By Tianjie Ma
For those attuned to the bustling sound of a free market doing its job, the term “Five-Year Plan” may strike a jarring tone, reminiscent of the rigid Soviet-style planned economy that has supposedly long been cast into the dustbin of history. Yet despite its Soviet-inspired origin in the 1950s, China’s Five-Year Plan (FYP), after 13 consecutive cycles of trial and error, has evolved into a sophisticated web of policy statements, socio-economic targets, and public spending indicators used as effective and adaptive signposts guiding the country’s developmental journey, including the building of “a socialist market economy.”
If you are a believer of “what gets measured gets done” or “performance-based legitimacy”, it would be a mistake to dismiss the FYP as merely the residue of a failed economic model. Rather, it speaks to one advantage of the technocratic one-party system: policy continuity and incremental optimization over a relatively long timeframe. It would equally be a mistake, however, to mystify the FYPs as almighty top-down policy ordinances that magically “get things done” like pushing a bunch of buttons. In fact, the revisions from one FYP to another are themselves signs of mistakes, difficulties and second thoughts in policy making.
As the Belt and Road Initiative (BRI), formally launched in 2015, enters its second five-year cycle, its evolution can also now be situated in this larger context of policy development and fine-tuning. By looking closely at BRI in the 14th Five-Year Plan (2021-2025), approved and published on Mar 12, 2021, we get a glimpse of how China’s top policymakers envision the initiative to adapt and change shape in the next five years.
Incremental fine-tuning
The 148-page, 70,000-character Outline of the 14th FYP can be at once dizzying, intimidating and dull, especially when much of it consists of cryptic “Party talk”. Understanding its “form” (i.e. how the text is organized into chapters, sections, text boxes and maps) provides the first important clue for deciphering the FYP.
As Dong Yu, deputy director of Tsinghua University’s China Institute for Development Planning and an architect of China’s FYPs, pointed out, the structure of the 14th FYP strictly follows the Party’s Recommendations issued at last year’s 5th Plenum of the 19th Party Congress. In other words, the Party’s will, expressed in the form of qualitative “recommendations”, constitutes the “soul” of the FYP. The biggest difference, or rather development, between the Recommendations (20,000 characters) and the FYP (70,000 characters) is how the latter fleshes the former out with goals, targets, programs and tasks. These added elements are the actual “meat” of the FYP that deserve close analysis.
Guiding Principles:
Chapter 2 (“Guiding Policy”) defines the overarching direction of the FYP. Even though there is a section in this chapter called “Must-follow Principles”, which includes standard items such as upholding the leadership of the Chinese Communist Party, it is the “Strategic Direction” section that contains the most relevant strategic elements, summarized as the “Four Musts”. That is: China must continue supply-side structural reforms; China must set up effective systems to expand domestic demand; China must unwaveringly pursue reform and opening; China must enhance the leading role of domestic economic circulation.
The Four Musts outlines the main strategic choices (or rather dilemmas) China needs to resolve in this new era of geopolitical rivalry and economic warfare: supply vs. demand and domestic circulation vs. international circulation.
Targets and indicators:
Chapter 3 (“Main Targets”) is often considered the most substantive of the FYP, as it contains key social and economic targets for the next five years, organized in a neat table. The 20 targets, most of which are numerical, are organized into five categories (economic development, innovation, public wellbeing, environment and security) and marked as either “indicative” (non-binding) or “binding”.
Different levels of government, from central to local, must use their administrative power to ensure completion of the targets, especially the binding targets. Both indicative and binding targets will be incorporated into appraisals of government officials, tying the achievement of targets with their political careers. Binding targets are given more weight in such appraisals.
The most remarkable target in the table is of course the annual average GDP target (or absence thereof). China has set average annual growth targets for five year plan periods since the 11th FYP, but has abandoned the practice this time and opted for a qualitative approach of “maintaining growth speed within reasonable range.” Annual growth rates are still to be set, but on a year-by-year basis at the beginning of each year. The change is a clear response to great uncertainties brought about by the pandemic and geopolitical challenges, a sign of the FYP’s adaptiveness.
Other targets have also undergone adaptive changes. For example, the 14th FYP has cancelled the percentage target for the GDP contribution of the service sector, which is believed to reflect the leadership’s concern with “premature deindustrialization” and too rapid a decline of manufacturing (from 32.5% in 2006 to 27.7% in 2019). A higher share of the service sector in the Chinese economy was once believed to be a positive signal of economic modernization. The 13th FYP contained a target for the service sector added value to make up 56% of GDP. The abandonment of a service sector target and adoption of languages to stabilize the presence of manufacturing is a clear correction of course through planning.
