China’s 14th Five Year Plan
The People’s Republic of China wields enormous influence in the arena of international trade and finance. This Asian giant has become the world’s largest manufacturing economy ($3.8 trillion), the biggest exporter ($2.6 trillion), the world’s second-largest importer ($2.08 trillion), surpassed the gross domestic product (on the basis of Purchasing Power Parity) of the United States in 2017 and is the world’s second-largest economy by nominal GDP. It has the world’s largest foreign exchange reserves ($3.2 trillion as of October 2019) and can boast of having the world’s largest labour force (778 million people) that can sustain its unstoppable march of spectacular growth.
Having a population of 1.39 billion people, and the world’s fastest-growing consumer market, China has emerged as the unchallengeable leader in global finance and trade and is acting predominantly in shaping the rules, procedures and norms that govern the international liberal world order. A colossal economy as well as its growing liberalization and integration with the advanced economies of the world has made it extremely important for the world’s capitals to keep a keen watch over the domestic politico-economic developments in China. Of all such developments, the Five-Year Plan holds huge significance and it is considered the most important policy document by dint of its potential repercussions for the world economy as well as environmental sustainability.
Five-Year Plan is essentially a relic of the Soviet-era command economy. Under five-year plans, centralized economic plans and targets are prioritized, thereby launching a series of socioeconomic initiatives in order to ensure economic growth, economic equity, social justice, employment opportunities, self-reliance and modernization. Centralized planning with inputs from vital stakeholders helps the government to ensure efficient resource allocation, prioritize sectoral performance, improve socio-economic indicators, eradicate market anomalies and streamline departmental and ministerial coordination for futurist objectives. The Communist Party of China (CPC), through its plenary sessions and national congresses, designs five-year plans. China’s first five-year plan was devised in 1953 with active Soviet assistance. Throughout the 1950s and ’60s, the mainstay of China’s centralized planning remained rapid industrial growth, but the plans could not secure intended targets owing to political instability, economic turmoil, ideological rigidness, natural and manmade disasters and, most importantly, isolation from the world economy and finance. President Deng Xiaoping launched a raft of structural reforms in the Chinese economy that incrementally phased out the collectivized agriculture, liberalized the markets, increased the autonomy of state-owned enterprises and opened up Chinese markets for foreign trade and investment.
The gamble paid off; the introduction of the socialist market economy helped increase the country’s GDP ten-folds since 1978. Now 84% of companies are privately-owned and 80% of Chinese jobs are created by private firms. With this transformation, Five-Year Plans are more about setting priority areas that offer strategic direction to secure targets, rather a detailed route how to get there. In order to further shrug off the Soviet legacy, China named its 11th Five-Year plan (2006-2010) as the guideline rather than a plan to accurately reflect the Chinese transition from a planned economy to socialist market economy. Nowadays, the Chinese government has restricted its role to complement and reinforce market dynamics by providing regulations and guidelines. That includes providing legal and social frameworks (such as issuing monetary and fiscal policies), ensuring public goods and services and correcting market failures such as pollution. In other words, China has transformed its role from an exclusively socialist economy to a socialist market economy that is more liberalized than the communist economy but less liberalized than the capitalist one.
Despite having maintained a spectacular 10% GDP growth for decades, China’s economy has started to crumble under its own weight. Negative externality (a cost imposed on the rest of the society as the result of receiving benefits from sustained growth, like pollution, environmental degradation, etc.), shortage of power and reliance over non-renewable resources, growing income and regional disparities, aging population, bloated companies, spiralling private and public debt, massive overcapacity in the property market and heavy industries and lack of innovation are some of the impediments that are pulling down the GDP growth of this economic behemoth. Apart from such structural issues, Covid-19-caused precipitous economic downturn and US-China tech and trade war are also taking a heavy toll on the Chinese economy. Amidst this background, the recently concluded 5th plenary session of the 19th Central Committee of the CPC that finalized the draft proposals for the 14th Five-Year Plan (2021-2025) and Long-Range Objectives holds special significance. Five-Year Plan for National Economic and Social Development and Long-Range Objectives through the Year 2035 warrant detailed discussion so as to have a better idea of the future growth trajectory of China and its consequences on world trade and commerce.
