MNI: China's 3rd Plenum To Target Real Estate; Rural Reform Eyed
MNI discusses China's upcoming 3rd Plenum Session.
China’s upcoming third Plenum Session in July will focus strongly on real-estate and the unified national market reform, alongside corporate vitality and regional coordinated development, advisors tell MNI, with rural property rights a key area most want action on to help sustain Beijing's 5.5% growth target over the next decade.
An advisor who asked for anonymity told MNI the plenum will introduce new initiatives that address current needs and long-term goals, rather than short-term, stopgap solutions. Measures that target people’s livelihoods with an emphasis on employment will also feature prominently, while "high-quality growth” will be highlighted, he added.
The Central Committee of China’s Communist Party’s third plenums, held every five years, typically set reform on economic, market government function, fiscal policies and urban, and rural development for the next five-10 years. The next third plenum will occur in July following its initial 2023 delay. (See MNI INTERVIEW2: CNY Strengthens, Third Plenum To Detail Reform)
RURAL REFORM
Reform of rural land use rules granting farmers rights to trade their property would generate new financial assets, introduce sources of property tax and boost consumption crucial to ensure 5.5% growth over the next 15 years, advisors told MNI.
Zhou Tianyong, professor at Dongbei University of Finance and Economics and former vice president of the Institute of International Strategic Studies at the Party School of the CCP, said rules focused on rural house and homestead trading have taken on urgency recently as authorities look for ways to narrow the income gap between cities and countryside residents, while encourage the labour force towards higher income urban jobs.
The non-tradeable characteristics of homestead use rights and the restrictive land transfer model in China’s rural areas have hindered rural economic development and exacerbated the wealth gap between urban and country residents, he added.
The reform could deliver 60% of the government’s touted new economic driving force and contribute to GDP expansion over the next 15 years, an “extremely valuable” element for China’s modernisation, Zhou said, adding the country must seize opportunities to grow as a wealthy society before the advantages of abundant and cheap labour disappear before 2035.
Income distribution reform should aim to increase the share of residents' disposable income in GDP from 43.86% in 2023 to 65% by 2035, while reducing the government's share of disposable income from about 33% to below 30%, he noted. Demand-side reform goals should increase the proportion of household consumption expenditure in GDP from 30% in 2023 to 55%, while reducing the government's consumption expenditure from around 20% to 10% by 2035, he added.
The reforms will also create new assets for financial institutions after farmers receive legal rights to rent, transfer or mortgage their land, especially important as urban house values shrink and jeopardise lender’s balance sheets, Zhou noted. (See MNI INTERVIEW: PBOC Can Use QE Strategically If Necessary - Yu)
Local governments could also replace land sale revenue with a sustainable property tax that could contribute 60% to fiscal revenue by international standards, leveraging large returns with little cost, he added.
FISCAL STRENGTH
Some advisors fear weak fiscal capacity will hold back reform and any change that aimed to centralise the CCP's power would hinder market-oriented economic development, an area of disappointment among liberal economists. (See MNI INTERVIEW: China Eyes Significant Special Treasury Issuance)
Zhang Junwei, researcher at the Development Research Centre of the State Council, said fiscal and tax system reform and social welfare improvement required significant fiscal support. The government will find it difficult to push fiscal and tax reform forward without clearly classifying or establishing principles for handling existing local-government debt, he added.
Zhang also called for greater migrant worker support for those who lived in cities, but did not enjoy equal access to medicine, pension, education and other programmes enjoyed by native city dwellers. This unequalness has put urbanisation and industrialisation at risk as many have chosen to return to the countryside, he noted.
Zhang explained modernisation requires “high-quality growth,” such as upgrading traditional industries with technology and pushing green development. Beijing's focus on development with “Chinese-characteristics” means the leadership of the Party will be strengthened across the economy, the advisor said.