What To Watch For In China’s 5-Year Plan As Economy Shifts To Self-Sufficiency (#GotBitcoin?)
China’s top policy makers meet next week to hammer out the country’s future economic blueprint, offering clues on how the leadership plans to pivot the world’s second-largest economy to be more self-sufficient. What To Watch For In China’s 5-Year Plan As Economy Shifts To Self-Sufficiency (#GotBitcoin?)
The four-day meeting of the Communist Party’s Central Committee will take place behind closed doors from Monday in Beijing. Known as the plenum, the discussion this year will focus on the framework for China’s 14th five-year plan that runs from 2021 through 2025, as well as the vision and targets for the next 15 years.
The finalized plan won’t be made public before being formally approved by China’s legislature, the National People’s Congress, in March. However, some of the details may emerge via state media once the plenum ends.
Facing heightened tensions with the U.S. and a virus-battered world economy in recession, a central question around the plenum will be how China can draw on domestic sources to sustain its growth.
Here Are Some Key Themes Investors Are Watching Out For And How They’re Trading On The Information:
In the coming five years, policies are expected to be formulated around the idea of “dual circulation” raised by President Xi Jinping, in which China is seeking to create a more self-reliant domestic economy supplemented by external trade.
Domestically, the strategy would require China reshaping its production to satisfy local demand and bolster consumption.
What Bloomberg’s Economists Say
“An emphasis on encouraging domestic circulation would not signal that China is closing its doors on the world. We expect the plan to encourage two-way trade and promote services trade.”
Chang Shu, Chief Asia Economist
On the external side, China is likely to continue opening up its markets, including easing restrictions that bar foreign investors from certain industries — known as the negative list — and lowering tariffs and non-tariff barriers on imports.
Analysts are watching closely whether officials will set a specific target for gross domestic product growth in the five-year plan or give a broad description of the goal. The government didn’t set an annual growth target this year amid the uncertainty unleashed by the coronavirus pandemic. The previous five-year plan set an average growth target of above 6.5%.
“Current market estimates are for a growth target in the range of 5-5.5%, while we think 5% would be a reasonable number, with China needing 4.5% annual GDP growth to achieve high income status by 2025,” Morgan Stanley economists led by Robin Xing wrote in a note this week.
This year’s plenum will also feature discussions around China’s economic trajectory over the next 15 years. The 19th Party Congress in 2017 set out a vision for China as a “modern power” by 2050, with the first stage of that process running from 2020-2035, focusing on areas like technology innovation, expanding the middle-income group, and improving the environment.
“For the 2035 blueprint, it indicates that China’s policy making becomes more long-term oriented, and that investors could expect more continuity and certainty of policies in the upcoming 15 years,” said Liu Peiqian, China economist at Natwest Markets Plc in Singapore. “
However, it is more of a political guideline than a basket of detailed measures. The wording of it might look vaguer compared to the five-year plan.”
Beijing has made no secret of its ambitions to vault into the upper echelons of technology — in fields from artificial intelligence to semiconductors and next-generation networking — but those objectives will garner more attention than ever before at a time of intensifying rivalry with the U.S.
Global industry watchers will scrutinize Beijing’s blueprint for details on how it plans to funnel investment into cutting-edge fields from so-called third-generation chip-making to quantum computing and AI applications.
Outside of China, tech players will be watching for hints of strengthening techno-nationalism: whether the country is considering opening up its long-shuttered internet industry, for instance, or intends to further tighten its grip on online content and the phenomenal amounts of data critical to training AI algorithms and supporting domestic innovation.
Xi’s surprise announcement last month that the world’s biggest polluter plans to be carbon neutral by 2060 has upended energy policy in a country that relies on coal for more than half its power.
The five-year plan may see China accelerate its adoption of clean energy. The current goal is to derive as much as 20% of primary energy use from non-fossil fuels by 2030, but one option under consideration is to bring forward that target to 2025, people familiar with the discussions told Bloomberg last month. That would require a major increase in wind and solar installations over the five years.
The prospect of five-year plans can fuel speculative stock buying. Chinese renewable energy stocks surged last month on bets Beijing may lift its targets for wind and solar installations during 2021-2025. Xinjiang Goldwind Science & Technology Co. and GCL-Poly Energy Holdings Ltd. jumped in mid-September, weeks before Xi announced his carbon neutral goal.
Other areas seen likely to get policy backing in the next five years include technology, finance and defense, according to Bloomberg Intelligence and Chinese brokerages including China Galaxy Securities Co. Stocks are broadly higher ahead of the meeting, with the MSCI China Index up more than 6% this month and trading near its highest level in 23 years.