The 22-paragraph official communiqué, released on October 29, 2020, by a four-day plenary meeting of the 19th Central Committee did not go into the fine details of the 14th Five-Year Plan, these will be flashed out at National People’s Congress (equivalent to an annual sitting of parliament) which is going to be held in March 2021. The communiqué did highlight some broad objectives and strategies to achieve growth fast enough to generate jobs, minimize income and regional disparities, deepen engagement with the world economy, reduce reliance over export-provided economic growth and ensure a breakthrough in core technologies. A threadbare discussion about the significance of these objectives for international trade, commerce, finance and the environment has been made in the following paragraphs.
Technological innovation and resultant technological self-reliance is the main area of emphasis in the 14th Five-Year Plan (innovation has been mentioned 15 times in communiqué). It has been emphasized that China will be made the leader in innovation by 2035 by making breakthroughs in core technologies (those which solve problems and extend human capabilities like mechanical, electrical, material, fluid, bio and optical technologies). China is aiming at the transition from manufacturing-led growth to high tech-driven growth. The US-China tech war whereby the US is seeking to contain the rise of its geopolitical rival by hampering Chinese access to world export market and technology is a major factor for this strategic realignment of development goals. The US has already barred dozens of large Chinese companies from buying American parts and it slapped a ban on TikTok and WeChat. Recently, Sweden banned Huawei technologies and ZTE Corp. (a Chinese firm) from gaining access to its fifth-generation (5G) wireless communication, UK has also imposed an outright ban on Huawei’s 5G equipment for alleged ‘surveillance and reconnaissance being carried out by the Chinese state’. These technological sanctions and embargoes have convinced the top Chinese leadership that continuity of Chinese growth hinges upon technological self-reliance. In this regard, China is eying domestic production of chips and semiconductors which are building blocks for innovations and Artificial Intelligence, 5G networking and autonomous vehicles—the next-generation telecom. As per the Global Innovation Index 2020, published by the World Intellectual Property Organization, China stands at 14th position among top-performing economies and it indicates the long way ahead for China to become a global leader in innovation-driven growth. The top-down political system, bureaucratic organization of the Chinese scientific community and restricted international collaboration are major constraints in creating an enabling ecosystem for innovation in various technological fields. Pursuing self-sufficiency through self-sustaining growth through technological innovations can hamper growth as resources have to be transferred from productive sectors, but in the longer run, investment in R&D and other innovation-enabling infrastructure will act as a great buffer against any shock generated by West-led technological embargoes. China has taken the right step in the right direction.
Dual Circulation or Double Development Dynamic is another catchword in the communiqué that has grabbed the attention of the world community. Dual circulation has two components: international circulation and external circulation. International circulation refers to domestic economic activities and external circulation implies China’s economic links with the outside world. Dual circulation signals a paradigm shift in the development patterns wherein China will fortify its domestic consumer markets in addition to strengthen or deepen its engagement with the world. The adoption of a dual circulation growth strategy indicates that China intends to reduce the role of international trade in growth and ratchet up the domestic economy. Many factors are responsible for this inward-looking approach. China has been relying upon an export-driven economy for the last four decades, but the recent Covid-19 pandemic-led interruption in world trade and consumer markets, intensifying trade and tech war with the US and resultant decoupling of US economy from China, declining demand of Chinese products on the back of Covid-19 caused an economic downturn in advanced economies, the rising tide of unilateralism and protectionism around the world, deteriorating relations with ASEAN countries, growing middle-class (400 million middle-income residents) and its ever-diversifying demands, the capability of 1.4 billion population to form complete industrial chains (production, distribution and consumption) have pushed China to think more in long term. To make that happen, China is planning to end regional and income disparities by redistributing capital, talent and technology from coastal areas to central and northern provinces. Five-Year Plan also intends to complement external circulation through strengthening domestic consumer markets. Boosting the domestic market by opening up and introducing fierce competition would attract foreign investment as no one would like to miss the opportunity to have access to a 400 million-strong middle-income consumer base. Strengthening Belt and Road Initiative, negotiation of additional bilateral or multilateral Free Trade Agreements (signing of Regional Comprehensive Economic Partnership among fifteen Asia-Pacific countries including China to replace US-sponsored dysfunctional Trans-Pacific Partnership is one such example) and taking advantage of its free trade zones and ports are also on the cards to ensure parallel development of the internal and external economy.
