The fifth plenary session of the 19th Chinese Communist Party (CPC) Central Committee was held from October 26-29. The outline of the 14th Five-Year Plan (FYP), as well as longer range policy targets leading up to 2035 were announced. These are the broad economic development goals the Communist Party has set for the nation. Further details are expected to be released at the National People’s Congress (NPC) (which will be the national government’s key policy gathering) in March 2021, when the NPC will also be expected to approve the FYP. For the first time, China has not mentioned a GDP target in a FYP. Instead, the quality of growth is the emphasis. The focusses of the 14th FYP are as following.
- Technological innovations. Beijing has put technological innovations as a top priority. China aims to innovate core technologies, partly in response to the increased tensions with the US which have exposed China’s vulnerabilities from its heavy reliance on imported high tech products, such as semiconductors.
- To cultivate “dual circulation” with a focus on boosting domestic consumption (‘internal circulation’). In this regime, the internal circulation will be centred on domestic consumption and import substitution. Boosting consumption will be accompanied by an expansion of domestic supply to satiate this greater consumption demand.
- To maintain a high intensity in reforms and liberalisation of both the financial markets and the real economy.
- To promote a green economy. President Xi’s declaration at the United Nations for China to achieve carbon neutrality by 2060, a decade later than the goal set by many other countries, was a pleasant surprise and could form the foundation for cooperation between China and Europe.
- The industrial upgrading. The industrial upgrading includes manufacturing upgrading, high-quality supply and digital economic development with an aim to push Chinese firms up in the global value chain.
As for the long-term overarching goal, China is aiming to become a moderately developed country by 2035 with GDP per capita of USD 25K.
In sum, the commitment to quality growth prioritizes the internal/domestic development and innovation, with negative implications for other economies (some EM) in the ecosystem centred on China. The reforms and the focus on the quality of growth should mean a deceleration in the headline growth rate of China over the medium- and long-term, following rapid recovery in the near term. This is the ‘L-shaped’ economic trajectory we have had in mind for some time.
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