Another example is the refinement of the patent target. “Number of invention patents per 10,000 people” in the 13th FYP is revised into “Number of high value patents”, a change that recalibrates the state’s focus on innovation rather than simply quantity. It is worth noting that though 20 key targets are listed in the table in Chapter 3, 20 other targets are scattered across the 148-page text, covering items from non-fossil fuels in the energy mix to expenditures on basic research.
Tasks
Besides the targets, the bulk of the 14th FYP constitutes texts that give qualitative directions to what the Chinese state will do in the next five years, most of which come in the form of succinct task descriptions. They are literally the government’s to-do list between now and 2025, and provide very good indications as to what will happen over that time frame. If a to-do item happens to be put in a text box, it is considered a key project or program that is usually matched with public spending commitments from the government.
Interpreting the relative significance of each to-do item requires an understanding of the context around them. Sometimes a few characters can create waves of speculation, such as the appearance of “develop hydropower in the lower stretch of the Yarlung Zangbo River”, a nine-character sentence amid the FYP’s 70,000 characters which became a national headline in neighboring India. Sometimes, new expressions mean little, however, while the reappearance of old items speaks volumes, Dong Yu points out.
The BRI Chapter (Chapter 41)
In the 14th FYP’s 19 Sections and 65 Chapters, the BRI chapter falls under Section 12, “High-level opening, cooperation and win-win”.
The chapter touches on 4 aspects of the BRI: strategy and policy alignment; infrastructure connectivity; economic and investment cooperation; and bridging cultures and civilizations. Compared with the corresponding chapter in the 13th FYP, BRI content under the 14th FYP represents a clear evolution and incremental correction of course, reflecting changing external circumstances.
Firstly, there is far more BRI-related content in the chapter. Some of the newly added tasks are evidently aimed at addressing emerging issues in the rolling out of the BRI. For example, China needs to “sign more Bilateral Investment Protection Treaties” and tax treaties with host countries to protect the interest of Chinese investors and avoid double taxing, a sign that such issues have become more pressing over the past 5 years.
Other new tasks are probably the result of special interest lobbying. For example, the addition of “build the airborne Silk Road” to the to-do list under Infrastructure Connectivity is a fruition of a multi-year campaign by China’s aviation industry to elevate their industrial initiative to national policy. The initiative, proposed by China Aviation Industry Group in 2017, aims to promote the export of China’s aviation equipment, infrastructure and services along the Belt and Road. As an industrial initiative, it badly needs state-level intervention to help negotiate airworthiness recognition or navigation rights. The inclusion of this item in the 14th FYP represents state endorsement.
The 14th FYP has also significantly built up the substance of the BRI’s “soft elements”, such as non-economic and infrastructure collaborations. In the 13th FYP, these elements heavily focused on cultural exchanges and tourism. The BRI chapter in the 14th FYP has incorporated a whole new set of issues, including climate change, marine conservation, wildlife protection and desertification prevention. The building of a “Green Belt and Road” is also formally included in the plan. Public health collaboration, especially pandemic prevention, is also a key theme along with collaborations on science and technological innovation.
Secondly, a number of new qualifiers have been put in front of old items in the current FYP. For example, both the 13th FYP and 14th FYP emphasize construction of key projects, but the 14th FYP adds six qualifiers “high quality, sustainable, risk-resistant, reasonably priced, inclusive and accessible” for such projects, underscoring the trend to emphasise the quality rather than quantity of projects. Similarly, the 14th FYP inherits the previous FYP’s tasks on “diversifying financing options for BRI projects”, but throws in a qualifier of “following international conventions and debt sustainability”. It also adds the action items “explore third-country cooperation”, “build mutually beneficial supply chains and industrial chains”, both responding to the perceived “exclusiveness” of the BRI that has predominantly benefited Chinese companies and the Chinese end of trade/investment.
Beyond the BRI Chapter
While the Belt and Road Initiative, in its narrow sense, has its policy and institutional boundaries loosely defined by a set of central government documents, its actual scope goes far beyond that. There are broader strategic objectives behind boosting infrastructure connectivity across Eurasia, financing the export of Made in China turbines or incentivizing Chinese companies to work with multinationals in a third country. Changes in those strategic objectives will also affect how China configures and calibrates the BRI.