China achieved miraculous annual GDP growth at devastating environmental costs. Suffocating urban centres, rapid desertification and fast-deteriorating quality of potable water had once become the new normal in China, but ambitious and aggressive plans underpinned by meticulously-detailed action course of action in the 13th Five-Year Plan brought tremendous improvement in the ecology and environment. Carbon dioxide (CO2) emissions dropped by 48% in 2019, thereby reducing 5.6 billion tons of CO2, 11.92 billion tons of Sulphur Dioxide (SO2), and 11.3 billion tons of NO (Nitric oxide) as compared to 2005 (Global Times: 2020/10/27). Eight of nine objectives related to environmental protection were met ahead of schedule in the 13th FYP that helped improve the overall condition of particulate matter. Most importantly, ecological civilization construction that is economic, political, agricultural, and educational and other societal reforms proved one of the most outstanding contributions of China to global climate governance. The 14th FYP has built on earlier ecological accomplishments, further enlarging state interventions to build a beautiful China by 2035. China has adopted vigorous measures to peak CO2 emissions by 2030 and achieve carbon neutrality before 2060. To effect this ambitious goal, China has planned to increase the proportion of non-fossil energy in primary energy consumption, raise the share of the services industry in the national economy and improve the energy efficiency of all sectors. Efficient energy and resource allocation to ensure impact and resource decoupling; implementation of environment-friendly policies like water, soil, and land conservation action plans; green finance, green technological innovation and green transformation of key industries; clean, efficient and low-carbon energy production; green infrastructure are some of the key priority areas where China is counting on to meet its Intended Nationally Determined Contribution agreed under Paris Agreement and ensure environmental sustainability. As Biden, the president-elect of the United States, has promised to rejoin Paris Climate Accord on the first day of his presidency, and China is setting ambitious climate change-countering targets, the environmentalists are all optimistic that the world will definitely demonstrate some progress to meet targets set under Paris Agreement mechanism. China, if were able to implement its ecological goals, the global warming projections would be lowered by 0.2°C to 0.3°C, which will be the biggest contribution by any single country.
The advent of President Xi’s era marked a significant departure from the decades-old policy of concentrating on developing internal capabilities and avoiding confrontation courses with the rest of the world, particularly with Western countries. President Xi, through a series of diplomatic and economic initiatives, is attempting to secure China’s hegemonic role in Asia- Pacific by challenging US predominance in regional affairs. The well-crafted foreign policy of China to ensure an exclusive sphere of influence in the Asia Pacific region has earned the ire of the US and resulted in publically-acknowledged tech and trade war between China and USA. The tumultuous tenure of President Trump proved particularly alarming for both economies and his whimsical behaviour led the bilateral ties to the point of almost no return, thereby roiling international markets, igniting tit-for-tat economic and diplomatic sanctions, and politicizing the world’s fight against Covid-19 pandemic. The Five-Year Plan, although does not explicitly mention the US, it does highlight ‘heightened international tension’ as hindrances in the sustained growth of the Chinese economy. The officials of CPC have criticized the decoupling of the US and China economy and termed it as unrealistic and destabilizing for world economic order. As a remedy to ‘heightened international tension’, FYP envisions improving bilateral ties and further opening up of China’s economy, thereby offering business opportunities to foreign markets to address the international concerns and reservations. Now that Joe Biden, the internationalist and liberalist president-elect, is set to swear in as the 46th president of the USA, the world can expect, quite rightly, the calming down of the tension between the world’s largest economies. Though Joe Bidden will feel constrained and hobbled by well-permeated Trumpism in US society, he will certainly find some common grounds like international climate governance and fight against Covid-19 to turn the open hostilities into a competition that bodes well for international peace and security.
Opening up Chinese domestic markets under Dual Circulation policy, strengthening the investment under the Belt and Road Initiative (CPEC is the flagship project of BRI), further widening the poverty alleviation efforts and scaling up the fight against climate change are areas that must be given topmost priority by Pakistan’s policymakers as well. The upcoming 10th Joint Cooperation Committee on CPEC is taking place amidst an ongoing paradigm shift in Chinese development model. Pakistani interlocutors must undertake comprehensive homework of China’s transition to high-quality growth and prepare five-year plans in order to accrue maximum advantages from the 14th Five-Year Plan. In this regard, strengthening the cooperation under Joint Working Groups for technology and science and socio-economic development (with special emphasis on poverty alleviation), creation of an independent JWG for Climate Change, further expansion of Free Trade Agreement to have duty-free access of more Pakistani products to Chinese markets in order to benefit from Dual Circulation approach should be given cardinal consideration by our policymakers.
The writer is a graduate of the
University of Agriculture, Faisalabad.
He writes on national and international affairs.