Houthi shipping attacks pose complex diplomatic challenge to next UK government

Analysis Houthi shipping attacks pose complex diplomatic challenge to next UK government
Yemenis wave Palestinian flags and hold mock rockets during a march in the Houthi-run capital Sanaa in solidarity with the people of Gaza. (AFP)
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Updated 02 July 2024
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Houthi shipping attacks pose complex diplomatic challenge to next UK government

Houthi shipping attacks pose complex diplomatic challenge to next UK government
  • Experts divided on whether change in British policy alone can stop Houthi attacks on shipping
  • Red Sea trade routes disruption has increased shipping costs, delayed supplies to UK

LONDON: Whichever political party forms the next UK government after this week’s general election will face major domestic and international challenges, including the crises in Gaza and the Red Sea. 

Experts who spoke to Arab News emphasized the need for diplomatic solutions and support for Palestinian statehood to address these challenges, as disruption to Red Sea trade routes has increased shipping costs and delayed supplies, impacting UK businesses.

Escalating tensions in the region have already prompted British military action. How the next prime minister chooses to respond will shape international relations and have significant implications for domestic economic stability and public opinion.

While polling suggests a potential Labour majority, ending more than a decade of Conservative rule under five successive prime ministers, including incumbent Rishi Sunak, the political landscape remains complex.

The Labour Party has gained ground in many areas and reclaimed councils it has not held in decades, but has also faced setbacks in key constituencies with large student and Muslim communities.




Britain’s PM and Conservative Party Leader Rishi Sunak delivers a speech during a visit during a general election campaign event in northern England, on July 1, 2024 in the build-up to the UK general election on July 4. (AFP)

These traditionally loyal demographics have voiced a distinct reason for this shift — namely Labour leader Keir Starmer’s response to the Gaza issue.

Desire for a ceasefire is high in Britain. A recent YouGov poll in May found that 69 percent think that Israel should stop and call a ceasefire — about the same as the 66 percent who said so in February. And yet the main political parties have been muted on the issue.

Britain’s Arab citizens have been urged by the Arab Voice campaign to support candidates who best serve Arab and Muslim communities, focusing on those who stand with Gaza.

“The situations in Gaza and Yemen have significantly influenced my decision on whom to vote for in the upcoming election,” Randa Al-Harazi, a British-Yemeni political activist, told Arab News.

“The current government’s departure from British values and principles that uphold human rights has been a pivotal factor. Britain’s strong commitment to human rights was a major reason why I chose to migrate to and settle in this country.”




A woman stands holding a child surrounded by the rubble of buildings destroyed during Israeli bombardment in Khan Yunis on the southern Gaza Strip on June 23, 2024.

Escalating international pressure for a Gaza ceasefire has led to huge protests across the UK, notably mobilized by the Palestine Solidarity Campaign.

While the general election campaigns of the main parties have primarily focused on domestic issues, the incoming prime minister will have to address the escalating tensions in the Middle East, exacerbated by the Gaza conflict between Israel and Hamas.

Opinion

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Non-state actors within the Iran-led “Axis of Resistance” have launched attacks against British ally Israel, ostensibly in solidarity with Hamas and the broader Palestinian cause, posing a threat to global trade security.

The next prime minister will need to decide whether to continue or reconsider the UK’s involvement amid broader regional instability.




The Houthis have attacked multiple vessels off Yemen’s coast in protest against Western support for Israel in its war in Gaza. (AFP)

As part of the Axis of Resistance, the Houthi militia in Yemen — also known as the Ansar Allah — has responded to the Gaza war by targeting Israeli interests. It has launched rocket and drone attacks in the Red Sea and Gulf of Aden, initially focusing on cargo ships suspected of having links to Israel.

Simon Mabon, professor of international politics and director of the SEPAD peace and conflict research center at Lancaster University, says advocating for a ceasefire in Gaza and enduring peace in the Occupied Palestinian Territories is of critical importance.

“The Houthis have capitalized on the devastation in Gaza and articulated a clear stance in support of the Palestinian cause,” he told Arab News. “A ceasefire would go some way in undermining this approach, though Houthi attacks have been far wider than just Israeli targets.” 

