Monday, September 27

The map to the future of the Chinese economy | Economy

Chinese President Xi Jinping at the National People's Congress on the 8th.
Chinese President Xi Jinping at the National People’s Congress on the 8th.ROMAN PILIPEY / EFE

During those years when the Chinese GDP knew no brake, a recurring metaphor circulated among the academic circles of Beijing that equated the economy with that of a bicycle. “The faster, the more stable.” However, as the ride progressed and the large numbers were left behind, doubts began to arise regarding this approach: perhaps top speed was not paramount. The search for a new method to measure and pursue development has ended up being reflected in the 14th Five-Year Development Plan, approved last week by the Asian giant’s legislative apparatus.

The document, a legacy of Soviet state planning, has evolved along with the country, moving from a rigid agenda with production quotas to general guidelines. According to Xinhua, the official news agency, “sets out China’s strategic intentions, specifies government priorities, and guides and regulates the behavior of market entities.” For this reason, it is of great value, since its comprehensive exposition draws the map that leads, five years from now, to the future.

The writing of the text has been supervised “personally” – state press dixit– by the leader Xi Jinping, who over the last three years would have collected proposals and comments in meetings with all kinds of social actors. Its content was debated at the annual meeting of the National People’s Assembly (ANP) and endorsed at its conclusion with 2,873 votes in favor, 12 abstentions and 11 anecdotal rejections. The resulting 148 pages comprise twenty indicators structured in five areas: development, innovation, popular well-being, sustainability and security.

One detail shows the historical trance facing the Government: unlike the previous 13, this Five-Year Plan does not establish a growth target for GDP. The precedent – in force from 2016 to 2020 – foresaw an average annual expansion of 6.5%, a purpose truncated by the pandemic, which yielded 2.3% for 2020. This figure constitutes the worst result for China in almost half a century , but it also makes it the only major economy that the health crisis did not drag into the red.

“The absence of a target for GDP is a symptom of a great unresolved debate among those who defend a lower figure that allows dealing with structural problems such as debt, an extended position among academics, and those who bet to stay the course” exposes Michael Pettis, Professor of Finance at Peking University. The goal is not further growth per se but, in Xi’s words, of “higher quality.”

The clearest manifestation of this turnaround came when, also during the Assembly, Prime Minister Li Keqiang announced that the growth target for 2021 will be 6%. A modest mark considering that the International Monetary Fund projections point above 8%, but a midpoint compared to the voices that asked to ignore GDP to focus state attention on other metrics such as unemployment. “Walking fast does not necessarily mean walking steadily,” Li said during his subsequent press conference.

Now, the fact that the Five-Year Plan does not mention an objective does not mean that it does not exist. As explained by Hu Zucai, deputy director of the National Development and Reform Commission, although it is defined in “qualitative” terms, it also contains an “implicit quantitative” dimension. The new conundrum of sinology is to attribute a number to words, which only dictate that China should achieve per capita GDP on par with “moderately developed countries.” The prime minister’s definition gave no further clues: “A reasonable level.”

Faced with this question, the newspaper library comes to the aid. “Xi announced his ambition to double the size of the economy in 15 years, which requires annual growth of 4.7%, which should be faster at the beginning to compensate for the progressive slowdown,” calculates Pettis. “As much as the global economy rebounds in 2021, I don’t think they’ll make it.” This renewed emphasis on the “quality” of growth is also linked to concerns about debt, one of the main systemic risks, which in the last year has skyrocketed to a percentage equivalent to 280% of GDP.

An intricate knot

“This plan is much less specific than the previous ones,” says Alicia García-Herrero, chief economist for Asia at Natixis. “I think this is because China is approaching an increasingly complex scenario. There are many open fronts and the uncertainty is enormous ”. The official text transcends the economy and other domestic considerations: all areas are linked in an intricate knot. According to its provisions, this “new stage of development” coincides with a global scenario of growing hostility: in both processes, innovation plays a key role.

Good proof of this is that technology has, for the first time, its own chapter. The state drive for innovation, an abstract concept, translates into more resources in practical terms. The Government proposes that over the next five years investment in R&D will grow at an annual rate of more than 7%, an affordable figure given that in the last quarter of a century it has never dropped below 8%. In absolute terms, China allocates 2.4% of its GDP to this item, three percentage points less than the United States.

The funds will go to those sectors considered “strategic”. The plan mentions seven: artificial intelligence, quantum information, semiconductors, neuroscience, genetic engineering, clinical medicine and the exploration of space, deep ocean and the poles. The central issue is self-sufficiency: a cross-cutting concept in planning, as China seeks to limit its vulnerabilities and shield itself from the outside.

Promotion of consumption

This notion is also at the base of the new economic model known as the “double circulation” system, consisting of import substitution accompanied by the strengthening of domestic demand. For this, the Government must promote consumption, an area still limping and pending consolidation due to the effects of the health crisis. “There is still a lot of uncertainty about the recovery of the global economy,” Li acknowledged, “SMEs are still trying to regain their vitality.”

Another nucleus of “quality” growth passes through labor productivity. The five-year plan emphasizes this issue, betting on maintaining its progression in shares higher than GDP. This is an urgent need, given the dwindling workforce as a result of demographic trends. The authorities are trying to boost the birth rate, which is at its lowest level in seven decades. This also points to a measure that seems closer and closer, although the plan does not include it: the delay in the retirement age. “The government will postpone it as long as it can because it is unpopular, but it is inevitable,” explains García-Herrero.

For all the above, the improvement of social conditions is a priority. Seven of the twenty indicators included in the official text are related to this issue, an unprecedented proportion. “The social model based on large state-owned companies is not sustainable for an increasingly broader middle class, but the country will not be able to establish a full welfare state,” adds the economist. Perhaps the metaphor has been discarded, but the bicycle continues to advance.

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