In 2015, child-care-related stocks such as infant formula makers and toy manufacturers surged after China ended its one-child policy as part of a five-year plan through 2020.
China Has A Few Things To Teach The U.S. Economy
Fiscal austerity is a relic of the past. Time to spend.
Ever since China’s spectacular economic growth became apparent in the 2000s, people have wondered whether that country’s brand of authoritarian state capitalism has proven superior to the more liberal American model. Until recently, it was possible to dismiss those concerns, but Chinese successes and U.S. failures keep piling up.
If the U.S. wants to maintain both its relative power and its prestige as a model for the world, it needs to make some big adjustments.
China’s rapid growth, by itself, was not an argument for the superiority of the Chinese system. Any country can grow briskly from a very low starting point, if it has the right policies. Whereas developed nations have to invent new technologies to grow, developing countries can copy existing ideas and build up their capital stock.
Even after decades of hypergrowth, and despite having a huge economy in terms of total size, China was and is still much poorer than the U.S. on a per capita basis. The typical Chinese family has a smaller house, fewer cars and less opportunity for travel and entertainment than its American counterpart.
But in recent years, China has shown that it can compete at the leading edge of technology — something most middle-income countries are unable to do. The nation is now a peer competitor with the U.S. in the field of artificial intelligence, and is dominating the global race to build fifth-generation wireless networks.
China is home to the world’s leading drone manufacturer, is building the world’s fastest trains, and is becoming a leader in genetic engineering. It even has a mission to Mars. With innovation like this, it’s hard to argue that China deserves exclusion from the rank of leading nations, despite its still-modest living standards.
In addition to technological wizardry, China is proving adept at managing the types of crises that regularly flummox the U.S. Its huge program of bank-driven stimulus — something that would have been much harder in a country where the state doesn’t control the banks — helped it sail through the 2008 financial crisis with only minor damage. This left China with an overhang of bad debts, but the country is now in the process of cleaning those out of the system
China’s swift suppression of the Covid-19 pandemic also allowed its economy to rapidly recover from the economic devastation — something rich liberal countries have struggled to do. China’s GDP was 4.9% higher in the third quarter of 2020 than in the third quarter of 2019. Meanwhile, the U.S. recovery is losing steam, as yet another titanic wave of coronavirus infections swamps the country.
These successes add up. The Economist, traditionally a bastion of free-market ideas, recently entertained the idea that Chinese leader Xi Jinping may have found a form of state capitalism that really works. While granting the demise of the American model may be premature, it seems likely that the U.S. needs to make some adjustments if it wants to keep up.
The best approach is to do what the U.S. has always done — shore up its weaknesses by selectively adapting its’ rivals’ best ideas. In last century’s Cold War, the U.S. responded to Soviet scientific achievements with a huge investment in research. A similar approach is warranted with China.
The Endless Frontier Act, a bill which would boost federal research spending by $20 billion a year, would be a good first step. Rapid scientific progress in areas like wireless networking, artificial intelligence and energy storage would help preserve U.S. industrial dominance, just as it did in the 20th century.
Also during the Cold War, the U.S. responded to the Soviet Union’s massive state-directed infrastructure push with its own burst of construction, including the interstate highway system and the creation of the suburbs. Government investment surged to almost 7% of GDP.
The U.S. already has much of its infrastructure in place, and certainly can’t match China’s often wasteful construction binges. But it can do much more. In addition to repairing the country’s crumbling roads and upgrading its ports, the U.S. can build a modern national electrical grid that will speed the transition to next-generation energy sources and boost new energy industries.
A national effort to increase density in inner-ring suburbs would create a housing construction boom, and make it economical to build more trains as well.
The U.S. also has to upgrade its human resources. Bailing out struggling universities and extending Medicare to cover all Americans would be important steps in this direction. Crushing the Covid-19 pandemic with public health measures (which are necessary in addition to vaccines) is another urgent task.
All this will require a lot of government spending. But a burst of stimulus, especially when spent on things with long-term economic payoffs like research, infrastructure and more efficient health care, happens to be exactly what the country needs to boost its economy out of its Covid-19 slump. The mindset of fiscal austerity must be left in the past; the U.S. should copy China’s willingness to fight recessions with all necessary firepower, even if its exact methods will necessarily be different than China’s.
China’s model isn’t yet supreme. But if the U.S. refuses to learn from China’s successes and tweak its own system to shore up its weaknesses, the day will come when the world agrees that China found a better way. It’s up to U.S. leaders and voters to prevent that from happening.
