A 5G network tower on a street in Beijing on April 7. So-called new infrastructure such as 5G, smart power transmission and high-speed railways are expected to replace highways, airports and other traditional forms of infrastructure as investment targets in China’s next five-year plan. Photo: AFP
Opinion
Chaoping Zhu
Chaoping Zhu
Why economic rebalancing will be at the heart of China’s next five-year plan
As Beijing seeks high-quality, more efficient and fairer development, rebalancing is likely to be key, especially given the increasingly complicated international environment
To achieve this, China may well advocate further marketisation reforms, while continuing to support the development of strategic sectors
Profound adjustments will be called for in China’s forthcoming five-year economic plan as the country seeks to promote sustainable, high-quality development. The plan, covering 2021 to 2025, will be discussed and approved at the Fifth Plenum of the 19th Communist Party Central Committee in October.
China has produced economic development plans every five years since 1953. The planning style has evolved during China’s transition from a planned economy to a market economy. In the early days, the government set detailed quantitative rules to help establish an industrial system from almost zero. Gradually, the focus has shifted to strategic guidelines while increasingly relying on market mechanisms to achieve development goals.
In the most recent five-year plan, China achieved its objective to build a “moderately well-off” society. The target for the new plan has been upgraded to achieve high-quality, more efficient, fairer, more sustainable and safer development.
Rebalancing is expected to be the essence of the new plan, set against the backdrop of an increasingly complicated international environment in which it is critical for China to guarantee self-sufficiency in strategic resources including food, energy and technology. This requires large-scale, continuous investment in those sectors, in addition to policies focused on rebalancing between external and internal sectors, traditional and innovative sectors, and consumption and investment.
China’s latest policy proposal to establish a “dual circulation” development model reflects the government’s desire to rebalance between external and internal sectors. Food, energy and semiconductor chips are key categories on China’s import list. In the new five-year plan, guidelines might be proposed to enhance self-sufficiency of these products by securing domestic supply and improving efficiency.
Beyond industry-specific policies, the government might leverage fiscal measures to promote the development of inland provinces. Central and western provinces might receive more funding from the central government, which could be used to support urbanisation projects and public-service spending.
That said, China will keep attracting foreign investment into its manufacturing and service sectors, as well as the stock market. Imports of foreign technology are still an important resource for domestic development, although this might become harder in future.
Policymakers are also expected to push to upgrade China’s industrial system to encourage higher-quality development. Sectors such as technology, health care, new-energy vehicles and advanced manufacturing are likely to be highlighted.
At the same time, the government will continue efforts to improve the efficiency of traditional sectors through ongoing reforms of state-owned enterprises. New plans for land reform, public housing construction and urban renovation can also be expected, to maintain stable development of the real estate market.
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Promising “vertical forest” in China overrun by plants and plagued by mosquito infestation
Promising “vertical forest” in China overrun by plants and plagued by mosquito infestation
Lastly, although consumption has surpassed investment as the top contributor to China’s growth since 2011, its share in the economy is still far below that of developed economies, suggesting much potential to improve people’s livelihoods. Tax and income redistribution reforms might be proposed to address that.
In addition, a balanced regional development strategy might help narrow the income gap between the coastal and inland provinces. State-led investment is still necessary to achieve that goal, but it has to be implemented in a more efficient way.
“New infrastructure” investment in 5G, the industrial internet, smart power, high-speed railways, new-energy vehicles, big data centres and artificial intelligence will replace traditional spending on railways, highways and airports.
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Chinese engineers from Huawei, China Mobile build world’s highest 5G base station on Mount Everest
Chinese engineers from Huawei, China Mobile build world’s highest 5G base station on Mount Everest
To achieve this rebalancing, China might seek further marketisation reforms, albeit with a domestic focus. At the same time, Beijing will continue development of strategically important sectors, particularly agriculture, technology, health care and public services. Smarter, state-led investment will be key to success.
China has, through its eight five-year plans, successfully transformed itself into the world’s manufacturing hub and achieved continuous growth, reflecting the advantage of combining market reforms with sound economic policies. Recent policy announcements about the next five-year plan suggest the traditional pattern might continue, but with improvements in both reforms and government support.
Chaoping Zhu is a Shanghai-based global market strategist at JP Morgan Asset Management
This article appeared in the South China Morning Post print edition as: Rebalancing likely to be the essence of next five-year plan
