on integrating green technologies and sustainable practices into urban planning and infrastructure, including the development of a comprehensive green transportation network, shared public spaces with ecological functions, and advanced eco-technologies for managing water, energy, and waste. The project also emphasises urban agriculture and promotes a high level of green space and biodiversity within the city. The advantages of this project include innovative urban planning that harmonises with the natural environment, environmental sustainability through reduced carbon footprints and sustainable resource management, economic benefits from attracting investments and creating job opportunities, and improved quality of life with abundant green spaces and enhanced urban living conditions. Overall, the Sino-French Wuhan Ecological Demonstration City serves as a pioneering example of sustainable urban development, offering valuable insights and practices that can be replicated globally.

The focus of the Third Plenum on science and technology (S&T) innovation and the development of new quality productive forces (NQPF) can significantly benefit Benelux businesses. This emphasis provides a coherent plan to enhance business operations, foster technological advancements, and strengthen international ties. By aligning policies with innovation-driven growth, similar to successful French and German initiatives, Benelux businesses can thrive in creating climate change solutions. This alignment not only opens up opportunities for collaboration but also ensures that Benelux enterprises can leverage their expertise in sustainable technologies, further solidifying their position in the global market and contributing to effective climate change mitigation.

Thus, the Third Plenum held in Beijing has brought forward a comprehensive strategy aimed at steering China's long-term social and economic policies. This significant meeting, convened by the Central Committee, addresses the pressing concerns of economic transformation, technological innovation, and sustainable development. Historically, third plenums have been pivotal in shaping China's economic reforms, and this year's focus continues that tradition by emphasising science and technology (S&T) innovation and the development of New Quality Productive Forces (NQPF).

Xi Jinping's commitment to "high-quality development," which shifts economic policy from rapid growth to quality growth, underscores the importance of S&T modernisation as a support for Chinese-style modernisation. This strategic direction not only aims to enhance China's domestic capabilities but also seeks to position the country as a global leader in technological innovation and sustainable development by 2035.

The implications of these initiatives could be far-reaching, particularly for European and Benelux businesses. The emphasis on technological advancements and sustainable practices aligns well with the strengths of Benelux enterprises, offering new opportunities for collaboration and innovation. Similar to the successful Sino-German Environmental Partnership and the Sino-French Wuhan Ecological Demonstration City, Benelux businesses stand to benefit from the coherent plans set forth by the Third Plenum. These partnerships highlight the potential for mutual growth and the development of cutting-edge solutions to global environmental challenges. By fostering stronger ties and leveraging their expertise in sustainable technologies, Benelux businesses can contribute significantly to China's ambitious goals while enhancing their own competitive positions in the global market. This alignment of policies and objectives not only opens new avenues for economic cooperation, but also reinforces the commitment to addressing climate change and promoting sustainable development on an international scale.

Author: Lucy van Eck

Editor: Jonathan Xu