IT’S close to a year since I last wrote about China. Readers indicate they want to be updated on what’s happening there. Hence, this four-part series on China – the only major nation where gross domestic product (GDP) grew in 2020 (albeit by only 2.3%).
A good starting point is the recently held annual “Two Sessions” of the National People’s Congress (its top legislature) and the Chinese People’s Political Consultative Conference (top political advisory body).
Together, they ensure that grassroot voices are heard, and concerns relating to the well-being of people are fully addressed. The consultations reflect socialist democracy at work, with distinct Chinese characteristics that are deeply rooted in traditional Chinese culture.
The “Two Sessions” are especially significant this time: 2021 marks the start of the country’s new five-year plan and the centenary of the Communist Party of China, the world’s largest ruling political party.
This year, the participants discussed the next Five-Year Plan for National Economic and Social Development, and the Long-Range Objectives through 2035.
The sessions show how China puts into practice its new development philosophy that builds the “Dual Circulation” paradigm, where domestic and foreign markets complement to each other, with the domestic market as the mainstay.
As I understand it, China will give priority to “high-quality” development this year, setting its GDP growth target at above 6%; looking to cement its recovery from a year disrupted by the Covid-19 pandemic. This target is well aligned with the annual goals of subsequent years over the 14th Five-Year Plan period (2021-25), and will help sustain healthy economic growth.
However, the 2021 GDP target (at least 6%) is below the forecast of many economists and international institutions, which expect China’s growth to beat 8% this year. It’s plans will create 11 million new jobs in urban areas, and maintain the urban unemployment rate at around 5.5%.
The increase in consumer prices will be maintained at around 3% in 2021.
The central government plans to lower its fiscal deficit-to-GDP ratio to 3.2% this year (from 3.6% in 2020) in a bid to maintain the consistency, stability and sustainability of macroeconomic policies.
In addition, China hopes to pursue high-standards in opening-up, and to promote stable and improved performance in foreign trade and investment.
Innovation remains at the heart of China’s modernisation drive, adding the strengthening of science and technology to provide strategic support for China’s ongoing digital development.
China’s “Dual Circulation” development paradigm has three dimensions: (i) reform and opening-up (which China launched in the late 1970s). Since the 2008 global financial crisis, China’s economic reliance on exports and external demand has been declining, with the ratio of the current account surplus to GDP dropping from 10.1% in 2007 to about 1% in 2019.
So, it has become necessary to change the “market for technology” (by means of introduction, digestion and absorption) to a “market cultivating technology” (strengthening industrial chains by encouraging domestic industries to “go abroad” through infrastructure projects) to boost the domestic market through innovation; (ii) rise as a great power, which cannot depend on external markets: for example, 87% of US economic growth is driven by domestic demand-and so, China will need to depend more on the domestic market, and (iii) globalisation.
With a complete industrial chain and a massive domestic consumer base, China has so far adapted well to changing economic situations; it can become a world market, a shared market and an energised market.
Dual circulation will be centred on the domestic economy (or internal circulation) and aimed at integrating domestic activities with the global economy (or external circulation) to develop new advantages for China in global cooperation and competition, and promote global growth.
In short, China is entering a new development stage in which it will change itself, and expand and improve cooperation with the world, in order to create new, bigger and exciting opportunities for all.
Forward to 2035
Essentially, a core aspect of this next Five-Year Plan is for China to become totally self-sufficient in all aspects of technology, from creative innovation to production of all computer parts and chips required for manufacturing tech products.
Technological self-sufficiency will allow China to advance in areas of broad social healthcare and fast-track the transition from fossil fuels to green energy, requiring extensive big data collection and management.
The 5G-network revolution will create unprecedented efficiencies that will lead to both business and social transformations.
After successfully completing its 13th Plan last year, China’s next 2021-25 Plan and long-range objectives through 2035 will focus on goals of long-term, green growth with sustainability.
Some analysts have predicted that China would surpass the United States as the world’s biggest economy by 2035 (a few, by as early as 2027 or 2028). I believe undertaking continuing reforms will help China attain this milestone.
Accordingly, China is likely to become a medium-level developed country in terms of per capita GDP by 2035. Judging by China’s growth in recent years, that should not be too difficult to achieve. However, given its rapidly aging population and an increasingly uncertain external environment, China will find it challenging. China’s per capita GDP is 72,447 yuan (US$10,504 or RM43,245) in 2020, it could reach US$21,000 by 2035 – high enough to be a medium-level developed nation. But to achieve the goal, China needs to maintain for some time, its steady and healthy development momentum.
