industry eclipses services; population issues get serious; energy security shackles climate action; Xi invokes ‘readiness’ for war

The NPC (National People’s Congress) has passed the outline of the 14th 5-year plan, setting the scene for a post-COVID, post-Trump recovery. Stand out developments across our portfolios follow.

manufacturing favoured over services

A year ago, failing to set a GDP goal in the 5-year plan would have been unthinkable; this year, debate over the issue ran hot, ending with a move to annual targets. No doubt an effort to appease both pro and anti forces, finding the balance between the flawed imperative of short-term growth while reaffirming economic growth will remain a challenge.

Favouring manufacturing over services is the big surprise. R&D is a solitary outlier, tied directly to manufacturing. No value-added services target has been set, in contrast to the 13th plan.

Repudiation of the ‘Western’ or ‘US’ economic model, seen as pivoting towards services and offshore manufacturing, is a useful way to read this. Blending this sentiment with a conviction that ‘the East is rising; the West is in decline’, Beijing’s ambition to be a manufacturing superpower gains new importance. Losing its ‘leading position’ in this area risks triggering national ‘decline’, the inverse of ‘rejuvenation’. The Xi administration’s industry leanings look set to remain at the heart of 5-year planning.

state labs to lead science

Technology and innovation have raced up the policy agenda since 2016’s 13th 5-year plan. To serve its vision of self-sufficiency, Beijing is building a ‘national team’ of campuses and businesses to tackle scitech bottlenecks. The PRC, argues former Minister of Industry and IT Miao Wei 苗圩, is still at least 30 years from becoming a manufacturing superpower; solutions lie in scitech. Seven high-tech fields are highlighted for attention

  • artificial intelligence
  • quantum tech
  • semiconductors
  • neuroscience
  • genetics and biotech
  • clinical medicine
  • deep space/sea/earth exploration

Industry programs will highlight reinventing tech until now dominated by the West.

Involvement of vested interests notwithstanding, the mooted national team is to be merit-based; subsidy sluice gates regularly opened in the past are predicted to stay shut. Leading the team will be state labs, on notice to first undergo reform. Domestic and international businesses will hear offers they cannot refuse to shoulder the wheels of state-funded research. Even more R&D tax credits will sweeten the deal.

Domestic talent is not exempt from competition; the plan proposes skills-based immigration. Altogether, public and private R&D expenditure is expected to reach 3.4 tn annually by 2025, with the budget for basic research nearly doubling.

applied skills eclipse degrees

Reinforcing the reserves of domestic talent entails education reform. Plans for vocational and higher ed are geared to tackle structural unemployment and scitech concerns. Applied skills will get more support via both university courses and vocational ed. Top students will be urged to play long career games, while doors will open for workers to log more years of schooling, boosting their skills at a time of threatened joblessness.

hukou barriers continue to fall

The 5-year plan proposes vastly expanding the middle-income population, i.e. elevating migrant workers’ status and incomes. Hukou barriers will be lowered and urban social services—above all social security, healthcare and education—made more accessible. ‘New’ urbanisation, refurbished as a channel for economic development, is a hoped-for stimulant.

child and aged care to the fore

The greatest social challenges are no surprise—the ageing population and low birth rate. 2021 sees the launch of the national strategy to actively address a population that is ‘old before wealthy’.

Also for the first time, a quantitative target has been set for early child care facilities. In place of planned births, ‘enhancing the inclusiveness of birth policies’ is the new national catchcry. The upgrade is already in play: in early March the National Health Commission gave northeastern provinces permission to investigate abolishing birth restrictions altogether.

While years in the making, inclusion in high-level planning of measures to encourage childbirth reflects yet another ‘baseline’ priority. New targets to up the number of doctors per thousand people is another, mooted to put the public health target of raising life expectancy by more than a year within reach.

rural transition

Following proclaimed ‘victory’ in mitigating poverty, Party and state are pivoting to rural revitalisation, hoping to extend it to rural industry, culture, the environment and governance. A five-year transition now begins: policy and resources will be trained on broad rural development, costing some 7 tn. This will come from central budget and land transfer revenues, as well as from local public bonds and private capital.

Preventing relapse into poverty while sustaining development in still-poor regions is a much touted challenge, though open to debate. Heavily dependent on transfer payments, poor localities must build resilience, likely to be based on industrial development. Failure to do this is blamed for sagging birth rates in the northeast. Reversing the trend is hence intrinsic to revitalisation—not just in rural areas, but ultimately nationwide.

high profile for nuclear power

Overall energy production gains a binding target: above 4.6 bn tonnes of coal equivalent. The elevated status of energy security puts a brake on climate action, as the binding target locks in commensurate emissions. The failure to impose a hard emissions cap surprised international audiences (still taking in Xi’s sustainables-friendly pledges), more than domestic.

Nuclear power was given an unusually high profile, with a capacity target of 70 GW included in the plan. Such sector-specific targets are usually reserved for energy subplans. Nuclear power features in the government work report as well, after being shelved for three years. Such staging can be read as a green light for the sector to vie more assertively for a place in the energy mix, a step towards meeting Xi’s ambitious new emission reduction targets.

Safety is still the primary concern: the government work report text highlights ‘safety’ while ‘actively developing’ nuclear power. The increase from around 51 GW at the end of 2020 to 70 GW by 2025 is, while no doubt achievable, lower than that achieved under the 13th plan.

‘readiness’ for war

Party clout in socio-economic policy is set to tighten further. Party leadership now tops the plan’s list of injunctions that ‘must be followed’: it ranked last in the 13th plan’s equivalent list. ‘Xi Jinping Thought on Socialism with Chinese Characteristics for the New Era’ is now the plan’s guiding ideology, on a par with Mao Zedong Thought and Deng Xiaoping Theory. Its pervasiveness is to spread further: the plan calls for ever more expounding and systematic study in dedicated Xi Thought institutes.

Some minor rhetorical changes are potentially meaningful. Religious communities are on notice to ‘adapt’ to socialist society; previously they were merely urged to ‘contribute’ to its development. This can only bolster deepening and ongoing cultural sinicisation and ethnic assimilation.

Long invoked by Chairman Xi, ‘readiness’ for war is now a priority, though against whom is unclear. Meeting with PLA representatives during the Two Sessions, he insisted that troops be ready at all times to face ‘all kinds of complex and difficult situations’.

in case you missed it…

cp.signals—domestic policy movement
takeaways from local Two Sessions
domesticating big tech

cp.positions—audit of shifts across policy sectors
cp.position: energy and environment, agriculture, scitech, macroeconomy
cp.position: trade policy, governance, society

cp.observer—monthly roundup
february: subdued New Year
january: ‘becoming strong’