No big bang, but clear commitment to further reform and opening-up in pursuit of modernization goals

The global outlook for the next few years is full of risk and uncertainty, with some critical challenges including big power rivalry, technological transformation and climate change. China itself has a host of domestic challenges, too, as it adjusts to a slower phase of growth and must attend to imbalances and problems of transition. Given its size and deep economic integration with many other economies, how China responds to these challenges is important for the world. The outcomes from the recent third plenary session of the 20th Central Committee of the Communist Party of China and, even more importantly, how they are to be implemented, will therefore be eagerly studied to understand the policy agenda for China in the next five years, as it approaches the 80th anniversary of the People's Republic of China.

The third plenum of each Central Committee is notable for setting a course for future significant economic, social and other policy reform programs. International and domestic observers alike remember the signature importance of the third plenum of the 11th CPC Central Committee in 1978 which heralded the beginning of China's historic reform and opening-up. It is too early to tell the full significance of the recently concluded third plenum of the 20th CPC Central Committee, but some important messages were included in the resolution and communique that can help us to predict the direction of China's decision-making over the next five years.

The communique's title "deepening reform and advancing Chinese modernization" indicates consistency rather than any major redirection like that in 1978. The big-picture goals also remain unchanged: a "high-standard" socialist market economy by 2035 and a "great modern" socialist country by 2049, the centenary of the PRC.None of this is surprising to the Chinese people, but it is important to explain to international audiences that stability is much valued in China and that the nature of China's political system is that reform and modernization are usually designed to be implemented in a predictable, step-by-step manner, under the leadership of the Party. There will be no "big bang" of radical changes.

Nevertheless, everyone is looking for signs of pragmatic reform. China's economy has accumulated and faces many challenges from its successful high-growth phase in recent decades, which created "unequal, uncoordinated and unsustainable" development. Now, China must manage a slower growth phase that must be more balanced if it is to be sustainable.

China needs less speculative real estate development and more productive investment in the industries of the future. It needs to manage a demographic challenge of a declining workforce while ensuring there are enough new, well-paid jobs as new technologies eliminate some of the old low-paid jobs.

It is widely considered that China needs to move from an investment-led to a demand-led model if it is to escape the so-called middle-income trap, to spread the benefits of growth more widely. This means a new emphasis on productivity rather than simply production at all costs, quality over quantity. It also means incentivizing domestic consumption of the goods and services being produced, including with better social protection to raise people's confidence to spend.

A more active agenda of centrally-directed reform can be expected over the next five years to manage market risks in finance and other sectors, as well as to manage public sector risks such as local government debt, while expectations are high for hukou, or household registration, reform and other measures to address the urban-rural divide.

There is a commitment to give the market mechanism "better play" and to create "a fairer and more dynamic market environment". How such aspirations are implemented will be closely watched by foreign investors. There has been a slowing of foreign investment in China, influenced by many factors including slower Chinese growth, diversification to other emerging markets and also in response to an increasing role of the State in the market. Given the privileged local role for some inefficient State-owned enterprises, international business and China's private sector innovators are keenly looking for signs of a level playing field, at least in those sectors in which the private sector is demonstrably more innovative.

One of the clearest signals from the third plenum of China's new priorities is the central role of "new growth drivers" for higher-productivity economic activity to replace lower-value production. We can expect China to double down on its push for innovation in new technologies and the further digitization of industry and services. These go hand-in-hand with China's push for a green and low-carbon transition. It is also in response to US attempts to prevent China's access to high-end semiconductors for its development of artificial intelligence.

Domestic-driven innovation in technologies will likely see transformative changes in how goods are produced and how services are delivered, with greater efficiency and lower environmental impact. China's investment in renewable energy, electric vehicles and new battery technologies are demonstrating how to make development sustainable. The transition to EVs is the most evident change in today's China, with new energy vehicles accounting for almost half of new car sales, and more new productive and greener innovations can be expected in the future, particularly if private sector innovation is enabled and not stifled by regulation. Given its scale and advantages, China will seek to lead the world in these industries of the future.

There was also an interesting commitment made at the third plenum to improving the mechanisms for high-quality cooperation under the Belt and Road Initiative, through which China has stimulated $1 trillion worth of infrastructure connectivity but of varying quality and local governance.

Modernization is about more than economic development and environmental sustainability. The third plenum committed to "ignite the cultural creativity of the entire nation". China has unique cultural assets to nurture and develop, and can equally be enriched by more international cultural exchanges in both directions. Let's hope modernization can therefore include a healthy exchange of contemporary art, music and other culture, which can contribute to cross-civilizational dialogue, respect and understanding.

Modernization must also mean peaceful development, and observers will welcome the third plenum's pledge that China remains committed to a foreign policy of peace and aimed at building an international community with a shared future. The new Chinese initiatives, the Global Development Initiative, the Global Security Initiative and the Global Civilization Initiative, will all be judged by the world on the contribution they make to peace, development and understanding, at a time when we all need more of each.

Of central importance, the third plenum reiterated the commitment to further opening to the outside world and promoting reform through opening-up, which recognizes this has been a fundamentally important part of China's modern success story. The world outside China will welcome opening and reform that is consistent with global rules developed through the World Trade Organization, widely pursued international norms and that brings all-round benefits to China as well as its international partners.

The author is a nonresident senior fellow at the Beijing-based Center for China and Globalization, a former Australian diplomat and vice-chair of the United Nations Sustainable Business Network for the Asia-Pacific region. The author contributed this article to China Watch, a think tank powered by China Daily.

The views do not necessarily reflect those of China Daily.

Contact the editor at [email protected].