Growth and innovation
The “Two Sessions” laid out a comprehensive guideline for the 14th Five-Year Plan (2021-25), which covers major aspects of China’s socioeconomic life. The launch is also a launchpad for China’s second centenary goal of becoming a modern socialist economy by 2035, using technology, innovation and science as the leading change factor. China currently faces unbalanced development, with a heavy reliance on global market forces.
However, whereas China needs the world; more importantly, the world needs China. Indeed, China’s focus on innovation will help mutually beneficial economic cooperation. The plenum also puts heavy emphasis on the “dual circulation” development paradigm to counter backlash against economic globalisation.
The growth pattern focuses on international economic development and cooperation as well as a strong domestic economic cycle. While the hallmark of a strong economy is a steady growing China, the importance and benefits of deep engagement in international economic circulation remains critical.
China is committed to continue opening-up and to resolve the issue of trade imbalance by giving greater global access to its huge market. China has also renewed its commitment to reduce the impact of climate change. This will be done by stabilizing and eventually reducing its carbon emissions. The technological innovations touching on green energy will be part of its cooperation to fill the energy gap, and provide power to areas and people who are off the grid. This puts China in the position as a strategic partner that will enable other countries to achieve the United Nations’ Sustainable Development Goals. Much of China’s technology development will go into environmental repair – shifting the energy grid from fossil fuels to green energy. Some policymakers in Washington see environmental protection as an obstacle to economic growth. But China sees environmental technologies, new energy systems, and the shift from fossil fuels to renewables all as business and development opportunities, along with the market acting as the driver incentivising this shift. Renewable energy requires very advanced technology, and massive use of big data to manage the energy matrix. For China, this offers an opportunity for growth and job creation, new technologies and industries, businesses, and new forms of finance.
What then are we to do
China’s per capita GDP, adjusted to purchasing power, is one-fourth of the United States. But it is increasing faster in relative terms, and could exceed one-third of the US level by the mid-2020s. During the past half a decade, more than 55 million people in China have been lifted out of poverty, thanks to over 60 million new jobs created in urban areas.
More importantly, China’s focus on the quality rather than the quantity of GDP growth has allowed it to build the world’s largest social security system. China’s basic medical insurance system now covers more than 1.3 billion people, while basic old-age insurance reaches almost one billion people – which are vital to an aging society. In the coming years, the international landscape looks dire. Regional differentiation is likely to proceed fast, both internationally (the Belt and Road Initiative) and domestically (the Guangdong-Hong Kong-Macao Greater Bay Area). Plus, the acceleration of green and low-carbon development has been evident in China’s initiatives since the mid-2010s. The new strategy also underscores the upgrading of China’s economic structure, higher value-added in manufacturing and industrial and supply chains. That is the purpose of innovation-led growth, including the emphasis on semiconductor chips, artificial intelligence, 5G platforms, renewable energy and biotechnology. Since its launch in 2015, the “Made in China 2025” plan has sparked some skepticism in the advanced economies, which had previously advanced through efforts at independence and self-sufficiency, along with high tariffs and protectionism.
In contrast, China’s quest for major global status rests on multilateralism, global cooperation and a shared future.
As I see it, China’s bold reforms, openness, and economic dynamism have a tremendous positive impact on the current sluggish world trade, economic growth and private investment. However, China’s singular achievement has been the nation’s decisive, historic victory over absolute poverty. Last year, nearly all of the country’s 100 million impoverished rural residents had been liberated from absolute poverty after only eight years. Yes, China was a decade early in achieving the United Nations’ poverty-reduction goal. To me, China’s lifting of more than 800 million people out of absolute poverty since the start of its economic reform is a “great story in human history”, and offers valuable lessons to be learned. Most of the progress that’s been made in going from 40% of the world living in extreme poverty to now less than 10% - most of that progress being in China: It is this benevolent global soft power, which brings with it the prodigious ability to efficiently govern a vast, diverse country and uplift the quality of life for 1.4 billion people, that inspires the world.
Kuala Lumpur, April 5,2021
Former banker, Harvard educated economist and British Chartered Scientist, Prof. Lin of Sunway University is the author of “Trying Troubled Times Amid Trauma & Tumult, 2017-2019” (Pearson, 2019). Feedback is most welcome. The views expressed here are the writer’s own.