How China fine-tunes economic growth

CHINA USED TO BE a follower in technology and other sectors. No more. At astonishing speed it has successfully elevated itself to become a global leader in several areas, including artificial intelligence, drone production, and digital currency.

How did China develop so quickly?

There’s no simple answer, but the right combination of long-term vision and short-term flexibility are clearly important – and the main structural elements are the “Five-Year Plans” that we read about every half decade.

The latest FYP even restructures itself, specifying one year goals for several metrics, including innovation and economic development.

OVERVIEW 

The FYPs have been running since 1953, and have guided the country from the classic “command economy” model used in Soviet Russia to the “socialist market economy” model used in today’s China.

It has to be said that some of the plans were not followed successfully, such as during the movement of “The Great Leap Forward” in 1958. Yet the ones in recent decades have been remarkably successful.

Overall, it can be said that the Five-Year Plans have successfully guided China through boom and bust. The country’s gross domestic product was RMB 101.5 trillion last year – which is 1,230 times more than that of 1953.

These days, announcements about FYPs are closely watched by economists and business people as the most important guiding outline signaling the strategic policy direction in the country.

Extraordinarily high level of development: LYCS Architecture/ Unsplash

3 THINGS TO KNOW ABOUT FYPs

1) Each one is based on the world’s biggest research projects. 

The plans aren’t just periodic sets of election promises, as we see in the West, but are painstakingly prepared proposals based on research. In preparation for devising the Five-Year Plan outlines, officials have to undertake what are the world’s largest and most complex research studies on policies in multiple fields to formulate policy ideas. 

2) They take up to three years to prepare.

Leaders and officials normally spend two to three years to move from research, to drafting, to deliberation, to the winning of final approval from the National People’s Congress. 

3) There’s a great deal of listening involved.

Five-Year Plans are mainly implemented on a top-down approach, which means that once an outline is rolled out, officials have to carry out the measures and achieve the targets. 

But the plans also include bottom-up elements, in which opinions are solicited from think-tanks, academics, professionals and grassroots groups to create broad social consensus. 

A supervision mechanism is in place to make sure that the specified goals are achieved. As such, the FYPs are intended to guarantee stable and consistent policies that align with the country’s long-term visions.

Remarkably fast urban development: Fuzhou in China by 尧智 林 Gundam/ Unsplash

THE LATEST PLAN

The fourteenth FYP was approved  in March 2021 and runs from 2021 to 2025. Detailed analysis would need a whole book (and a book recommendation is provided at the end of this article). But here are ten highlights.

1) Chinese leader Xi Jinping personally led the drafting process, attending numerous meetings of the Politburo, its standing committee, and the drafting panel.

2) It was drafted in the knowledge that China’s economy had shrunk for the first time after 44 years of solid growth – but specifies that the country has achieved the goal of building a moderately prosperous society, and is now heading for long-term objectives of building a great modern socialist country by 2035. 

This is ambitious. It implies a per capita GDP of about US$20,000 per year in 2035, which is double the 2020 level.

3) It anticipates future growth as largely based on domestic consumption of goods and services, and aims to reduce disparities between urban and rural living standards.

4) The plan includes the “peaceful development” of relations with Taiwan. 

5) Partly as a react to trade war problems, Xi proposed a system called Dual Circulation. Internal circulation refers to the process of goods moving around inside the country to service domestic trade, and external circulation refers to Chinese businesses operating across borders.

6) To bolster domestic circulation, the authorities will foster an urbanisation programme set to turn tens of millions of migrant workers into city dwellers, thereby helping boost their incomes and expand the middle . 

7)  It’s a pro-environment plan. By 2035, the government aims to have half of the vehicles in the country to be electric or fuel-cell powered. The rest will be hybrid. But before that, by 2025, the proportion of fuel energy from non-fossil sources will rise to 20% (compared to 15% at the end of 2019). 

Hi-tech work photographed at GLSun in Guilin, Guangzi province, China/ photo by GLSun/

8) There’s a lot of technology boosting in the plan. The plan calls for a lifting of research and development spending every year by seven per cent. Business get tax incentives to increase R&D spending.

9) Leaders have favorite areas of development in the science sector. The specific areas of focus are: quantum information and computing, brain science, semiconductors, seed industry, genetic research, regenerative medicine, biotechnology, clinical medicine and health, and deep space, deep sea and polar exploration.

10) China is still unable to independently develop the higher grades of semiconductors. Acknowledging the challenges that lay ahead, influential officials, entrepreneurs, and academics have evoked the “patriotic spirit of scientists” to help build an independent, controllable semiconductor supply chain. 

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Book recommendation (in Chinese):

14th Five Year Plan and the Prospects of Hong Kong (十四五規劃與香港前景）

Editor: Henry KC Ho （何建宗編著）

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Main picture: Shanghai by Saunak Shah/ Pexels