China to hold Third Plenum. Why real estate isn’t likely the main focus

BEIJING — China’s real estate problems may be massive, but analysts expect the upcoming Third Plenum to focus on other areas — such as high local government debt levels and a push for advanced manufacturing.

The much-anticipated policy meeting, scheduled for Monday to Thursday, is a major gathering of the top members of the ruling Communist Party of China that typically happens only once every five years. This plenum was widely expected to be held last fall but has been delayed.

“The key challenge faced by Beijing is to find an alternative fiscal system, as the current one, which relies heavily on land sales, is under severe pressure due to the plunging land market,” Larry Hu, chief China economist at Macquarie, said in an email to CNBC.

He expects next week’s meeting to focus on fiscal reform and other structural policies. Hu pointed out that cyclical policies — which can include property — are usually discussed at more regular meetings such as that of China’s Politburo, expected in late July.

“Other than that, policymakers are also likely to reiterate [their] commitment to innovation, i.e. the so-called new productive forces,” Hu said, referring to Beijing’s push to support advanced manufacturing and high-tech.

The Central Committee of the ruling Chinese Communist Party, made up of more than 300 people including full and alternate members, typically holds seven plenary meetings during each five-year term.

The Politburo is a group of about 24 people within that committee. 

The Standing Committee of the Politburo, made up of seven key members, is the highest circle of power in China which is headed by Xi Jinping, General Secretary of the Party and President of China.

The Third Plenum has traditionally focused on economic policy. Under Deng Xiaoping’s leadership in 1978,  the meeting officially heralded significant changes for the communist state, such as China’s “reform and opening.”

At next week’s plenary meeting, “the number one thing I’m looking out for is the so-called financial reform,” Dan Wang, chief economist at Hang Seng Bank (China), told CNBC.

She’ll also be watching for details around consolidation in the banking sector, as well as signals on policy around local government finances and taxes.

“For real estate markets, I don’t think it should be a focus of the plenum, because it’s already [in a] state that everyone has a consensus [on],” Wang said. “It’s in a downturn. It hasn’t reached the bottom yet.”

While pertinent to the wealth of most households in China, the property sector’s troubles are also intertwined with local government finances and their piles of hidden debt.

Local governments once relied heavily on land sales for revenue.

“In the medium and longer term, the importance of cultivating sustainable revenue sources for local…