China’s annual three-day Central Economic Work Conference began on December 18, during which the ruling Communist Party’s economic agenda for 2018 will be mapped out. Led by President Xi Jinping, the conference involves hundreds of senior leaders from the Communist Party, and has been held every year since 1994. The meetings usually take place behind closed doors in a heavily guarded hotel in Beijing.

A statement about the general conclusions will be released via state media after the conference, but internal debates and specific instructions are usually kept under wraps. Last year’s event took place at a time when the Chinese economy was facing a mountain of debt at home and a barrage of threats from the United States, including a tougher trade stance from President Donald Trump, higher interest rates, and lower business taxes in the U.S. At a meeting of the 25-member Politburo, the Chinese leadership listed measures to curb financial risks, eradicate poverty and fight pollution as the top economic priorities for 2018.

The Politburo statement also highlighted the need to reform the property market, a key topic at the Central Economic Work Conference. The Conference is held at a time that the United States, the European Union and Japan are expected to announce a joint effort aimed at confronting China over its excess industrial capacity and trade practices. They are expected to make a joint statement on the sidelines of the World Trade Organization (WTO) ministerial meeting in Buenos Aires. It was unclear whether China would be specifically named in the statement.

Washington, Brussels and Tokyo have raised complaints about China’s subsidies to state-owned enterprises, state financing and investment rules that often force foreign firms to transfer strategic technologies. They argue that such distortions have fueled rampant overcapacity in some industries such as steel and aluminum, which are flooding global markets and forcing lay-offs elsewhere, the South China Morning Post reports.

The Politburo of China’s Communist Party has listed efforts to curb financial risks, eradicate poverty and fight pollution as its top economic priorities for the coming year. At a meeting of the 25-member Politburo chaired by President Xi Jinping, “warding off and addressing major risks to effectively control the macro leverage ratio” was identified as the most important task for the economy, the official news agency Xinhua reported.

The Politburo statement also highlighted the need to reform the property market as it set the tone for this month’s annual Central Economic Work Conference in Beijing, without saying when it would be held. The ruling Communist Party’s economic agenda for 2018 will be mapped out during the conference. Next year will mark the 40th anniversary of China’s reform and opening up, which kick-started the country’s economic miracle. China would open up further, the Politburo statement said, but the most pressing task was to stem financial risks, according to the report. Financial institutions would also be required to strengthen support for the real economy and “positive effects” should be achieved from risk prevention measures.
The Politburo also called on rank-and-file cadres to improve living standards and to make “solid progress” on fighting poverty and environment protection – in line with the policies outlined at the 19th Communist Party Congress in October, where the need for stronger leadership on the economic front was emphasized.

The International Monetary Fund (IMF) warned in a financial risk analysis that Beijing should put financial stability above its development goals and said monetary and fiscal policies aimed at shoring up employment and growth had led to a surge in debt loads, but the People’s Bank of China (PBOC) said it did not agree with several points made in the report and reconfirmed that China’s financial situation was stable, the South China Morning Post reports.

President Xi Jinping also called for advanced technologies to be “embedded” into the real economy to foster growth. Known as the “fourth industrial revolution,” artificial intelligence, robotics and big data may bolster the global economy by a further 14% by 2030 – the equivalent of an additional USD15.7 trillion in value, according to PwC. “China should lay out our digital master plan early and strive to take the initiative,” Xi said. “We should aim for world class, cutting-edge technologies, and nurture a group of big data companies.” China’s 2016 spending on technology research and development rose 10.6% to CNY1.57 trillion, equivalent to 2.1% of the economy’s output. The figure exceeded the average of 2.08% for the European Union.

Improving industry safety, public security and social stability were also on the Politburo’s priority list, the report said.

Left to right: Mark Zuckerberg, Xi Jinping and Tim Cook

China will firmly stick to the basic national policy of opening-up and pursue win-win cooperation while safeguarding the country’s sovereignty, security and development interests, President Xi Jinping said while meeting with members of the Advisory Board of Tsinghua University School of Economics and Management. The President added that China is deepening overall reform with unprecedented determination and force. China has not only benefited from but also contributed to economic globalization, Xi said, adding that China’s
development means opportunities for the world. China will not seek to take advantage of other countries but will pursue win-win cooperation, Xi said, while pledging to take more measures to boost opening-up.

Board Members who participated in the meeting included Tim Cook (Apple), Mark Zuckerberg (Facebook), Robin Li (Baidu), Jack Ma (Alibaba), Pony Ma (Tencent), Elon Musk (Tesla) and Satya Nadella (Microsoft). Former Premier Zhu Rongji is Honorary Chairman of the Advisory Board.

Commenting on his upcoming meeting with U.S. President Donald Trump, Xi said China would like to make joint efforts with the U.S. to take each other’s interests and concerns into consideration, dissolve disputes and contradictions, and engage in win-win cooperation.

Mark Zuckerberg said that boosting connections will create economic opportunities, just like what the China-proposed Belt and Road Initiative has brought to the world. “We know that when it’s easier for businesses to connect their customers on the internet, that enables the creation of new entrepreneurship, innovation and development, and improves the life of everyone,” he told Xi, as reported by the China Daily.