In response to Houthi attacks on shipping, the US and UK have launched multiple counterstrikes, targeting the militia’s coastal radar installations, unmanned aerial vehicles, surface vessels, weapons storage facilities, missile launch sites and other military assets to degrade their capability to continue attacks.

Despite these efforts, the Houthi militia has vowed to continue attacks and to retaliate against the US and UK. Its latest statements emphasize ending the Gaza war as a primary objective of its attacks while also speaking of avenging its fighters killed in US and UK attacks.




A grab from handout footage released by the Houthis on November 19, 2023, reportedly shows members of the group during the capture of an Israel-linked cargo vessel at an undefined location in the Red Sea. (AFP)

Baraa Shiban, an associate fellow with the London-based Royal United Services Institute, says that despite the UK government’s decision to join the US in protecting shipping lanes, the Yemenis had long foreseen and warned about this eventuality.

“The Red Sea problem, although it is a maritime issue, is primarily a land problem,” Shiban told Arab News. “It stems from the international community’s inability to recognize the importance of a properly functioning state in Yemen.”

Shiban says that the crisis in Yemen has often been treated purely as a humanitarian issue, with a focus on feeding the population. But, according to him, this approach overlooks the underlying problem — the Houthi insurgency that hinders the state’s functionality.

“To ensure maritime security, it is crucial to address the land-based security issues,” he said. “This requires a fresh strategy for engaging with Yemeni parties to help them rebuild stable and effective institutions.”




Protesters hold placards and wave Palestinian flags as they gather in Parliament Square, central London, on June 8, 2024. (AFP)

Instability in Yemen worsened in 2014 when Houthi insurgents took control of Yemen’s capital, Sanaa, forcing the internationally backed government to go into exile in Saudi Arabia in 2015. 

“Greater attention must be paid to the Houthis as a critical issue to be addressed,” said Shiban. “The Houthis pose a significant threat, and this problem is likely to persist for a long time.”

Many Yemenis are sympathetic to the Palestinian cause and highly critical of Israel’s assault on Gaza, which has boosted public support for the Houthi militia. Large demonstrations in cities, both within and outside Houthi-controlled areas, such as Taiz, reflect this widespread sentiment. 

“The support for the Houthis has grown dramatically as a result of their actions, despite the group’s deeply hostile actions in Yemen,” said Mabon. “Taking a firm stance in support of Palestinian statehood is essential.”




Many Yemenis are sympathetic to the Palestinian cause and highly critical of Israel’s assault on Gaza, which has boosted public support for the Houthi militia. (AFP)

The Houthi militia has been able to use this to bolster military recruitment in the regions it controls, aiding its struggle against Yemen’s internationally recognized government and associated armed factions.

Abdulaziz Al-Qadmi, a Yemeni political analyst based in Houthi-controlled Sanaa, believes that the group’s support for the Palestinian cause will continue until Western nations, including the UK, cease their backing of the Israeli government.

“The British government and its Western allies must recognize the high costs of waging war against the Palestinian resistance,” said Al-Qadmi.

“If the UK and US persist in their unlawful assaults on Yemen, they should expect retaliation. Previously, Ansar Allah targeted only ships bound for Israel, but now UK and US vessels will also be vulnerable to attacks.” 

He added: “This fact is a critical consideration for any new UK government. The cycle of violence will only end when the US and UK halt their military operations in Yemen, as their current strategy is proving unsuccessful.”

INNUMBERS

  • 10 Number of additional days it takes for ships to traverse southern Africa to avoid the Red Sea route.
  • 55 percent British Chambers of Commerce exporter members feeling the direct impact of the Red Sea crisis.
  • 300 percent Reported increase in the price of container hire, while delivery times have extended by 4 weeks.
  • 70 percent Proportion of Europe’s car parts shipped through the Red Sea from Asia, which now face disruption.

The strategic importance of the Red Sea in global supply chains has been severely disrupted by Houthi missile and drone attacks, with 107 recorded incidents since the hijacking of the Galaxy Leader on Nov. 19. 

“The Red Sea is central in global supply chains and global trade routes, and disturbances in these supply chains and trade routes can have global reverberations,” Lancaster University’s Mabon said.

