Waiting for the Third Plenum

CHINA FINANCIAL - Report 17 Jun 2024 by Michael Pettis

Special points to highlight in this report:

As I mentioned in my May report, the Third Plenum is scheduled to be held in July, much later than the expected October or November date last year. Most analysts believe the long delay suggests the lack of a consensus over how to address weak domestic demand, a rapidly contracting property sector, worsening trade conflict, and soaring debt.

As a result, and given the economic problems facing China along with the importance of the Third Plenum, it is not surprising that much of the gossip in Beijing concerns expectations of what issues the Third Plenum will most strongly address and how.

My best guess is that the Third Plenum will propose measures to address the housing market, the restructuring or re-profiling of local government debt, and weak household consumption. Given the depth of the problems and their intractability—the only way these can be resolved quickly without damaging other parts of the economy is with one-off increases in government debt—I don’t think we should be very optimistic about any proposed measures that come out of next month’s meeting.

Now read on...

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