China is set to ratify its 14th five-year plan. What to expect from its latest economic road map

March 2, 2021, 9:06 AM UTC

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On Thursday, China will convene its most important political meetings of the year. That is when the state’s parliament, the National People’s Congress (NPC), and the party’s political advisory body, the Chinese People’s Political Consultative Conference, will set out national goals for the year ahead.

This year’s so-called Two Sessions is especially significant, since the central government will ratify China’s 14th five-year plan—the latest in a seven-decade string of macroeconomic guidelines that have steered China’s economy as it has grown into the second largest in the world.

Here’s what you need to know about China’s economic blueprints, past and present:

Where did five-year plans come from?

China adopted the five-year plan model from the Soviet Union. Joseph Stalin implemented the first Soviet five-year plan in 1928. The model of top-down, centralized economic planning—in which the central government determines which industries are most important to economic growth and sets production quotas for them—was exported to other socialist states, including China.

China introduced its first five-year plan in 1953, after the Chinese Communist Party won power in 1949. South Korea, Vietnam, Argentina, India, Ethiopia, and Pakistan all adopted five-year plans around the same time too. However, only China and Vietnam still use the system.

Interestingly, China has had the longest string of consecutive five-year-plans. The Soviet Union maxed out at 13, with the 1991 dissolution of the bloc interrupting the 13th and final edition.

How is a five-year plan devised?

The National Development and Reform Commission (NDRC), China’s central economic policymaker, leads the creation of each five-year plan. The process is typically kick-started two to three years in advance, with a midterm review of the current five-year plan cycle.

That review includes initial research for the next five-year plan cycle, which consists of suggestions from government ministries and other experts. A year later, the NDRC submits its recommendations to the party’s decision-making Central Committee. Those recommendations typically become the basis for the next five-year plan.

The National People’s Congress—China’s top legislature—releases the final draft of the upcoming five-year plan the October before the plan goes into effect.

At the current stage, the plan is finalized, but it won’t be officially approved until the Two Sessions meeting convenes this week.

How are five-year plans carried out?

The five-year plan signals the general direction of national economic development for the next half-decade—and sometimes beyond—but details are sparse at first. After the Two Sessions convenes this week, the NPC will release a more in-depth summary of the targets included in the 14th five-year plan.

The task of meeting those objectives, however, is mostly left to local governments, which have to formulate their own strategies to align with the direction set out by the central government. Historically, the system has meant that provincial-level officials are incentivized to fabricate data in order to give the appearance of meeting Beijing’s targets.

Famously, during the second five-year plan in the 1950s, local officials inflated crop yield figures to match quotas handed down from the central government when, in fact, the country was heading toward famine.

However, in 2006 the government renamed five-year plans “five-year programs” and began referring to the edicts as guidelines rather than targets in an attempt to show that China had market systems and was not simply a “planned” economy. The nuance between “program” and “plan” was lost in translation, however, and today the NDRC’s English-language publications refer to the measures as five-year plans.

In 2015, Chinese state media widely shared an English-language animated music video that explained the significance of the upcoming 13th five-year plan. The video’s focus on how much consultation goes into creating the five-year plan was likely another bid to showcase that China’s economy is not simply led from the top.

Do five-year plans work?

The five-year plans are undoubtably instructive in China’s economic growth, as China’s state banks will provide funding for projects that align with the government’s objectives. But that doesn’t mean the goals are always reached.

The previous five-year plan, from 2016 to 2020, formalized Beijing’s drive to advance its manufacturing capabilities to create more high-tech products. During that five-year plan’s early years, central and local authorities provided billions of dollars in funding and loans to support the strategy, called “Made in China 2025.”

Most notably, government funds poured into semiconductor manufacturing, as the five-year plan identified computer chip production— as well as electric vehicles and A.I.—as a “strategic industry.” But the directive put China on a collision course with the U.S., which realized Beijing’s plan threatened American dominance in advanced tech.

The U.S. initiated the still-unresolved trade war with China partly to combat the Made in China 2025 initiative—a policy Beijing hasn’t mentioned since.

What’s in the 14th five-year plan?

The 14th five-year plan will formalize Chinese President Xi Jinping’s “dual circulation” policy, which calls for China to rebalance its export-driven economy so that domestic consumption has a larger role in GDP growth. The plan will also continue to upgrade China’s manufacturing capabilities and work toward building a “moderately prosperous” society by 2035.

Although Beijing went quiet on its Made in China 2025 plan once the trade war began, the 14th FYP will likely continue that ambition and outline more strategic technologies for China to learn how to produce domestically—such as mobile phone operating systems and aircraft design software.

In the U.S., the Biden administration is continuing the previous administration’s squeeze on the supply of semiconductors to Chinese businesses. This week, a national security commission advised Congress to exploit “choke points” on semiconductor supplies to China.

The 14th five-year plan will also be instructive for China’s future environmental policies. Beijing has already committed to achieve peak carbon emissions by 2030 and to run a carbon neutral economy by 2060. The upcoming plan should outline how China expects to meet those ambitious goals.

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