Due to these attacks, many shipping companies have opted to avoid the Red Sea, diverting vessels onto the safer but much longer and more costly route around the tip of southern Africa, passing the Cape of Good Hope.

This detour can add 10 days to a journey and increase fuel costs by 40 percent. A British Chambers of Commerce survey in February found that 55 percent of its exporter members have felt the direct impact of the Red Sea crisis. Some reported price rises of 300 percent for container hire and delivery times extended by four weeks.

Manufactured goods from Asia, especially cars, have been the hardest hit. About 70 percent of Europe’s car parts are shipped through the Red Sea from Asia. Due to the disruption, carmakers such as Volvo and Tesla have had to suspend some production lines because of a lack of parts.

Some companies are realigning their supply chains to cope with these challenges. Retailers such as Asos and Boohoo have increased nearshoring, sourcing more products from countries such as Turkiye and Morocco, as well as within the UK.




This handout grab of a video by the French ‘Etat-Major des Armees’ shows a Houthi UAV threatening commercial navigation prior to its destruction by a French army helicopter in the Red Sea on March 20, 2024. (AFP)

This shift helps them to avoid the longer lead times and inflated prices associated with rerouting shipments from Asia.

Extended shipping routes are driving up container freight expenses, approaching levels seen during the pandemic, according to a recent Geopolitical Monitor report.

These escalating costs are expected to trickle down to consumers, given that rising shipping expenses will persistently push prices upward in the short term, the report said. 

Short of a diplomatic solution, the geopolitical risks presented by the Houthi militia are set to increase. “A military solution is not the way forward in addressing the Red Sea crisis,” said Mabon.

“The UK’s influence alone is limited, but as penholder at the UN Security Council, it does have some influence. While the UK has called for an ‘inclusive peace under UN auspices,’ the need for a diplomatic solution that reflects realities on the ground is imperative.”

 


Extravagant wedding celebrations for the son of Asia’s richest man conclude with a reception

Extravagant wedding celebrations for the son of Asia’s richest man conclude with a reception
Updated 10 sec ago
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Extravagant wedding celebrations for the son of Asia’s richest man conclude with a reception

Extravagant wedding celebrations for the son of Asia’s richest man conclude with a reception
  • Youngest son of Mukesh Ambani married Radhika Merchant, daughter of pharma tycoons, with a price tag running into the millions
  • Ambani, who owns Reliance Industries conglomerate, is the world’s ninth-richest man with net worth of $116 billion, according to Forbes

MUMBAI: A wedding reception on Sunday wrapped up the monthslong celebrations as the youngest son of Mukesh Ambani, Asia’s richest man, married his longtime girlfriend with a price tag running into the millions.
The newlyweds were cheered by friends and relatives at Mumbai’s Jio World Drive — a convention center built and owned by the Ambani family — as part of the “Mangal Utsav” (a festival of Bliss), which marked what many have dubbed as the wedding of the year.
Anant Ambani tied the knot with Radhika Merchant, daughter of pharma tycoons Viren and Shaila Merchant. The wedding rituals, including exchanging garlands by the couple and walking around the sacred fire, began Friday and were completed early Saturday.
Former British Prime Ministers Boris Johnson and Tony Blair, as well as Kim and Khloe Kardashian, Priyanka Chopra and Nick Jonas, American wrestler and actor John Cena, Bollywood superstars Amitabh Bachchan, Shahrukh Khan and Salman Khan were among the celebrities who attended the ceremonies on Friday and Saturday.
India’s Prime Minister Narendra Modi blessed the newlyweds at a Saturday reception organized by the Ambanis, highlighting the billionaire’s rising clout.
“This is the final and the most auspicious ceremony and the last wedding in our family,” The Times of India newspaper quoted Mukesh Ambani. The Ambanis didn’t say how much they spent on the festivities that have been going on for months.

Indian actor Shahrukh Khan, second left, shares a light moment with his family as they pose for a picture during the blessing ceremony of newlywed couple Anant Ambani son of billionaire Mukesh Ambani's and his wife Radhika Merchant at Jio World Convention Centre in Mumbai, India, on July 13, 2024. (AP)

During a three-day pre-wedding celebration in March, Rihanna and Akon performed for a star-studded 1,200-person guest list.
A four-day European cruise in May featured on-deck concerts from the Backstreet Boys and Pitbull, followed by a masquerade ball where Katy Perry sang. At last week’s traditional music night in Mumbai Justin Bieber belted out his music hits.

