China’s ‘two sessions’: ambitious but practical goals in five-year plan target high-quality growth

Innovation and technological development are the foremost drivers of productivity growth and thus are the top priority in the new five-year plan
Investment in frontier fields, R&D, new infrastructure, green manufacturing and more form the core of China’s plans for long-term growth

Chaoping Zhu

Published: 4:30pm, 12 Mar 2021

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In the government work report delivered by Premier Li Keqiang to the National People’s Congress earlier this month, the 2021 growth target was set at above 6 per cent year on year. This target seems conservative and significantly below the consensus forecasts around 8.7 per cent by local economists.

It reflects the leadership’s commitment to achieve sustainable and healthy economic growth in the long run while shifting from quantity-driven growth to a quality-driven growth model in the coming decade.

During the annual “two sessions” legislative meeting, the 14th five-year plan draft outline and long-term development goals for 2035 were submitted to representatives for review. In these plans, the long-term development road map was laid out in more detail, which helps us better understand the essence of the high-quality growth.

First, sustainable growth in labour productivity is at the core of high-quality growth. In the government work report, the goal was set to keep higher growth in labour productivity than that of GDP during the period covered by the 14th five-year plan.

Against the backdrop of a shrinking working-age population and declining benefits from investment, productivity growth should play a key role in supporting China’s economic growth. Therefore, improvements in productivity will be the starting point for us to understand China’s economic policy in the next decade.

Innovation and technological development are the foremost drivers of productivity growth. As a result, this topic was the top priority in the new five-year plan outline. Seven frontier fields were listed as national projects – artificial intelligence, quantum information, integrated circuits, brain science, genetic and biological technologies, clinical medicine and health, and exploration of outer space, underground, deep seas and polar regions.

To support technological development, the government aims to maintain an annual growth rate of more than 7 per cent in research and development (R&D) expenditure. Meanwhile, several scientific parks in Beijing, Shanghai, Shenzhen and Hefei were designated as national centres for science and will become incubators for technology enterprises.

China ‘two sessions’: what you need to know about the government’s 2021 work report

To boost innovation, shifting focus in infrastructure investment is necessary. Investment in new kinds of infrastructure such as communication networks, data centres, high-speed railways and research facilities will exceed that in traditional infrastructure such as highways, railways and airports.

This also requires the government to improve its capabilities and better manage the investment and operation of that new infrastructure, which is quite different from traditional ones.

In addition to those cutting-edge areas, efforts will also be made to upgrade other parts of the economy. The plan outline includes proposals to implement a green manufacturing project to improve the competitiveness of manufacturing sectors. Thus, the results from innovation and R&D activities can facilitate high-quality development across the whole country.

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Beyond economic growth, the ultimate goal for development should be improving people’s livelihood and welfare, as pointed out in the five-year plan. Hence, the government has targeted optimising public services and making progress in fields such as the social safety net, education, health care and income distribution.

Continued urbanisation, with more equal access to public services, has been deemed a major policy approach on this perspective. Cross-region development plans have been announced by the central government.

It is noteworthy that China’s economic landscape will change as a result of the above initiatives. Central and western provinces could receive more in fiscal transfers from the central government, which could be used to support urbanisation projects and public service spending. With better public services and rising income levels, new city clusters such as Chengdu-Chongqing are emerging in central and western China, helping the economy become more geographically balanced.

Finally, green development is central to technological development and people’s welfare. Last year, China announced a target of reaching peak carbon dioxide emissions before 2030 and carbon neutrality by 2060.

The government work report also mentions that energy consumption and carbon dioxide emissions per unit of GDP should be lowered by 13.5 per cent and 18 per cent respectively during the 14th five-year plan. New technologies and stricter enforcement of regulations are essential to achieve these goals.

The above goals look ambitious, but they are practical. China has already established a comprehensive and competitive industrial system to form a solid base for further technological development.

Meanwhile, the efficiency of making and implementing policy is improving, which is reflected by the recent progress in environmental protection. As a result, these goals in the five-year plan and the long-term outlook can be achieved.

Chaoping Zhu is a Shanghai-based global market strategist at JP Morgan Asset Management