10 Things You Need to Know About Third Plenums

The Third Plenum of the 18th Chinese Communist Party Central Committee will likely meet in November. We expect the meeting, chaired by Party Secretary Xi Jinping, to approve a document laying out the broad principles of China's next stage of economic reform. Hopes are running high that this document will mark a significant breakthrough in policy across a range of economic issues.

Here, we present 10 things you need to know about third plenums and our thoughts about what the 2013 one will bring. The bottom line: We think the package will be significant, and it should boost medium-term confidence as details are rolled out in the coming months. A document full of old ideas and vague language would disappoint.

1. The Third Plenum is about big-picture economic policy.

The Central Committee is appointed for a five-year term. During that period, it holds a number of meetings, or plenums, at which it discusses and approves big policy decisions. Other plenums deal with areas such as ideology and propaganda, but the third one usually focuses on economics.

In addition to the party secretary reporting on the state of the country and the party's agenda, the Third Plenum usually approves at least one big document focused on the economy. The document can range into other areas, and these meetings sometimes also approve political, legal and social decisions, which are not always published. The names of these documents do not make the pulse race. For instance, the last Third Plenum, in 2008, passed the "Decision on Some Important Questions in Promoting the Development of Rural Reform."

Formal preparation of the 2013 Third Plenum document began early this year. This involves a complex drafting process in which hundreds of organizations provide background papers, drafts and comments. Over the summer, at the Beidaihe seaside meetings, the senior leadership may have seen and discussed the economic ideas in a rough draft.

2. This is a party meeting and a party document.

Important decisions are taken by the party leadership, or the Central Committee, from which the Political Bureau is selected, from which the Politburo Standing Committee is chosen. The seven-man standing committee is the key decision-making authority. Drafting of the economics section of the plenary document is coordinated by the Central Economics and Finance Leading Group, a party body beneath the Central Committee. Other sections of the document, such as politics and law, are overseen by other senior party bodies.

Any document approved at the party plenum leads and informs subsequent government policy decisions and plans. It is therefore critical that Party Secretary Xi and Premier Li Keqiang are fully agreed on the goals and strategy. So far, we see ample evidence that they are.

While the process is led by the party, government officials will have been closely involved in preparation work for the document. Many ministries and official bodies, including the People's Bank of China and the Ministry of Finance, have likely been involved in preparing the report's economics section. Ministries provide suggested content, and ministers make speeches and comments in the key drafting meetings.

3. Sometimes the Third Plenum is a big deal.

The most-talked-about Third Plenum in China's history took place in December 1978 and marked the beginning of market reform. The meeting itself passed few concrete resolutions or detailed reforms; its significance lay elsewhere.

In 1976-77, after the Cultural Revolution and Mao Zedong's death, China's leadership attempted to reinstate central planning over the economy and thus boost growth.

Targets were drafted, investment targets set, production and price tables prepared. Heavy industry was the focus. Some 120 mega-projects in oil, steel and power were selected to lead the recovery. A massive ramp-up in oil exports was planned to supply the foreign currency needed to pay for imports of project equipment. However, the plan imploded in 1978 when China's actual oil situation became clear -- it had far fewer oil reserves than had been assumed -- and the high cost of this great investment push bit. The 120 projects were budgeted at US$12 billion; total exports in 1978 were only US$10 billion.

Throughout the year, Deng Xiaoping, whose 1975 economic reform plan was the basis for many of these ideas, criticized the leadership of Premier Hua Guofeng and maneuvered to install his own people in positions of influence. Deng triumphed at the Third Plenum. Premier Hua was effectively demoted, and a new economic reform strategy was determined and approved by the plenum.

Another comrade of Deng's, Chen Yun, joined the Politburo Standing Committee, took over economic management and chose agriculture, not industry, as his focus. Soon after the plenum, grain procurement prices were raised, communes were quietly disbanded and households were allowed to farm their fields and sell their own produce. It is worth noting that this controversial policy -- allowing farmers to farm their own land -- did not appear in the Third Plenum document, a lesson to which we will return below.