The Antilia mansion, house of billionaire Mukesh Ambani, is lit up ahead of his son Anant Ambani and Radhika Merchant's wedding in Mumbai, India, on July 10, 2024. (AP)


The groom’s father, Mukesh Ambani, is the world’s ninth-richest man, with a net worth of $116 billion, according to Forbes. He is the richest person in Asia. His Reliance Industries is a conglomerate reporting over $100 billion in annual revenue, with interests that include petrochemicals, oil and gas, telecoms and retail.
The Ambani family owns, among other assets, a 27-story family compound in Mumbai worth $1 billion. The building contains three helipads, a 160-car garage and a private movie theater.
The groom, 29-year-old Anant, oversees the conglomerate’s renewable and green energy expansion. He also runs a 3,000-acre (about 1,200-hectare) animal rescue center in Gujarat state’s Jamnagar, the family’s hometown.
The bride, also 29, is the daughter of pharmaceutical tycoon Viren Merchant and is the marketing director for his company, Encore Healthcare, according to Vogue.
Ambani’s critics say his company has relied on political connections during Congress Party-led governments in the 1970s and ‘80s, and under Modi’s rule since 2014.
 


Rescuers in Nepal recover 7 bodies after a landslide swept 2 buses of people into a river

Rescuers in Nepal recover 7 bodies after a landslide swept 2 buses of people into a river
Updated 13 min 56 sec ago
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Rescuers in Nepal recover 7 bodies after a landslide swept 2 buses of people into a river

Rescuers in Nepal recover 7 bodies after a landslide swept 2 buses of people into a river
  • Rescuers were able to find the bodies in different locations on the riverbanks
  • The buses swept away Friday morning near Simaltal, about 120 kilometers west of Katmandu

KATMANDU: Rescuers have recovered a total of seven bodies from the river that two buses full of people were swept into by a landslide, officials said Monday.
Rescuers were able to find the bodies in different locations on the riverbanks as the search continues for the missing buses and people on board.
Government administrator Khima Nanda Bhusal said the bodies were identified and relatives contacted. Three of the dead are Indians and the remaining four are Nepali nationals.
The buses were on the key highway connecting Nepal’s capital to southern parts of the country when they were swept away Friday morning near Simaltal, about 120 kilometers west of Katmandu.
The first body was recovered Sunday some 50 kilometers from where the buses fell.
Weather conditions improved Saturday and search teams were able to cover more ground in the hunt for the missing buses and passengers. Heavy equipment had cleared much of the landslides from the highway, making it easier to reach the area as rescuers expanded their scope toward the southern region from where the first body was found, Bhusal said.
The government has imposed a ban on passenger buses traveling at night in the areas where weather warnings are posted, according to the Home Ministry.


Indian troops kill three suspected Kashmir militants

Indian troops kill three suspected Kashmir militants
Updated 38 min 36 sec ago
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Indian troops kill three suspected Kashmir militants

Indian troops kill three suspected Kashmir militants
  • Muslim-majority Kashmir has been divided between India and Pakistan since their independence from British rule in 1947
  • New Delhi and Islamabad accuse each other of stoking militancy and espionage to undermine each other

NEW DELHI: Soldiers in India-administered Jammu and Kashmir have killed three suspected militants, the army said, the latest incident in an uptick of attacks in the disputed northern territory.
Muslim-majority Kashmir has been divided between India and Pakistan since their independence from British rule in 1947.
The Indian army’s Chinar Corps said late Sunday that three people were killed in an “anti-infiltration operation” in Kashmir’s Kupwara district, with “weapons and other war-like stores” seized.
India and Pakistan both claim Kashmir in full and have fought three wars for control of the Himalayan region.
New Delhi and Islamabad accuse each other of stoking militancy and espionage to undermine each other.
Rebel groups have waged an insurgency since 1989, demanding independence for the territory or its merger with Pakistan.
The conflict has killed tens of thousands of civilians, soldiers and rebels.
Earlier this month, gunmen ambushed an army convoy killing five soldiers, and two other soldiers and six suspected militants were killed in separate incidents.
In June, nine Indian Hindu pilgrims were killed and dozens wounded when a gunman opened fire on a bus carrying them from a shrine in the southern Reasi area.
It was one of the deadliest attacks in years and the first on Hindu pilgrims in Kashmir since 2017, when gunmen killed seven people in another ambush on a bus.


