Last year’s Third Plenum tells us about the priorities of this year’s NPC

Nis Grünberg says that five areas flagged by the CCP in July deserve attention this March: party-state capitalism, a focus on self-reliance, innovation, the tax system and loyalty to Xi.

The annual meeting of China’s highest legislative body, the National People’s Congress (NPC), begins on March 5 and will provide eagerly awaited details of how Beijing intends the government to realize the long-term objectives set out in July at the five-yearly Third Plenum of the Chinese Communist Party’s (CCP) Central Committee. Of the dozens of reforms announced by Xi Jinping and other CCP grandees last summer to spur China’s development until 2035, five areas deserve particular scrutiny: strengthening party-state capitalism, countering the US-led containment strategy, boosting innovation and talent, reforming the fiscal system (including taxes), and ensuring widespread popular loyalty to the CCP and Xi.

As is the case every year, much attention will be paid to the government’s target for economic growth – expected to again be pegged at around 5 percent for 2025 – and concrete regulatory decisions with more immediate impact. But the NPC is also an object lesson in Beijing’s ability to block out external events and short-term challenges to implement long-term goals through an easily confusing cascade of party, state and mixed party-state institutions: The NPC is important as a forum for deliberating all sorts of foundational laws, but it will be mainly concerned with advancing the long term goals of building economic resilience and ensuring socio-economic stability as outlined by the Third Plenum. 

Long term goal no. 1: Advancing party-state capitalism to strengthen China 

Xi Jinping’s recent meeting with business leaders from China’s private sector and the likely inclusion of the much-flagged Private Sector Promotion Law on the NPC’s agenda shows that Beijing recognizes the importance of private companies for China’s economic growth and technological modernization. But China’s leadership will not deviate from their path of strengthening the state sector and politicizing the business environment. The Plenum made this clear last July: as a roadmap for advancing “Chinese socialist modernization” and developing a “high-standard socialist market economy” by 2035, its resolution doubled down on the public economy and party-state guidance as foundations for economic policy. 

Favoring the state sector at the expense of the open private economy (国进民退) has been a core feature of economic policy under Xi – and any pledges to promote the private sector are conditional on businesses aligning their strategies with Beijing’s objectives for the nation. Economic development under Xi is a whole-of-society project, which means that private companies are seen as corporate citizens with responsibilities to the CCP and the state.  The metaphorical "bird cages" that have long defined the balance between the market economy (the bird) and party control (the cage) are becoming more restrictive. 

Increasing economic guidance from the CCP means that the distinction between state-owned and privately owned enterprises is becoming more difficult to maintain. Competitive neutrality, the equal treatment of companies mentioned in the resolution of the Third Plenum, primarily means that enterprises of both types have the same obligations and opportunities to help the nation achieve its goals. Supply-side support – rather than demand-side stimulus – will remain the leadership’s preferred way to support the economy. 

Signals on socio-economic development and on industrial policy communicated at and in the months after the NPC will be seen by officials as guidance on the policy areas to prioritize in the CCP’s next Five-Year Plan (FYP), for 2026 to 2030. With the Central Committee expected to consider the 15th FYP at its Fifth Plenum in October, the NPC will be  crucial for its assessment of the current 14th planning period and for beginning work on the structure of the next plan to set the goals for China’s economic development. 

Long term goal no. 2: Countering US containment through supply-chain resilience 

China’s leaders see the country in a structural competition with the US, which is actively seeking to contain China’s rise, most obviously in the area of technology. While public procurement and major projects already require some sensitive technologies to be 100 percent Chinese, the Third Plenum called for fully Chinese-controlled supply chains for integrated circuits, machine tools, medical equipment, instruments, software and advanced materials.

This “securitization by localization” drive will only continue as Beijing insists on maintaining a manufacturing base along the entire value chain. The Third Plenum called for manufacturing to remain “a reasonable portion of the economy”, around 25-30  percent of GDP. 

Any discussion of economic stimulus during the NPC will  be heavily influenced by these strategic goals. Beijing will point to superiority of this state-led approach by highlighting recent successes in areas such as AI, green tech, and military technology. Beijing’s intention to strengthen China’s self-reliance has only increased as the second Trump administration has raised uncertainty about global trade and supply chains, and as European governments have flip-flopped on the European Union’s strategy towards China. 

Long term goal no. 3: Boosting innovation and talent to strengthen science and tech

Commenting on the Third Plenum, Yin Hejun, China’s Minister of Science and Technology, said in August last year that competition between countries is essentially over capabilities in science, technology and innovation – and consequently over which political system is better at allocating resources to these efforts. In this spirit, China is investing more into fostering innovation and talent: higher education institutes, including China’s most prestigious universities, are adjusting their offerings to national priorities, for example, by expanding programs that teach “urgently needed” skills  and focusing on attracting and nurturing “strategic scientists” in specific fields from both inside and outside of China.

