Every March, the Chinese government hosts its lianghui (“Two Sessions”), an annual regular week-long event that brings together thousands of delegates to convene over issues of national political interest.
While governments of other nations always pay heed to the lianghui, March 2021’s lianghui held special significance, especially for businesses that trade with China.
Not only was the lianghui framed against the centenary year of the founding of the Chinese Communist Party (CCP), but it also approved the 14th Five-Year Plan, the CCP’s proposed social and economic roadmap for the half-decade ahead.
What are China’s “Five-Year Plans”?
As the key platform for social and economic development initiatives, China’s Five-Year Plans put forward economic and social targets, while setting corresponding policy-making directions to achieve them.
From the first five-year plan in 1953 to the most recently unveiled, China has had its eyes on one overarching goal - to achieve “modernisation”. With this at the heart of all the plans, each has marked a different stage towards this goal.
The first Five-Year Plan (1953-1957) set out the basic task of laying the foundations of China's industrialisation. In 1986, the 7th Five-Year Plan was significant for global business because it was devised after the reform and opening-up of China, thus representing one of the larger leaps forward for China and how it engaged with the world.
Thirty-five years later, against the backdrop of a global economy trying to return to normal during a global pandemic and fracturing international relations - particularly between China and the West - the 14th Five-Year Plan could prove just as important as the 7th.
What is different about the 14th Five-Year Plan?
According to Chen Fengying, research fellow at the China Institute of Contemporary International Relations, the overarching theme of the 14th Five-Year Plan is “improving...domestic conditions, boosting the quality of growth and people's livelihood, and strengthening environmental protection”.
However, the crucial role China’s economy plays globally means that the Plan also holds great significance for the wider world and business community.
Of note is that for the first time since the plans were unveiled, the 14th Five-Year Plan (2021-25) did not set a specific GDP growth target. Instead, it focused on other economic indicators, such as the unemployment rate, energy consumption and carbon dioxide emissions, which might be seen as better suiting the vision to improve people's livelihoods. But it also takes into consideration the disruption of 2020 that still brings much uncertainty, meaning the Chinese government is unwilling to lock itself into targets that may not be achievable if the global recovery falters or there are further COVID-related setbacks.
Key highlights of China’s 14th Five-Year Plan
As well as the significant change of not setting a specific GDP growth target, the 14th Five-Year Plan contained special mention of efforts around ensuring food, energy and financial security. Linked to this is the Plan’s "dual circulation" (DCS) development strategy, which focuses on boosting the domestic market, enhancing technological self-efficiency and independence, and improving environmental protection.
The six key areas of the 14th Five-Year Plan for the business community are:
- Foreign Investment & Business Relations
- Foreign Policy & Global Engagement
- Science and Technology/Innovation
- Education
- The Environment
- Urbanisation
Foreign Investment & Business Relations
Understanding the importance of the international business community to China, the DCS is carefully framed to not appear as a retreat from the global economy or a “closing up”.
In this context, China has promised to widen market access in certain sectors and plans to further cut the negative list restricting foreign investment. Foreign investment in advanced manufacturing, new technologies (including brain science, artificial intelligence (AI), quantum information, genomics, clinical medicine and deep-space exploration), and energy conservation and environmental protection is encouraged.
However, somewhat counter to this are national security reviews of foreign investments that will occur sometime in the second half of 2021 as a response to increased regulatory scrutiny Chinese companies have been recently facing abroad.
Foreign Policy/Global Engagement
Understanding the importance of the international business community to China, the DCS is carefully framed to not appear as a retreat from the global economy or a “closing up”.
In this context, China has promised to widen market access in certain sectors and plans to further cut the negative list restricting foreign investment. Foreign investment in advanced manufacturing, new technologies (including brain science, artificial intelligence (AI), quantum information, genomics, clinical medicine and deep-space exploration), and energy conservation and environmental protection is encouraged.
However, somewhat counter to this are national security reviews of foreign investments that will occur sometime in the second half of 2021 as a response to increased regulatory scrutiny Chinese companies have been recently facing abroad.
Foreign Policy/Global Engagement
The 14th Five-Year outlines China’s desire to push for a leadership role throughout Asia and the rest of the world by deepening “multilateral, bilateral and regional economic cooperation”.
The plan lays out that strategic competition will remain at the centre of how China manages its global engagement. This indicates that some current political tensions may remain, particularly in areas such as the competitive technology space as China continues to elevate itself as a leading global innovator.
Science and Technology/Innovation
As indicated, scientific and technological self-reliance is front and centre in the 14th Five-Year plan. To facilitate this, Chinese authorities will seek to place less emphasis on researchers publishing high numbers of papers and instead find new ways of evaluating them based on the impact of their work.
A focus on achieving “major breakthroughs in core technologies” in areas such as AI, semiconductors and cloud computing, amongst others, will lead to the establishment of more national laboratories and innovation centres. The Chinese government intends to support whis aim with a 7% increase in R&D spending every year and R&D tax incentives for businesses.
With these changes, China aims to transform into an advanced manufacturing superpower in the next 2-3 decades to increase its global competitiveness in a range of industries such as robotics, new energy vehicles, and agricultural machinery. The flow-on effect of these measures is to make innovative manufacturing a major growth engine for the Chinese economy, reducing its tech dependency on external markets and mitigating supply chain vulnerabilities.
Education
The 14th Five-Year plan seeks to forge closer ties between academia and industry, with the intention of analysing the results of collaborations. Increases more broadly in R&D spending will be a boon for research institutions but there will be renewed efforts to weed out research misconduct and target “paper mills” churning out fake studies that damage China’s international research reputation.
Environment
Despite President Xi Jinping’s announcement in 2020 of China’s goal to hit net zero emissions by 2060, the 14th Five-Year plan may seem at odds with such a high-achieving environmental target.
The plan pledges to reduce emissions intensity by 18% and have non-fossil fuels account for 20% of energy use by 2025, but does not lay out a defined pathway towards the 2060 target. However, more details on clean energy generation and how the government will encourage industry to reduce emissions may follow with the release of sectoral plans later in 2021. And given China’s ability to rapidly adopt new technology, renewables may increase at a faster rate than is currently predicted.
Outside of energy, there is an emphasis in the plan on “ensuring harmony between humanity and nature,” which will be put into practice by safeguarding natural ecosystems, establishing a national nature reserve system and expanding forest coverage.
Urbanisation
Having achieved previous goals of lifting 100 million Chinese, particularly in rural areas, out of poverty, the next stage of the great modernisation is the pursuit of a “new, people-centered urbanisation strategy.”
With hopes of achieving 65% urbanisation by 2025 and 75% (that of an advanced economy) by 2035, the current plan aims to reduce barriers preventing Chinese citizens moving between rural and urban areas. The key component of this will be the expansion of “city clusters” to promote further urbanisation and boost local economies within the cluster regions.
