China turns inward in new five-year plan due foreign conflicts

China’s new five-year blueprint to be No 1.

 Finbarr Bermingham, Production Editor, Political Economy
21 November 2020

Hello again Global Impact readers,
I’m getting some help this week with the newsletter. Finbarr Bermingham, my colleague on the Political Economy desk here at the South China Morning Post, will write it and I’m sure you’ll enjoy it.This week, we explain China’s new five-year plan and its implications for Asia and the world.
Best,
John

New five-year blueprint shows central planning is alive and well in China

On November 3, as Americans headed to the ballot box, China’s political elite were laying out their vision for the country’s trajectory over the next five years. China’s 14th Five-Year Plan generated less buzz and was carried by fewer television networks around the world, but it may shape the global future just as much as US voters’ decision to elect Joe Biden as their next president. It enshrines many of the policies pursued under the tightening grip of Xi Jinping over recent years, around economic self-sufficiency and stability, technological independence, military strength and poverty alleviation, and was developed alongside a longer-term blueprint for governance up to 2035.

Reading between the lines, the overarching aim is to overtake the United States as the world’s number one economy within 15 years. This has been a cornerstone policy goal of Xi’s reign as he seeks to double the size of the economy by 2035 – a goal he says is “completely possible“. But first, China needs to ride out some more immediate storms. Even after Donald Trump’s electoral lossChina sees hostility everywhere it looks on the international stage. While Joe Biden’s tactics may differ from Trump’s, he is expected to maintain a hardline on China – perhaps even convincing allies like the European Union, Japan and Australia to follow suit.

These geopolitical threats have greatly informed the Communist Party’s planning.The documents do not lay out specific plans to combat the “decoupling” of the two largest economies that Trump is pursuing, but they provide policy tools to shelter China from the swelling tides of sanctions, tariffs and export controls that could see its development stymied.This is why, for the first time, technology was granted a specific chapter in the Five-Year Plan. In the new document, Beijing has signalled a shift in focus from “integrating and assimilating” foreign innovations to investing in home-grown innovations.Developing its own technology would shelter China from the sorts of bans that have threatened to derail its own tech giants, from Huawei Technologies Co to ZTE.

In economic terms, at the heart of the Five-Year Plan is the concept of “dual circulation,” one of Xi’s flagship economic strategies and another product of a prickly geopolitical environment.Dual circulation has become a buzz word in covering China’s economy, but it is really nothing new. It refers to two prongs of China’s economy: internal circulation, meaning consumption in the world’s most populous nation; and external circulation, meaning China’s foreign trade economy.

Nonetheless, it has taken on new significance amid the rising uncertainty of the trade and tech wars with the United States. Its rebrand and renewed focus feeds into Xi’s desire for a self-sufficient economy, which is not reliant on important technology from overseas, but which is partly funded by high-quality exports.

What does this mean for the rest of the world?Well, for many, the Five-Year Plan codifies an inward turn by China, making it less dependent on the diminishing goodwill of the global trading system. This may also bring a more confrontational approach to foreign policy, as shown in the ongoing trade spat with Australia and Himilayan border skirmishes with India.

Ongoing events like the coronavirus pandemic and the subsequent international backlash are likely to reinforce Xi’s view that China can no longer rely on its growth model of old.Where we go from here, nobody knows for certain – but China’s new blueprint for the future shows that it wants to be ready for whatever comes its way.

60 SECOND CATCH-UP
Infographic: China’s five year plan
Explainer: China’s hi-tech direction for the next five years
What is China’s plan to meet Xi Jinping’s economic vision for ‘socialist modernisation’ by 2035?
Five-year plan: China moves to technology self-sufficiency
Video: Hong Kong and the US: how much do they rely on each other economically?

DEEP DIVES

China puts focus on development agenda amid ‘new challenges, conflicts’
•State media releases full text of five-year development proposal and report delivered by Xi Jinping at plenary meeting last week
•Both stress that Beijing must keep a clear mind as the world faces ‘most profound changes in a century’
China can overcome challenges brought by an uncertain external environment by focusing on its development agenda, putting more emphasis on high-quality growth and investing in technology and innovation, Beijing said in documents released on Tuesday. State media published the full text of a development proposal for the next five years adopted by the Communist Party’s Central Committee and a report delivered by President Xi Jinping at a plenary meeting of the committee last week. Read more

Change of direction in China’s supply and demand
•Deteriorating relations with Western countries has accelerated China’s push to look inward for economic growth, putting its fate in its own hands
•Even as orders have been returning to China due to other producing countries still being ravaged by the pandemic, manufacturers say the trend unsustainable

If you build it, will they buy? That’s the big question facing China’s manufacturers as they are being told by the highest levels of government to embrace an inward-facing model of domestic consumption.In the world’s second-largest economy, built in good part on the back of exports and investment, it is a sea change that is being driven by propaganda and a growing sense of national pride among the public that China has done the best job of dealing with the coronavirus outbreak, particularly as deteriorating relations with some Western countries show little sign of improving. Read more

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Video: what happened at the Chinese Communist Party’s major policy meeting, the fifth plenum?
•The fifth plenum, China’s major policy meeting, took place behind closed doors in Beijing from October 26-29, 2020.As China hypes domestic market, purchasing power dwindles
•A lack of purchasing power among the people is flying in the face of Beijing’s economic plan to create a massive domestic market to curb nation’s reliance on exports
•Beneath surface of China’s weak consumer spending is a national wealth-distribution system that favours the state and the wealthy instead of average households.
Jack Wang, a former overseas manager for Huawei, decided to quit his job in 2019 after years of being separated from his family in Henan province. He had big plans to build an online business there, selling local farm products such as honey and sesame to urban consumers willing to pay a bit more for better-quality goods.One year later, having burned through 300,000 yuan (US$44,000), Wang says he made a mistake in gauging the demand and spending power of Chinese consumers. Read more

To keep track of the latest developments on how China’s Five-Year Plan is implemented, follow our daily coverage on our main website or focus on the Chinese economy here.  
  
In our next newsletter, we’ll look at the fallout from the US election and the potential impact on China . We’d welcome your feedback. Email us at globalimpact@scmp.com or tweet us at @scmpeconomy. Plus, be sure to check out our Economy news feed for the latest news and analysis.

All the best, 
Finbarr and John

Finbarr BerminghamProduction Editor, Political Economy ,

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