On 28 September, a meeting of the Chinese Communist Party Politburo decided to hold its
fifth plenary meeting from October 26-29
th. This is a long-awaited meeting which will approve the 14
th Five Year Economic and Social Development Plan and come up with a mid-term economic strategy called “2035 vision.” In addition, the meeting also passed a new set of regulations on the work of the Central Committee of the CPC.
The period 2021-2035 marks the period in which the CPC says China will achieve its basic socialist modernization and advance to become an economic and scientific power. The plenum will, therefore, lay out the goals for the period and set specific targets for the plan which will get the stamp of authority from next March’s National People’s Congress.
Setting the stage, as it were, are the
new regulations which enhance the powers of the General Secretary (President Xi Jinping) and extend his agenda setting authority. They have tightened the party rules and regulations which are above those of the laws of the country. In essence the regulations have enlarged the centralization and the authority of the CPC and will increasingly enable Xi to remake the Party in his own image.
13th Five Year Plan and made in China 2025
To look at the 14
th Five Year Plan, it would be useful to cast the mind back to its predecessor the
13th Five Year Plan which began in March 2016 with the stamp of Xi Jinping. The 80-chapter document sought to address issues of China’s “unbalanced, uncoordinated and unsustainable growth” and targeted the creation of a moderate prosperous society by 2020. It sought to redress China’s neglect of the environment and push the economy towards domestic consumption.
According to Wang Tao, Chief China Economist at the UBS Investment Bank, China has broadly achieved its 13
th Plan objectives despite the headwinds in terms of the US estrangement and the Covid-19 pandemic. China’s per capita is expected to be $10,400 in 2020, this can be benchmarked against the World Bank standard of $12,500 for high income countries.
The emphasis of the 13
th Plan was to promote higher, value-added intelligent manufacturing and adopt an “Internet Plus” orientation. The Plan was linked to the
Made in China 2025 Action Plan (MIC2025) that laid out 12 targets on a rolling 2020-2025 deadline. This called for enhancement of innovation, productivity, quality, digitalization and efficiency. The MIC2025 provided additional support to new energy vehicles, next generation IT, biotechnology, new materials, aerospace, ocean engineering and high-end ships, railway, robotics, power equipment and agricultural machinery. Subsequently, other elements came in with the Next Generation Artificial Intelligence Development Plan of 2017 aimed at making AI and IT as the drivers of China’s next industrial transformation.
There coming 5th Plenum is now being held in a situation where China has faced considerable and unexpected turbulence. The Covid-19 pandemic has compelled Beijing to
revise its annual growth target which would have been about 6.5 percent for 2020. Even though China is the only major economy that will show a positive growth this year, that growth, of around 2 percent, will be far below the original target. Second, Beijing is confronting a growing climate of global hostility. Trade partners like the US have hardened their attitude towards Beijing. More countries have declared their decision to avoid its 5G technology and others are working to rejig key supply chains away from China.
The meeting also
takes place in the backdrop of the continuing threat of US decoupling. Nevertheless, China is expecting to enter 2022 as a “high income country” by World Bank classification. But it is also aware that its growth has been unbalanced and there are significant differences between the urban and rural areas and different regions. However, beyond poverty alleviation, the Chinese economy needs to move towards greater marketisation and, as Global Times
has put it: “from high speed growth to high quality development.”
Dual circulation strategy
For this reason, earlier this year, Beijing floated the new economic concept called the “Dual Circulation Strategy”. This is essentially the promotion of import substitution and expansion of domestic demand. It involves three action points — diverting funds to high-end manufacturing, reduced dependence on food and energy imports and less overseas lending and investment. This will become the main guiding principle of the 14
th Five Year Plan. This will require changes in the business environment, reforms in taxation and labour law, provide legislative backing to the changes and above all modernize governance by the CPC. Also, it needs to fix its
hukou system which denies migrants, who provide invaluable labour for its industrial system, equal rights.