China’s Inexorable Rise To Superpower Is History Repeating Itself
The country looks like a latecomer to Americans and other Westerners—but from its own perspective, this is a restoration.
No foreign policy issue will plague the winner of the White House more than China. There’s already a debate raging among China watchers over what Washington’s next steps should be. Some favor a “reset” to tamp down tensions and return to more constructive diplomacy. Others are fearful of that very reset and argue the U.S. mustn’t stray from the hard line.
The choices made by the next administration will be critical. As the U.S. struggles to contain the coronavirus outbreak and restart its economy, China appears to be gaining strength. Its gross domestic product expanded 4.9% in the third quarter, an astounding rebound in a world still mostly mired in a pandemic-induced paralysis. (Official Chinese data have to be taken with several grains of salt, but economists generally agree the economy is rapidly on the mend.)
In its own foreign policy, Beijing has barely flinched under U.S. pressure and instead has become more assertive—enhancing its influence in global institutions such as the World Health Organization, crushing the pro-democracy movement in Hong Kong, turning up the heat on Taiwan, and brawling (literally) with India along their disputed border.
But before the U.S. and its allies can move forward, they have to look back to figure out how the world got to this point with China in the first place. The consensus holds that Washington’s policy of engagement was a grave error that created a dangerous adversary to the U.S. and democracy itself. But that’s certainty born of hindsight.
The West really got China “wrong” by understanding the country’s arrival as a major power within the confines of its own—not China’s—historical experience. Because of that, we in the U.S. and the West talk and think about China the wrong way and craft policies mismatched to the deep historical trends shaping today’s China and its role in the world.
The key is to see the country as the Chinese see it and to place China within the context of its history, not ours in the West. With that, another China emerges that demands a different set of policies. Without this altered understanding of China, Washington policymakers will struggle to contend with Beijing and its intensifying challenge to American global primacy.
The problem starts in high school. Mine, in Clifton, N.J., offered the option of U.S. history or U.S. history. We learned about other parts of the world only when they drifted into the American narrative. China made an occasional cameo: John Hay’s Open Door Policy, or Chiang Kai-shek’s World War II alliance against Japan. A lot of us were probably taught history in a similar manner—through the prism of our own story.
Prisms, though, distort. It just so happens Americans encountered China at one of the darkest points in its history. China in the 19th and early 20th centuries was politically decrepit, militarily inept, economically archaic, and, as Westerners saw it, socially backward. We were left with an image of the country that at best was an unmodern realm of quaint rice paddies and silk-robed mandarins; at worst, a war-torn basket case drenched in destitution and decay.
Sure, we all know something of China’s glittering past—of bejeweled emperors, their grand palaces, and the engineering genius of the Great Wall. But that China is beyond our prism.
That skews the way we describe and discuss China today. We call it an “emerging market,” which it is within the boundaries of our own view. But twist the prism, and Chinese poverty is a fairly recent aberration. The country had consistently been one of the world’s largest economies over the past 2,000 years—and still was well into the 19th century. That’s why Westerners who visited China were awestruck by riches exceeding anything they’d witnessed in Europe.
When the first Portuguese seafarers made their way to Guangzhou in the early 16th century, they gasped at silk flags as large as sails. “Such is the wealth of that country,” reads one contemporary Portuguese account, “such is its vast supply of silk, that they squander gold leaf and silk on these flags where we use cheap colors and coarse linen cloth.”
Rather than something startling, China’s growth into the world’s second-largest economy is a return to the norm. So is the critical role it plays in modern manufacturing and trade. We grouse that China has “stolen” our factories and fret over how much stuff at Target is “Made in China.” Historically, though, the country had been a major manufacturing center and premier exporter, capable of producing valuable goods on a mind-boggling scale.
The Song dynasty (960-1279) experienced a near-industrial revolution seven centuries before England’s. Silk and porcelain, both Chinese inventions, were among the world’s first truly global consumer products, the iPhones of their age.
Centuries before Vasco da Gama felt his way to India in 1498, China was the beating heart of a global economic system, with trade links stretching from South China, across Southeast Asia and the Indian Ocean, to the Persian Gulf and Red Sea.
We also talk of the “rise of China” as if it’s astonishing and unique. Yet China has “risen” many times before. One of the most remarkable features of its history is how frequently the Chinese were able to rebuild their society into a major power after periods of decline, political disorder, and invasion. This latest period of weakness, with China subordinated to the Western world, hasn’t been all that long by the standards of Chinese history.
