China's 5 year plan

Chinese President Xi Jinping and other top Communist Party officials will gather next week for the Third Plenum, a significant once-in-five-year meeting to set a new economic course for China. This summit comes at a critical time for China's recovery from a property-sector collapse and a pandemic-fueled slowdown. Xi Jinping has delayed the meeting which has only increased speculation about the policies that may be unveiled and their 5-year plan. Here are the key areas to watch:

Tax Reform: China's consumption tax currently applied to goods like cars and luxury items directed to the central government, might be restructured to share revenue with local governments to assist with shortfalls and incentivise them to promote consumption. Also, there might be a change in the tax collection method from the point of production to the point of purchase, similar to a sales tax, encouraging local governments to focus on stimulating consumption.

Fiscal Reform: China's local governments are burdened with debt due to the property sector's decline, which has historically been a significant source of tax and land revenue. The Central government might explore new borrowing via long-term bonds and more local government debt swaps to ease repayment pressures. Officials hinted at increasing the central government's fiscal transfers to local governments in the first quarter.

Financial Reform: China is aiming to attract foreign direct investment amid trade tensions. This could involve making it easier to invest in sectors such as telecommunications and healthcare. Thus boosting the acceptability of yuan assets.

Social Reform: China has long had demographic challenges, including a shrinking population, an ageing society, and lower birth rates. They might be looking into raising the retirement age and supporting lower-income groups, such as farmers and migrant workers. Such efforts will help expand the middle-income class.

New Productive Forces: China's strategy would be wise to pivot away from traditional growth drivers such as the property sector and focus on developing high-tech sectors such as electric vehicles, renewable energy and manufacturing exports. However, raising trade tensions between China and the US who have already raised tariffs on China-made EVs could pose a threat on this strategy.

Property Stimulus: Some analysts expect the central government to increase public spending in the property sector which will help stabilise this sector. They are also expecting to boost public housing and ensure affordability, such issues have been a problem worldwide.

Xi Jinping's third plenum will have significant implications for both domestic and international investors. Shaping China's strategy and stance in the global economy in the coming years. Many economists and policymakers will be keeping a close eye on the outcome of this summit.