Global leaders condemn assassination attempt on Trump, Pakistan calls it ‘shocking development’

Global leaders condemn assassination attempt on Trump, Pakistan calls it ‘shocking development’
Updated 15 July 2024
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Global leaders condemn assassination attempt on Trump, Pakistan calls it ‘shocking development’

Global leaders condemn assassination attempt on Trump, Pakistan calls it ‘shocking development’
  • Assassination attempt targeting former US president left one attendee dead and critically injured two others
  • Secret Service said it killed suspected shooter who attacked from an elevated position outside rally value

Global leaders expressed concern Sunday over an assassination attempt targeting former US President Donald Trump at a rally in Pennsylvania that left one attendee dead and critically injured two others.

Trump’s campaign said the presumptive Republican nominee was doing “fine” after being whisked off the stage though the shooting pierced the upper part of his right ear.

The Secret Service said it killed the suspected shooter who attacked from an elevated position outside the rally venue.

US authorities are still investigating the shooting.
Argentina
Argentina’s President Javier Milei said Trump was the “victim of a cowardly assassination attempt that put his life and that of hundreds of people at risk.”

In a post on X, Milei also said the apparent assassination attempt highlighted the “desperation of the international left” and its “willingness to destabilize democracies and promote violence to screw itself into power.”

Australia
Australian Prime Minister Anthony Albanese condemned the “inexcusable attack” on the United States and Australia’s shared democratic values.

“In Australia, as in the United States, the essence and the purpose of our democracies is that we can express our views, debate our disagreements and resolve our differences peacefully,” Albanese told reporters in the Australian Parliament House.

Brazil
Brazil’s president, Luiz Inácio Lula da Silva, called the incident unacceptable on X and said the attack must be “strongly repudiated” by all democracy defenders.

His predecessor, Jair Bolsonaro, who is a close Trump ally, relayed his solidarity with “the world’s greatest leader of the moment.” Bolsonaro was stabbed in the abdomen at a campaign event ahead of the 2018 presidential election, which he went on to win.

Trump, he told reporters, was saved by a matter of a few centimeters. “This — to understand — is something that comes from above,” he added.

Canada
Canadian Prime Minister Justin Trudeau spoke with former President Trump on Sunday.

“The Prime Minister condemned yesterday’s appalling assassination attempt and reiterated there’s no place for political violence,” Trudeau’s office said in a statement. “The Prime Minister wished the former President well and offered condolences to the shooting victims and to the family of Corey Comperatore.”

China

The Chinese Foreign Ministry said in a statement that China is concerned about the attack and President Xi Jinping has already extended his sympathies to Trump.

Egypt

Egyptian President Abdelfattah El El-Sisi stressed his country’s condemnation of the attack in a statement and wished for the US election campaigns to resume peacefully.

France

French President Emmanuel Macron sent his wishes to Trump for a prompt recovery. “It is a drama for our democracies. France shares the indignation of the American people,” he posted on X.

Germany

German Chancellor Olaf Scholz posted on X saying the attack was “despicable” and such violent acts threaten democracy. “My compassionate thoughts are also with the other people who were hurt in the attack,” he said.
Hungary

Hungarian Prime Minister Viktor Orban said his thoughts and prayers were with Trump “in these dark hours” on X.

India

India’s prime minister, Narendra Modi, said he was deeply concerned by “the attack on my friend.”

“Strongly condemn the incident. Violence has no place in politics and democracies,” he wrote on X.
Iraq

Masrour Barzani, the prime minister of the Kurdistan region of Iraq, condemned the attack “in the strongest terms,” saying on X his thoughts are with the victims of “this senseless act of terrorism.”

Israel

At the start of the weekly Cabinet meeting in Jerusalem, Prime Minister Benjamin Netanyahu said he watched “in horror,” adding that the attack was also an “assassination attempt on American democracy.”