China posted relatively solid economic growth of 6.8% in the third quarter, driven by a stronger services industry, although there were signs of weakness in real estate and construction as property cooling measures start to bite. China’s property sector grew 3.9% in the quarter from a year earlier, decelerating from 6.2% in the second quarter and the slowest pace in nearly two years, the National Bureau of Statistics (NBS) said.

Growth in construction activity slowed from 5.4% in the second quarter to 4%, the weakest expansion since the fourth quarter of 2000. Property and construction together account for 13.3% of the economy, with property alone directly impacting 40 other industries. Softening in those sectors appeared to be the main drag on the otherwise fairly resilient Chinese economy. Third-quarter growth eased only slightly to 6.8% from 6.9% in the previous quarter, as had been widely expected.

Analysts have long predicted a slowdown in the property sector and construction after city governments began rolling out measures from late last year to cool soaring home prices and deter speculators. Property sales dropped for the first time in more than 2½ years in September and housing starts slowed sharply.

China had posted forecast-beating growth in the first half of the year, led by a sharp turnaround in the long ailing industrial sector, which accounts for a third of the economy. A construction boom – fueled by the housing frenzy and government infrastructure spending – has spurred demand and prices of building materials, with the resulting return of factory gate inflation boosting earnings for China’s heavily indebted heavy industry. But industrial growth slowed to 6.3% in the third quarter, from 6.6% in the previous period and there is uncertainty about how “smokestack” industries will fare over the coming months as China implements drastic measures to reduce winter air pollution, the South China Morning Post reports.

Data also showed that total sales of consumer goods rose 10.4% year-on-year to CNY26.32 trillion in the first three quarters. The pace was unchanged compared with the same period of last year. The official Purchasing Managers’ Index (PMI) rose to 52.4, the highest this year. Growth of imports and exports both accelerated. China’s average per capita disposable income grew 9.1% year-on-year to CNY19,342 in the first three quarters, Fixed-asset investment expanded 7.5% in the first nine months, marking the slowest rate of growth since a 6.3% reading in December 1999.

Picture from a previous Party Congress, which is held every five years

Beijing is likely to increase its intervention in China’s economy after the 19th Communist Party Congress – which opens on October 18 – hampering any effort by U.S. President Donald Trump to wring substantial trade and investment concessions from China during his visit to the country in November, analysts say.

Scott Kennedy, a China expert at the Washington-based Center for Security and International Studies, told the South China Morning Post that rather than overall market liberalization, the Party Congress “is likely to be followed by even greater government and party intervention in industries and markets”. Beijing would make “modest, largely symbolic concessions” on some areas of market liberalization ahead of Trump’s visit, Kennedy said. But “China Incorporated is likely to get more support and made more powerful, not dismantled. Interventionism works and China has paid little diplomatic or economic price for it. So why not continue?,” he said.

Markus Rodlauer, Deputy Director of the International Monetary Fund’s Asia and the Pacific Department, told an Asia Society Policy Institute think tank event in Washington that he expected no overall economic policy changes to come out of China’s Party Congress, owing to the ruling elite’s desire for stability as leaders are reshuffled. “The reasonable expectation is that things won’t change dramatically,” Rodlauer said. The congress might provide “some clues” to possible policy changes, but no specific economic policies could be set until the Economic Work Conference in December and the National People’s Congress (NPC) session next March, the IMF official said.

Washington China-watchers have speculated about the extent to which China’s ruling elite will proceed with economic reform. Four years ago, at a Central Committee session of the 18th Party Congress, the leadership pledged to let markets play a “decisive” role in the economy and unveiled a comprehensive reform agenda towards achieving “decisive results” by 2020, but the outcome so far has disappointed U.S. observers.

“We have not seen the kind of overall economic reforms we are seeking,” said Erin Ennis, Vice President of the U.S.-China Business Council. “China is falling short of reforms for the benefits of foreign companies,” she told the Asia Society Policy Institute event. With a huge surplus on the government’s balance sheet, sufficient foreign reserves and liquidity in its banks, China still has “a very strong system even if they have problems,” Rodlauer said.

The IMF this week raised its 2017 and 2018 economic growth forecasts for China but warned that the nation’s long-term growing debt load raised the risks of a “sharp growth slowdown”. The IMF urged China to “de-emphasize near-term growth targets and focus on reforms that would enhance the sustainability of growth”, the South China Morning Post reports.

China’s producer prices rose 6.9% in September from a year earlier, beating market expectations of a rise of 6.3%, the same pace as in the previous month. China’s consumer price index (CPI) rose 1.6% in September on-year, in line with forecasts. “China’s economic growth has slowed over the past few years, but economic growth has rebounded this year, with GDP reaching 6.9% in the first half, and may achieve 7% in the second half,” People’s Bank of China Governor Zhou Xiaochuan told the G30 International Banking Seminar in Washington on October 15.

Profound, fundamental changes were made over the last five years indicating the nation’s development stands at a “new historical starting point,” according to the communique of the four-day Seventh Plenary Session of the 18th Central Committee of the Communist Party of China (CPC), published on October 13. The plenary meeting made final preparations for the 19th National Communist Party Congress.