China's Third Plenum will lay out the Chinese Communist Party's goals for the next five years of economic reforms, but there will likely be little deviation from Beijing's increasingly statist turn while policy and structural constraints will limit the effectiveness of reform plans, perpetuating business migrations to regional geopolitical safe havens. China will hold the third plenary session of the 20th Central Committee of the Chinese Communist Party (CCP) — the Third Plenum, for short — from July 15-18 in Beijing. The quinquennial Third Plenum will convene China's key leaders, from the premier decision-makers in the Politburo and state ministers to provincial party secretaries and more. Since 1978, when the Third Plenum of the 11th Central Committee heralded China's economic opening up to the world after decades of economic insularity under Mao Zedong, each Third Plenum has been viewed as the key platform for China's leaders to elaborate on their economic reform agendas. However, the most recent Third Plenum, in 2018, focused not on economic reforms but on paving the way institutionally for President Xi Jinping to take an unprecedented third term in 2023. This means China hasn't had an economic reform-focused Third Plenum since 2013, soon after Xi first came to power, which makes this summit particularly important to gauge the country's growth strategy for the coming years.

The plenum will take place as Beijing is facing numerous internal and external economic headwinds, raising questions from local and foreign businesses about what, if anything, Beijing will do to right the ship. China is still dealing with the economic fallout from the COVID-19 pandemic, which caused local government debts to skyrocket due to high expenditures for protective equipment and staffing to enforce city lockdowns. The pandemic also caused a downturn in consumption that has yet to fully reverse alongside widespread closures of small- and medium-sized businesses that typically employ youth and other low-skill workers. Moreover, China's youth unemployment rate remains high, around 15%, after Beijing started excluding students from the measure in early 2024. Meanwhile, an ongoing real estate collapse has deprived local governments of key revenue flows (derived from land sales) and triggered major debt concerns in the banking sector, which Beijing has tasked with offering bridge financing for struggling developers. Externally, China is also juggling strategic competition with the West, including Western tech restrictions in retaliation for perceived Chinese industrial overcapacity and national security threats. In the face of these headwinds, domestic and foreign businesses are calling for large-scale state support to bolster Chinese consumption, provide emergency funding to local governments, banks and real estate developers, and ease trade tensions with the West. Thus, the upcoming third plenum will offer Beijing an opportunity to respond to these recent events, as well as address China's systemic problems — like the impact of a dwindling population on the labor pool — over the next five years.

The reforms announced at the plenum will focus on implementing preexisting priorities, like the technological upgrading of industry, with policy changes piecemeal and rhetoric about the opening up of China's economy likely to be largely unsubstantiated. Economic policy surprises are unlikely, given Xi's nearly unitary power over CCP and state institutions and his preference for state-planning over market openness. Chief among Xi's priorities is ''new quality productive forces,'' or the state-guided tech upgrading of China's industrial sector (e.g. by innovating in and expanding smart manufacturing equipment, autonomous driving in supply chains, etc.) in order to overcome structural constraints, like an increasingly expensive and skill mismatched labor force, and growing Western trade and investment restrictions. Risk mitigation, primarily from debt bubbles in the areas of real estate, banking and local government budgets, will also feature prominently during the plenum, with Beijing aiming to provide limited safety nets from bankruptcies while encouraging fiscal prudence. This funding squeeze will limit Beijing's ability to announce major state spending initiatives, as most spending burdens fall on cash-strapped local governments. Still, Beijing will preserve policy space for targeted, central government spending plans — like the 1 trillion yuan ($138 billion) special treasury bond issuance revealed in late 2023 to bolster flood and drought mitigation infrastructure — in order to fulfill key national priorities, such as ensuring food security through expanded farmland. There will also be much rhetoric about the accelerating and never-ending opening of the Chinese economy to foreign investment, but this will lead to only marginal concrete action, like the continued streamlining of cross-border data security regulations. This means structural impediments to foreign business — like growing state support of domestic champions (including state-owned firms) in major industries and anti-espionage initiatives — will continue to proliferate unabated.

• Central to China's state-guided tech upgrading of the industrial sector is the strengthening of the CCP's administrative power over industry. In 2023, for example, the government established the Central Science and Technology Commission to assume oversight of China's tech policies from the Ministry of Science and Technology.

The plenum will largely sidestep calls for greater state support of the economy and will exacerbate Western concerns about long-term economic and security threats from China, pushing businesses to diversify to regional safe havens like Japan and Singapore. The broad scope of Third Plenum agendas means engagement with short-term issues — such as China's willingness to pursue major economic stimulus to boost consumer and business confidence — will largely be reserved for smaller, more tactical CCP meetings, like the end of July Politburo meeting, when officials will consider tweaks to economic policies for the remainder of 2024. But even then, Xi's preference for painful debt mitigation measures over stimulus, even if they slow down growth, makes major fiscal policy changes unlikely. U.S. and European concerns about long-term economic competition with China, especially regarding industrial overcapacity, will persist as the plenum is only likely to strengthen China's self-reliance plans and trade retaliation toolset, not to mention bolster the CCP's power over the economy, which exacerbates Western national security concerns, particularly about Chinese political influence over foreign business tie-ups (e.g. via party committees). Much of China's success in economic reforms, like its efforts to upscale manufacturing, will be partly dependent on the trajectory of Western trade and investment restrictions on China, as well as on China's domestic structural conditions, like the decades-long rise in youth unemployment. Any pledges made during the upcoming plenum should thus be viewed as aspirational and prescriptive, not as accurate depictions of China's policy direction for the next five years. Internal and external constraints on China's economic reform plans will also perpetuate the steady flow of international businesses and investors looking to diversify activities into relative safe havens from geopolitical risks in Asia, like Japan and Singapore.

• Future follow-up implementation plans, like China's government work plans (revealed annually in March) and ad hoc policy guidance on industrial policies (like the State Council's 24 measures to attract foreign investment from March 2024), will be also important to watch for gauging China's progress toward economic reforms announced at the plenum.