He said everyone in Israel was sending Trump wishes for “a quick recovery and return to full strength.”

Italy

Italian President Sergio Mattarella said in a statement the attack was a cause for serious alarm and “a disconcerting symptom of the deterioration of the civil fabric and of the dangerous refusal of confrontation, dialogue and respect for democratic life.”

Meanwhile, Premier Giorgia Meloni wished Trump a quick recovery.

Japan

“We must stand firm against any form of violence that challenges democracy,” Japanese Prime Minister Fumio Kishida said on X.

Mexico

Mexico’s president, Andrés Manuel López Obrador, denounced the attack on X and said “violence is irrational and inhumane.”

Pakistan

Pakistani Prime Minister Shehbaz Sharif called the shooting a “shocking development.” He said he condemned all violence in politics and wished the former president a swift recovery and good health.

And imprisoned Pakistani opposition leader and former prime minister Imran Khan, who was shot and injured at a rally in November 2022, wished Trump a full recovery. “Political violence is a tool of cowards and has no place in a democracy,” he said on X.

Russia

Russian President Vladimir Putin has no plans at present to call Trump, according to Kremlin spokesman Dmitry Peskov.

“We do not at all think or believe that the attempt to eliminate presidential candidate Trump was organized by the current government, but the atmosphere that this administration created during the political struggle, the atmosphere around candidate Trump provoked what America is faced with today,” he added.

Maria Zakharova, spokeswoman for the Russian foreign ministry, said earlier Sunday on her Telegram channel that American lawmakers should employ the money they use to supply weapons to Ukraine “to finance the American police and other services which should ensure law and order within the United States.”

South Africa

South African President Cyril Ramaphosa wrote on X that the attempted assassination of Trump “is a stark reminder of the dangers of political extremism and intolerance.”

Ramaphosa also voiced his hope that “the citizens and leaders of America will have the fortitude and sagacity to reject violence and seek peaceful solutions.”

Slovakia

Slovak Prime Minister Robert Fico, who survived an assassination attempt in May, condemned the shooting in a Facebook post. He drew direct parallels between the two incidents, suggesting the attack on Trump was the result of a campaign by his political opponents.

Taiwan

Taiwan’s president, Lai Ching-te, said on X his thoughts and prayers are with Trump, adding that political violence of any form is never acceptable “in our democracies.”

Turkiye

Turkish President Recep Tayyip Erdogan condemned the shooting on X, offering his good wishes to Trump, his family and supporters.

He said he believed “the investigation into the attack will be conducted effectively” so as not to undermine the US elections.

The European Commission

European Commission President Ursula von der Leyen said on X she was deeply shocked by the shooting, adding that political violence has no place in democracy.

Ukraine

Also on X, Ukrainian President Volodymyr Zelensky said he was appalled to learn about the shooting, saying such violence has no justification. He added he was relieved to learn that Trump is safe.

Zelensky extended his wishes for strength to everyone who was horrified by the event.

United Arab Emirates

The UAE’s Ministry of Foreign Affairs condemned the attack on Trump, describing it as “a criminal and extremist act.”

United Kingdom

UK Prime Minister Keir Starmer said on X that he was appalled by the “shocking scenes,” and sent his best wishes to Trump and his family.

“Political violence in any form has no place in our societies,” he said.

British lawmaker Nigel Farage, a friend of Trump’s, sought to pin much of the blame on the “mainstream media” that he claimed opposed the former president. He told the BBC that it was a “horrendous” incident but somehow he was not shocked by it.

Vatican

In a statement, the Vatican expressed its concern over “last night’s episode of violence, which hurts people and democracy, causing suffering and death.” Pope Francis didn’t mention the apparent assassination attempt in his weekly prayers earlier.

Venezuela

Venezuelan President Nicolás Maduro condemned the attack during a campaign event in the town of Guacara. “We have been adversaries, but I wish President Trump health and long life, and I repudiate the attack,” Maduro added.


