President Xi Jinping of China announced plans to bolster the finances of China's indebted local governments during the Communist Party's most recent political meeting, known as the third plenum. The proposals mark the 'third major taxation and fiscal reform' in recent history and aim to shift more revenue from central to local coffers by allowing regional governments to receive a larger share of consumption tax. Xi's economic blueprint comes amidst China's $9.1 trillion hidden debt crisis, which has been a significant concern for economists.
In addition, China has emphasized its focus on its own economy in the face of rising trade tensions. The country plans to optimize new construction and deliver pre-sold homes to address the systemic impact of real estate on China's economy. Investment in real estate dropped by 10.1% in the first half of 2024, with residential sales down by over 20% from a year ago.
Despite calls for a shift towards consumer spending to rebalance the Chinese economy, there were few signs of such changes in the Communist Party's new plan. The document echoed familiar themes, including an emphasis on government investments and high-tech manufacturing. However, it did propose refining long-term mechanisms for expanding consumption.
The third plenum also called for deepening reforms of the fiscal, taxation, and financial systems to improve social welfare and achieve an 'equitable, innovative, and greener economy.' The Communist Party has been pushing for self-sufficiency in core technologies as part of a wider campaign to curb 'excesses of capitalism' and fix 'income inequality,' which has rattled the private sector.
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