For the first 300 years of direct and consistent contact between China and the West—beginning in the early 16th century—the emperors retained the upper hand over the seaborne Europeans. It wasn’t until the Qing dynasty’s defeat by the British in the first Opium War (1839-42) that the balance of power swung to the West. From the standpoint of Chinese history, what’s unusual about modern Asia is the dominance of the West, not the return of China as a regional powerhouse.
A much better way to describe the country’s 21st century ascent is as a “restoration,” not so unlike the many imperial restorations of the past. The current regime, though not a dynasty topped by an emperor (at least officially), is rebuilding the traditional pillars of Chinese greatness—economic, political, military, and (less successfully) culturally—much like the Tang, Song, or Ming dynasties had in their day.
Thinking of modern China’s growing power as a restoration forces a shift in how we contend with it. We in the West discuss how to fit China into the global political and economic order we created. But China was never going to be content being a mere cog in the Western machine.
For much of its history, it sat at the center of its own world order, based on a distinctly Chinese form of foreign relations and governed by Chinese diplomatic ideals and practices, with roots dating back more than 2,000 years.
The Chinese rules of diplomacy and trade were based on the at least ceremonial stature of China as a superior civilization, perched at the top of a hierarchy of societies. Other kings and chiefs had to display their respect by giving tribute to the emperors, who then considered them vassals.
With the resurgence of Chinese political and economic clout, Beijing is resurrecting some of these traditional foreign policy precepts. President Xi’s pet project, the infrastructure-building “Belt and Road” initiative, treats its participants as little more than supplicants to the throne, which can benefit from China’s bounty only by playing by Beijing’s rules and performing the proper kowtows.
The first step in dealing with a Chinese restoration is to accept that China wants to be and most likely will be a global superpower. The notion that the U.S. can “stop” China is a nonstarter. Washington can slow things up by withholding technology and disrupting trade.
But the Chinese believe that, based on their history, they have a right to be a superpower, and an approach meant to “keep China down,” as they see it, will generate conflict but few tangible results. Similarly, efforts to compel China to “play by the rules,” as in our rules, are almost equally hopeless.
The Chinese perceive the Western world order as an imposition on an East Asia they’d usually dominated, so they’re far more likely to assert their own rules than follow ours.
A better route is to allow China more diplomatic space in areas where it doesn’t fundamentally damage U.S. interests. Washington has fallen into a pattern of contesting Beijing on everything, which makes the Chinese feel unduly contained. If Washington stops opposing their initiatives at every turn, and is occasionally even supportive, the Chinese will sense they’re getting the respect they deserve, at minimal cost to U.S. influence.
So if Beijing wants to set up its own international institutions, as it did with the Asian Infrastructure Investment Bank, just let it. Maybe even join, to sway the projects from within.
Ditto with Belt and Road. If Beijing wants to lose money and alienate other governments building uneconomic railways and roads, we should wish it the best. Still, today’s China does present a threat. Its history suggests Beijing will expect to be the dominant power in East Asia (at the very least).
That’s too vital a region to concede to China, and the U.S. will need to protect its core interests there. Best to do so with deft diplomacy through international organizations or alliances rather than vitriol-filled, one-on-one slugfests, as the Trump administration has attempted. A restored Chinese “empire” will likely be too strong, and too determined, to assert its normal position in Asia to be taken on alone.
For instance, to contain China in the South China Sea, which the Chinese consider to be almost entirely their territory, organize the contending parties in Southeast Asia into a collective and prod Beijing to negotiate.
Perhaps cooperate with the Association of Southeast Asian Nations as a possible forum. Working within the World Trade Organization to influence China, rather than outside of it, is also smarter. Chinese leaders badly crave international stature and acclaim, and that desire can be turned against them within these bodies to alter Chinese policy.
Most of all, a U.S. policy that recognizes Chinese history doesn’t equal a soft one. Washington must still target China’s bad practices, more carefully but also more forcefully. Chinese companies and officials with proven records of stealing technology or participating in human-rights abuses, such as the mass detention of minority Uighurs, should be sanctioned.
Duties ought to be slapped on Chinese exports that are unduly subsidized by the state. When possible, draft policies to deal with the risks China presents without making them blatantly anti-China.
For example, instead of banning Chinese apps such as WeChat, devise a broader policy to protect U.S. privacy and data from all possible foreign threats. The U.S. should continue to loudly proclaim support for civil liberties by backing Hong Kong democracy advocates and the democratic government of Taiwan.
