Investigating the policies designed to grow China’s GDP by over 6% in 2021

On March 11, the 14^th five-year plan (2021-2025), one of the most consequential plans in China’s history, was approved by the National People’s Congress. China’s five-year plan (FYP) essentially provides structural guidance for macroeconomic activities and a basis for the government to carry out public service duties.

Accompanied with the “2035 vision” to reinforce the longer term intent, the 14^th FYP mapped out the blueprint for China’s economic and social development as it is entering a “new development stage” to move toward its second centenary goal of building a “modern socialist country” by 2049 to confirm its status as a fully developed global economy.

The FYP further elaborates how China would achieve the overarching goal of continuing to increase the quality and efficiency of its economic structure to realize sustainable and healthy growth. Facing the global uncertainties and the lingering economic downturn caused by the Covid-19 outbreak, China re-emphasized ensuring the security of food, energy, and the financial system.

The FYP encourages social investment and market forces to shift focuses to areas such as technological innovation, digital economy, advanced manufacturing, and energy conservation and environment protection.

Key highlights including the following not only fit with the priorities of the Chinese government, but also recalibrate its position and further identify areas to take action with better understanding of the trend of China’s market:

• No quantitative GDP growth targets set for the five-year plan period continues to shift China’s development model focusing on higher quality development and ecological protection.
  
  Environmental and climate change targets that include continuing reductions in energy carbon intensity, increasing non-fossil or zero-carbon energy consumption, improving air and water quality, and boosting forest cover send clear signals to local governments and enterprises about the central government’s resolution to enhance the efficiency of supply side driven by innovation and seek sustainable development rather than unbalanced GDP growth.
  
  For the first year of the five-year plan period, China has set a general growth target of “over 6%” after not setting a target for 2020.

• The new “dual circulation” strategy will be at the heart of China’s economic growth model.
  
  This includes “internal circulation” to drive domestic economic recovery and growth, and leveraging “external circulation” to balance continued opening-up. The new development pattern shows Chinese leaders have a clear view that in order to proactively meet the strong and growing domestic consumption demands, China has started to and will continue the transformation from an export-oriented economy to a domestic consumption-driven economy.
  
  While further reforms will be aimed at developing domestic consumption to sustain demand, more targeted fiscal and financial policies will be rolled out and the business environment will be further enhanced to stimulate vitality of market entities to ensure the health of the supply side, in particular manufacturing and the global supply chain for high quality and high-end products.
  
  Taking the initiative to open further, China will shorten the negative list on market access and continue to advocate for open trade and seek bilateral and multilateral cooperation.

• China will continue to rely on global supply to ensure food security.
  
  Although China reiterated it is self-sufficient in its supply of grains, the changing structure of diet and enhanced living standards drive the demand to increase edible oil and protein, which led to record high imports of soybean and corn in 2020.
  
  China will be taking a two-pronged balance strategy for ag trade, including balancing the domestic supply and imports under the overarching food security strategy, as well as balancing sources and commodities for a healthy import framework under the trade diversification strategy.
  
  Domestically, the protection of arable land will be further enhanced and yield per unit area is expected to improve as agricultural technology, especially bio-breeding technology will gain stronger support in terms of R&D. From the demand side, safe, nutritious, and sustainable food will see large market potential under the green development of agriculture.

• International cooperation and foreign investment are encouraged for technological innovation in the course of China to become a leading innovative country by 2035.
  
  China vowed to increase R&D spending by more than 7% each year from 2021 to 2025, where the government will focus on basic research to tackle choke point technology issues in the long run and strengthen IPR protection to foster and protect innovation.
  
  Market entities, foreign enterprises included, are expected and encouraged to increase investment in R&D for technological innovation and play the leading role to promote integrated innovation across the industrial chain to reduce vulnerabilities in China’s tech supply chains, boost productivity, and shift towards higher valued industries.
  
• Digital economy and the innovative application of key digital technologies will provide China with new advantages.
  
  Next-generation technology is a global trend for the fourth industrial revolution, and China has gained advantages because of solid infrastructure, application of information technology in services and the large number of end users.
  
  In the coming years, investment in new infrastructure, including information infrastructure, integration infrastructure, innovation infrastructure, specifically 5G, artificial intelligence, big data hubs, industrial internet, block chain, etc., covering both urban and rural areas, will lay the foundation to build a digitalized society.
  
  It will not only change the consumption pattern as shown during the Covid-19 shutdown, but will further accelerate integration of the domestic market to create consumption, enhance productivity and efficiency in agriculture, manufacturing and supply chain, and lead to the digitalization of international trade.

• A comprehensive green transformation has become a practice rather than a slogan, showing China is proactively addressing environmental protection and energy transformation with determination.
  
  Hazardous emissions and resource recycling will be kept as the priority for the next five years. With the full implementation of China’s sewage permit system and the promotion of market trading of the right to sewage emission, energy use, water use and carbon emission, enterprises will be held more responsible and face greater compliance pressure.
  
  On the other hand, products and services that are green, sustainable and promote recycling will have favor among Chinese consumers who are gaining awareness under the national campaign on green development.

• U.S.-China relations are expected to be the biggest area of uncertainty in the next five years.
  
  U.S.-China relations have shifted from cooperation to competition and conflict. China considers the issues of Taiwan, Hong Kong, Xinjiang, and the South China Sea to be its own internal affairs and matters of national sovereignty.
  
  It is expected that both sides could talk about issues of common interest, such as the fair requests of market access, IPR protection, level playing fields where China continues to speed up opening-up and reform, and seek common ground while reserving differences for topics that both sides have contradictions but could explore win-win, such as trade agreement, healthcare, Covid-19 control, climate change, and CPTTP.
  
  Under the Biden Administration, the two sides have started to “meet the half way” with actions as talks between Chinese diplomats Yang Jiechi and Wang Yi and U.S. Secretary of State Antony Blinken and National Security Advisor Jake Sullivan will meet with China’s two top diplomats Politburo Member Yang Jiechi and Foreign Minister Wang Yi in Alaska on March 18.
  
  However, it is unlikely to see concrete results due to the legacy left by the Trump Administration. On the other hand, the implementation of the Phase One Trade Agreement is most likely to proceed, and China will continue to purchase more U.S. agricultural products.