China’s Communist Party will signal its approach to the country’s challenges at a meeting this week

China’s Communist Party will signal its approach to the country’s challenges at a meeting this week
Updated 15 July 2024
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China’s Communist Party will signal its approach to the country’s challenges at a meeting this week

China’s Communist Party will signal its approach to the country’s challenges at a meeting this week
  • Under Xi, the Communist Party has decided that the party needs to be at the center of efforts to take China to the next level of development.
  • China is now the world’s second largest economy, but with a population of 1.4 million people, it is also still a middle-income country

BEIJING: China’s ruling Communist Party is starting a four-day meeting Monday that is expected to lay out a strategy for self-sufficient economic growth in an era of heightened national security concerns and restrictions on access to American technology.
While the meeting typically focuses on such long-term issues, business owners and investors will also be watching to see if the party announces any immediate measures to try to counter a prolonged real estate downturn and persistent malaise that has suppressed China’s post-COVID-19 recovery.
“There’s a lot of unclarity of policy direction in China,” which is weighing on consumer and investor confidence, said Bert Hofman, the former World Bank country director for China and a professor at the National University of Singapore. “This is a point in time where China needs to show its cards.”
The outcome of the meeting will send a message to local government officials and others about the future direction of policy. The general expectation is that it will confirm a path laid out by Chinese leader Xi Jinping, though some hope for some fine-tuning to address concerns that increasing government control over business and society is stifling economic growth.
What is the “third plenum” and why does it matter?
The Communist Party’s 205-member Central Committee is holding its third plenum, or the third plenary session of a five-year term that started in 2022. This year’s meeting was expected to be held last year, but was delayed.
Historically, this third meeting has emerged as one at which major economic and policy decisions have been set, though not every time. Analysts say the plenum often sets longer-term directions impacting the economy.
1. In 1978, the meeting endorsed the “reform and opening up” of former leader Deng Xiaoping, the transformation from a planned economy to a more market-based economy that propelled China’s growth in the ensuing decades.
2. In 1993, it endorsed a “socialist market economy” that sealed the victory of reformers battling against conservatives warning about the dangers of economic liberalization.
3. In 2013, in another endorsement of reform, it said that the market would become the decisive force in the allocation of resources.
The last pronouncement, made a year after Xi became leader, didn’t come to be. Within a couple of years, the party began backtracking before setting off in a new direction in 2017, Hofman said.
What issues are at stake?
Under Xi, the Communist Party has decided that the party needs to be at the center of efforts to take China to the next level of development. China is now the world’s second largest economy, but with a population of 1.4 million people, it is also still a middle-income country.
The government has reined in China’s high-flying tech giants, such as Alibaba, the fintech and e-commerce giant. As the United States became more adversarial, Xi pushed Chinese companies and universities to try to develop the high-end semiconductors and other technology that is being blocked by US restrictions on exports to China.
Free-market advocates are concerned this government-led approach is discouraging the entrepreneurial spirit. Another worry is that the rising importance of national security will take a toll on economic growth. The government has investigated companies that transferred economic data overseas in what appears to be a widening definition of what constitutes a breach of the law.
A major change in direction is not expected and would be momentous if it were to happen. Instead, the degree to which the meeting acknowledges concerns about the business environment and national security could signal whether there will be some policy adjustments.
What policy shifts might happen?
Further support for high-tech industries that are considered vital for national security and future growth is all but certain, along with related industrial policies.
But the party faces demands on other fronts. Alexander Davey, an analyst at the Mercator Institute for China Studies in Germany, said they are watching how the government will balance two major prerogatives: economic growth and social equity.
Local governments are heavily in debt, with multiple cities suspending transit services because they could not afford to keep running them. In February last year, the city of Shangqiu, home to more than 7 million people, temporarily shut down bus lines.
“There may be a bit of a shift, does the central government issue more debt to local government so they can run their services?” Davey said. The trade off will be between vast resources poured into science and tech development, areas deemed vital to national security, and social services.
Investors will be on the lookout for indications that the government, having increased its control over the economy, will take any steps to create a more favorable environment for private companies.
Then, there is the real estate market. In April, the government announced policies that signaled a shift in its approach by funding direct purchases of unsold homes.
“A notable first-half shift in China’s property stance,” said Yifan Hu, chief investment officer for greater China at UBS bank, in a statement. “This ongoing pressure underscores the need for additional easing, which we think will be forthcoming given the supportive policy tone.”