Contesting these outrages are not a fight with “China,” but with the Chinese Communist Party. The party asserts the two are equivalent, but they aren’t. The scholar-statesmen who managed imperial China, steeped in Confucianism, believed good government was founded on benevolence, not brutality, and Chinese history’s most tyrannical rulers were usually looked upon with scorn by the Confucians. We should follow their lead.
I don’t believe in historical inevitabilities: Just because China has restored itself to great power status in the past doesn’t automatically mean it will now. Contemporary China is still a middle-income country lacking key technologies and plagued by an artificially aging population; it has a long way to go to become a global superpower.
Yet from a policy standpoint, it’s wiser to recognize the historical trends propelling it forward and rejigger the world order to address Chinese aspirations (though not its autocracy). It won’t be easy. But neither is denying history.
China To Reveal How It Plans To Grow Economy Into The 2030s
The first glimpse into China’s economic plans for the next five and 15 years will be unveiled Thursday when initial details are released on how the country will steer growth and develop industry in the face of an antagonistic external environment.
China’s Communist Party is expected to release two policy blueprints at the end of four days of closed-door meetings in Beijing: Their usual five-year plan and a longer strategy document that stretches until 2035. Facing heightened tensions with the U.S. and a virus-battered world economy, officials in Beijing are expected to chart a course that draws on domestic resources and consumption to guarantee growth.
The party’s Central Committee — a group of some 200 top leaders — usually release a broadly worded communique that will be fleshed out in the coming weeks before approval by China’s parliament next year. The plan will focus on technological innovation, consumption, pollution control and more promises to continue opening the economy to foreign competition.
Unlike the last five-year plan, which sought to achieve “medium-to-high growth” in order to build a “moderately prosperous society,” this plenum is expected to focus on the quality rather than the pace of growth, possibly even abandoning GDP targets. Investors and businesses are watching for signals on policies that may shape global demand.
“China realizes now it is vulnerable,” said Wang Huiyao, an adviser to China’s cabinet and founder of the Center for China and Globalization, referring to sanctions levied on Chinese companies. “So leaders have to be prepared for things like technology decoupling.”
The plan will be geared toward how to “handle aggressive foreign politics towards China and Chinese companies,” according to Iris Pang, Greater China chief economist at ING Bank NV. “Funds are going to flow into companies that can show their abilities to foster top-edge technologies.”
Typically, a broad outline of the proposals is released at the close of the meeting. More details emerge in the week after when state media release a comprehensive development plan. The full picture won’t come to light until the national legislature puts its own stamp on the plan this coming spring.
What Bloomberg’s Economists Say
“Growth is on track to be the slowest in the reform era, blunted by a trade war with the U.S. and the coronavirus pandemic. Technological, demographic and climate challenges call for strategic policy re-alignment touching many aspects of the economy.”
Chang Shu, Chief Asia Economist
China may also provide more concrete benchmarks to make good on the government’s pledge to build a “great modern socialist country” by the middle of the 21st century with 2035 as the mid-way mark. The flagship initiative of the last five-year plan was supply-side reform, which swept away swathes of outdated capacity in industries like steel and coal.
The plan also set goals to make breakthroughs in key technologies and help China become a talent-rich country for innovation, initiatives ongoing geopolitical tensions are expected to accelerate.
Away from the headline announcements, there will be other microeconomic changes that may take longer to push through, said Helen Qiao, chief Greater China economist at Bank of America.
“The directions of structural changes that the 14th five-year plan identifies will be the most important, although specific proposals of certain numerical goals or fiscal measures — inheritance tax, property tax and so on — may not be carried out within that time frame,” she said.
China’s Economy Set To Overtake U.S. Earlier Due To Covid Fallout
The Chinese economy is set to overtake the U.S. faster than previously anticipated after weathering the coronavirus pandemic better than the West, according to the Centre for Economics and Business Research.
The world’s biggest and second-biggest economies are on course to trade places in dollar terms in 2028, five years earlier than expected a year ago, it said on Saturday.
In its World Economic League Table, the consultancy also calculated that China could become a high-income economy as soon as 2023. Further cementing Asia’s growing might, India is set to move up the rankings to become the No. 3 economy at the end of the decade.
Chinese President Xi Jinping said last month it was “entirely possible” for his economy to double in size by 2035 under his government’s new Five-Year Plan, which aims to achieve “modern socialism” in 15 years.
China was the first economy to suffer a pandemic blow, but has recovered swiftly, according to government data. That should prompt Western economies to pay much more attention to what is happening in Asia, according to the report.
“Typically, we compare ourselves with other Western economies and miss out on what often is best practice, especially in the rapidly growing economies in Asia,” it said.