According to
a recent report by Nomura, we can look to four key implications of Chinese strategy of dual circulation: First, a reduced role in global value chains, which could reduce China’s dependence on high-end intermediate goods imports. Countries like Taiwan, South Korea, Malaysia and Singapore could be affected. Second, Chinese consumption could be reduced in certain areas like energy, food, medical products, autos, technology and steel. Third, China could emerge as a strong competitor in products like chips, 5G, data centres, AI, new energy vehicle related infrastructure impacting on the exports of countries like Korea, Taiwan and Singapore. Fourth, there could be a reduction of BRI investment.
Economic environment
The Plan is taking shape in a new environment that is being shaped by Covid-19.
According to the IMF, China, where the pandemic originated, “will be the only major economy to grow this year.” It will expand 1.9 per cent compared to 6.1 per cent last year. Next year it could go up to 8.2 per cent. The IMF figures show that for other major economies, all of who will be in the negative zone this year, the snap back “won’t be large enough to heal all the damage done in 2020.”
The developments are a replay of the 2008-2009 Global Finance Crisis where a timely stimulus enabled the Chinese economy to resume its high growth rate, while many other major economies had to struggle for years. The geopolitical consequences of this have been visible since. It was around this time that Chinese assertiveness was visible in an arc from the Diayou/Senkaku Islands, the South China Sea to the Sino-Indian Line of Actual Control.
As an analysis by the BBC put it, “China was a big factor in why Asia managed to escape the global financial crisis relatively unscathed.” This time around too, this is likely to be the case and already, we are witnessing the signs of times.
The ASEAN has emerged as China’s largest trading partner accounting for 14.6 per cent of Chinas trade. The EU is expected to regain its position when the pandemic subsides and the EU member states’ economy recovers. But the pandemic-related geopolitical trends could see Indonesia, Malaysia, Myanmar and Laos enhancing their role as “near-shored” suppliers for Chinese factories, as well as a source of mining products. More important will be the Regional Comprehensive Economic Partnership (RCEP) that will inevitably weld the region in a closer relationship with China. This will provide increased market access, reduction in tariffs, and further integration of supply chains that will make the products of ASEAN more competitive.
Xi’s southern tour last month has set the stage for the 14
th Five Year Plan. He visited Shenzhen Special Economic Zone that had triggered the first round of Chinese economic growth. This time around, as
Xi noted in his speech celebrating the 40
th anniversary of the founding of the zone, China is looking at a larger integration of the Guangdong-Hong Kong- Macao Greater Bay Area to lead the country into a hi-tech future.
Shenzhen is now being enabled to undertake new experimental policies on agricultural land, state owned enterprises and digital currency to attract more foreign investment. The government is now pushing Shenzhen to emerge as a global technology and finance centre.
Conclusion
Despite declaring that the development goals of the 13
th Plan were set to be accomplished, the reality is that China has to contend with uneven economic development and pockets of poverty in the country. This is evident from
XI Jinping’s call for continuous efforts to “win a complete victory in the battle against poverty.” Xi’s remarks came on the occasion of the seventh Poverty Relief Day on October 16. He has also conducted tours this year to poor provinces such as Shaanxi and Ningxia as part of the anti-poverty drive.
As per its plans, China is supposed to become “a moderately prosperous society” by the end of this year, implying that it has rid itself of poverty. But for the ordinary citizen, the struggle is to get proper housing, education and medical treatment. Poverty tends to be overwhelmingly rural in China, but the rapid urbanization and rising cost of living has resulted in sky-high housing prices and out of reach education and medical facilities for the urban citizens.
So, besides targeting these problem areas,
the primary focus of the 14th Five Year Plan will be to raise its R&D expenditures from 2.5 percent of the GDP in 2020 ($350-400 billion) to 3 percent by 2025 ($600-650 billion). While basic research will be emphasized, given the trend towards decoupling, emphasis will be in the area of chips, semi-conductors, software, precision machinery, advanced robotics, new materials, aerospace and aviation technology.
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