An important topic for the NPC will be  how to best allocate spending on education and strategic research and development (R&D), and how the regions can best compete for funding to build labs and other innovation capacities. The Third Plenum made the state-led nature of the project clear: national and regional government has to support innovation and tech and encourage private companies to join national endeavors to reach science and technology (S&T) breakthroughs. 

Even the tight fiscal resources will not dissuade Beijing from state support for tech, as technological security is a top priority pushed by the central party and Xi personally. Private companies are currently being lobbied to chip in, and play an important role here, as they use their own resources to invest, taking pressure off public coffers to do the spending.

This illustrates that Beijing’s support for private companies is expedient rather than ideological, with their usefulness determined mainly by their willingness to help with the advancement of strategic targets as outlined by the party state.   

Long term goal no. 4: Reforming the fiscal system to properly fund state spending 

Most of the NPC’s 2930 deputies come to Beijing from the frontlines of policy implementation – China’s localities. Slowing economic growth and the real estate crisis have exacerbated the problems local governments face in financing education, healthcare, social services and infrastructure – alongside investing in Beijing’s desired strategic objectives. This will  make an overhaul of the county’s fiscal system, already one of the Third Plenum’s key themes last summer, a topic of intense debate when legislators meet in the capital. 

Local governments have become heavily indebted because they have to finance huge swathes of state spending while China’s central government collects most of the tax revenue. Reforms are long overdue, but even a leader as strong as Xi has failed to meaningfully push through key revenue-raising reforms such as a property tax. This lack of progress has been particularly damaging in the wake of the crash of China’s real-estate market. Local governments had grown heavily reliant on land sales and stamp duties for revenue and now face severe fiscal challenges to finance social spending as these sources of income have sharply declined.

The NPC will be presenting  the central government’s annual budget, economic growth target and key finance indicators. Delegates won’t get to veto any of these, but their annual get-together is an important occasion to communicate local concerns to central-government leaders and colleagues around the country. With rising social security spending, Beijing’s calls for strategic investments into innovation and tech, and the constant need to support existing manufacturing and attract new industries, local leaders will push for a more equal division of tax revenues, including more local-government tax-raising powers. 

Long term goal no. 5: Ensuring the loyalty of the people to guarantee national security

The NPC is also known as one of the “Two Sessions” that take place in Beijing every year, the other being the Chinese People's Political Consultative Conference (CPPCC). This advisory body is currently chaired by the CCP’s chief ideologue Wang Huning and brings together all non-state and non-party groups – ethnic minorities, private companies, China’s eight democratic parties, sports and business associations – to participate in policy deliberations. While pompous in form, the CPCC has little direct influence on policy and serves more to remind delegates of the need for and use of loyalty to the CCP and Xi. 

The Third Plenum’s resolution listed social governance under the heading of “national security”, driving home how important control and stability have become to China’s leaders. When Wang delivers his opening speech to the CPPCC – and the Two Sessions – on March 4,  loyalty to the CCP as a prerequisite for enjoying the fruits of modernization and security will be one message. The CCP’s project of “Chinese socialist modernization” calls upon the whole of society to take part – not participating is no longer much of an option. 

Since the Covid-19 pandemic, Beijing has tightened control over social governance in villages and residential areas, in companies, and in social and other grass-roots bodies. The so-called grid management system has become the first line of party-state presence: residential blocks are divided into grids, and grid workers and local security forces are responsible for secure and well-serviced residential areas. Their main responsibility is to provide public services, but they are also a constant reminder of Beijing’s view on social norms: Citizens who park their cars properly are also more likely to toe the political line. 

Distinguishing between short-term and long-term policy goals 

The NPC and its decisions can only be understood in the context of long-term policy objectives such as those outlined by the Third Plenum. For Xi, “Trump 2.0”, the new Germany government, Russia’s war on Ukraine, or a newly strained transatlantic relationship only confirm the strategic direction he initiated over a decade ago – “securitizing” China’s rise as a global power, strengthening its economic resilience against external shocks, and preparing for intensifying structural competition with the US. 

Government work reports and development targets presented to the NPC are responses to these long-term goals, not to sudden external events that dominate news headlines. Annual targets and policy adjustments are made against a backdrop of policy red lines and macroeconomic priorities that have been set long in advance – by CCP organs such as the Third Plenum. It is essential to keep the CCP ‘s long-term objectives in mind when analyzing the decisions, discussions and developments around the NPC and the CPPCC.