As the first Five-Year Plan in China’s 2021-2035 roadmap towards “socialist modernization”, the 14th FYP represents a major reconfiguration of top-level development strategies, in response to domestic and international challenges. As Justin Lin, former chief economist at the World Bank and a key advisor to the top leadership, puts it in a keynote address, China’s task in its next phase of development is to realize its growth potential as a “catching up” country in the global hierarchy of industrialization. Lin, always bullish about China’s development prospects, believes that the country can still achieve a decent growth rate for years to come, given that its per capita GDP has only just reached 22.6% of that of the United States in 2019, equivalent to Germany in 1946, Japan in 1956 and South Korea in 1985. Continued structural reforms are needed to remove bottlenecks to sustained growth though, including freeing up more land for economic development from the countryside, unleashing a competitive workforce through labor market reforms, and achieving more productivity gains through innovation.
Analysts have summarized 6 themes of the 14th FYP:
- Expand domestic consumption and demand
- Continued investment in strategic sectors
- Boost innovation
- Structural optimization of the economy
- Green development and carbon neutrality
- Deepen reform and opening
The trade war and ensuing restrictions on Chinese tech companies such as Huawei have pushed Beijing to reconsider its assumptions about the international reception (market and political) of its growth. In response, the “dual circulation” concept (domestic circulation and international circulation) was proposed and then enshrined in the 14th FYP, signaling a pivot back to the home market as the main theatre of China’s development story and insulating as best possible the domestic economy from the volatile international scene. In the words of Hu Xiaopeng, deputy director of the world economy institute of Shanghai Academy of Social Sciences, China is veering towards a new “home-centered” economic footing with “manageable risks” (以我为主，风险可控). In this new setup, international circulations should serve the needs of domestic circulations, and China’s economic center of gravity will be firmly “back to the home market.”
Manufacturing is at the center of this pivot. While the message to “strengthen the nation with manufacturing” (制造强国) has been consistent since the 13th FYP, there is much less emphasis on exporting China-made industrial equipment and industrial capacities – a bedrock of BRI collaboration over the last six years – which occupies a full sub-section in the 13th FYP but only receives a one-sentence mention in the 14th FYP. Instead, the new plan is more concerned with maintaining a stable presence of manufacturing inside China, one reason for the removal of the service sector growth target mentioned above.
The 14th FYP doubles down on investment into “modern infrastructure” all over China, which would instigate the growth of high-tech manufacturing sectors such as 5G, digital centers, high-speed rail and clean energy. It emphasizes enhancing the competitiveness of Chinese manufacturing and the integrity of supply chains that are free of “weak links”.
The new focus may have significant implications for the BRI. China is convinced that its vast home market should be the ground where its industrial champions hone their technological capabilities and nurture its competitive edge. The unrivaled depth and diversity of the Chinese market means that it has the potential to realize industrial upgrading that usually requires an international division of labor. Justin Lin himself has envisioned the BRI as a win-win pursuit of the “flying geese paradigm” wherein other developing countries follow China’s steps in the ladder of industrial upgrading, from labor-intensive to technology-intensive industries. In his view, Chinese FDI and infrastructure-building in Southeast Asia and Africa are a mutually beneficial transfer of comparative advantages and part of a collective march towards becoming advanced economies. The difference between now is that before 2016 China was invested in the idea that developed economies in the West should be the “leading geese” of global economic advancement, with China flying close behind. New geopolitical realities convince it that it must count on itself, whilst bringing like-minded emerging economies along with it.
Rather than relying on global supply chains to support its manufacturers, China now values industrial ecosystems centered around leading Chinese firms in telecommunication, civil aviation and renewable energy. And instead of spreading supply chains across continents, China now intends to better utilize development cascades inside the country. The 14th FYP encourages industrial transfers to China’s less developed regions in the southwest and northeast and “keeping key segments of supply chains inside China.”
This does not mean that China is closing its door to the outside world. It does mean, however, that it is going to organize its international economic relations more strategically. Foreign direct investment into China is still very much desired for its value discovery role and positive impacts on competitive sectors and emerging champions. We have already seen that China is keen to open up more domestic sectors for FDI. On the other hand, Chinese investments overseas are likely to be far more carefully managed to strengthen risk mitigation and increase returns. Such investments aim to promote the export of Chinese products, services, technologies, brands and standards, and to embed Chinese enterprises deeper into global value chains. Compared with the 13th FYP’s simple approach of registry and approval, the 14th FYP takes a step forward and sets out to legislate on Chinese overseas investments to better guide and protect business activities in an increasingly challenging world.
The 14th FYP is where China’s technocratic incrementalism is on full display. The next five years will provide a window into whether the BRI, fashioned and adjusted with just such an approach, can withstand what will in all likelihood be another round of political storms, controversies and obstacles.
