China plans to be more self-sufficient

China’s first drafts of its next Five-Year Plan has a focus on socialism at its core. But the country is also looking to become more self-sufficient, as tensions with the US rise.

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  1. Charles Stanley

China is still a communist autocracy. Its interest in free enterprise and world markets is highly selective, based on the wish to develop its strength and influence, whilst keeping strong central control for a few powerful people under President Xi Jinping, the fount of all authority in the Chinese state.

The fifth Plenary session of the 19th Central Committee has just produced an outline Five-Year Plan for the period 2021-25. This is the 14th Plan of the communist era. The 205 members who approved it could benefit from the August consultation when citizens were invited to submit their ideas for content. Its details will be fleshed out by next March – when the wider National People’s Congress will approve unanimously whatever has by then been hammered out in private.

Five-Year Plans this century have been very successful at boosting growth. The infamous 2nd Plan – or Great Leap Forward – which accelerated basic industrialisation, left agriculture struggling with famine stalking the land whilst China remained very poor as the 1960s dawned. Since then, China has boosted its income per head from less than $100 to more than $10,000. The 13th Plan highlighted the Made in China aims and helped push export and investment-led growth. This next plan recognises that China is encountering more international resistance to its continuous success, with a large trade surplus based on being the world's largest manufacturer.

The Plan does not specify growth targets at this stage but implies a small positive growth rate in 2020, which will place China well above most countries in a year of falling output. It also talks of aiming for China to be "moderately developed" by 2035, implying maybe a threefold increase in income per head over the next fifteen years.

Ambitious growth targets

That will require China to sustain a growth rate similar to recent years for the period of this Plan. The rulers are very aware that people now want cleaner air and water and want to see a reduction in the inequalities of income that have sprung up in the helter-skelter period of fast growth, which has concentrated in the successful large cities of the east and south. The Plan talks of reducing regional divergencies, lowering inequalities of income, reducing the imbalance between urban and rural levels and tackling poverty. It also stresses the need to reduce emissions of major pollutants.

The Plan uses the recent language about the dual economy and the circular economy. It says Beijing wishes: "To smooth the domestic circulation, facilitate dual-circulation at home and abroad, comprehensively promote consumption and expand room for investment". China was shaken by the collapse of supply chains and of demand when the virus hit and wishes to be more self-reliant in the future. "The country is to make new strides in economic development on the basis of a marked improvement in quality and efficiency" with a modernisation of the supply chains, it states.

The philosophical underpinnings of the plan are more central socialism than free market. "China will further improve its socialist market and basically complete the building of a high-standard market system". There will be much stress on the unity of the wider China, though closer ties with Taiwan are said to be based on peace. There will be a concerted effort to provide "rich cultural and intellectual activities organised for the public". The wish is to strengthen a cohesive Chinese culture and to step up levels of social governance. Personal behaviour is to be improved, and there will be better education.

Technology race with US

Many have concentrated on Xi's pledge to make China a global leader in innovation. The difficulties Tik Tok, WeChat and Huawei are encountering in their dealings with the US and access to western components and ideas has resolved China to be independent in technology – and to strengthen and modernise its military at the same time.

When Japan in the 1980s was performing well and dreamt of challenging the economic might of the US, it was unable to make the creative leaps that fuelled the flight of Silicon Valley and the Digital revolution. It will be interesting to see if China can take on the West and succeed given its top-down system – which in other ways stifles independent thought or wayward ideas and developments. It is true that China today does have some world-leading digital technology – and has acquired both know-how and raw materials to assert its position in the industries of the future. It can also take some of the information technology further, as Chinese people are less worried about personal freedoms and see some advantages in state control that would not be attractive to the US or UK.

This is a cautious draft Plan that needs more detail. Beijing is waiting for the results of the US election before it can judge just how difficult the US may make their task in the years ahead. Joe Biden will want much more detail on how they turn the tide in their use of fossil fuels, especially coal, whilst Donald Trump will want a better trade deal.

China will look to itself and its immediate satellites more for its next stage of development and will devote substantial political capital to issues of domestic control and more equal development. Sustaining high-growth rates will become progressively more difficult, given both the internal and external pressures for a change of course from asserting the primacy of GDP growth, whatever the social and environmental cost, based on market dominance in many global areas.

There will be growth from here and the valuations are not demanding, but some western investors will be put off by some of the features of the Chinese approach. Taiwan appears to offer a more pro-western entry into Asian technology and development.

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