China’s 13th Five Year Plan and the opportunities for Europe

China's 13th Five Year Plan Brussels European Union_CASS

From left to right, Mrs Shada Islam, Director of Policy at Friends of Europe, Professor Cai Fang, Vice-President of the Chinese Academy of Social Sciences (CASS) and Professor Yao Zhizhong, Deputy Director of the Institute of World Economics and Politics a the Chinese Academy of Social Sciences (CASS)

Amid substantial interest of the global community about China’s growth and only a few months before the launch of the 13th five year plan of the country, a stimulating event took place in Brussels earlier this week analysing the aims of China’s new 2016-2020 development strategy. The event, which was organised by Friends of Europe, hosted two prominent Chinese professors from the Chinese Academy of Social Sciences (CASS), Dr Cai Fang and Dr Yao Zhizhong, who provided to the audience a glimpse of President Xi’s first five year plan.

China’s five year plans

China has been designing and implementing five year plans since 1953, with the aim to build and enhance its socialist market economy. Usually, at the last year of every Five Year Plan, the 5th plenum of the Chinese Communist Party (CPC) passes a document formally titled “Suggestions on Making XX Five Year Plan of National Economy and Social Development by Central Committee of CPC”.

Similarly, based on the suggestions, the State Council prepares a Guideline of XX Five Year Plan in the last year of every set of 5 years. Then, the National People’s Congress passes the Guideline in May of the first year of every new five year plan. Interestingly, since the 11th Five Year, the word plan was changed to a different word in Chinese which means “Layout” or “Blueprint”.

All eyes on 13th Five Year Plan

There are a number of timely reasons why the world’s focus has been gathering on the 2016-2020 plan of China. First of all, it is this 5-year plan that will see China become a comprehensive well-being society. In addition, China in this five year plan aims to accomplish the so called “2 doublings” (GDP & GDP Per Capita income growth).

Last, a key aspiration of this 5 year “blueprint” is that China avoids the “middle-income trap”, a term in the theory of economics that describes a country getting stuck to a certain level of economic prosperity or “income”. Obviously China with its gigantic potential and power wants certainly more than that.

China’s new development track

According to Professor Cai Fang leading the discussion, in the upcoming five year plan China will pursue an innovative and quality based development that will rely on 5 core features: innovation, coordination, green and sustainable economy, openness to the world and sharing benefits and issues internally but also with the global community.

Based on the above 5 principles, the five year plan is anticipated to bring structural reforms to China’s policy making, as defined by new goals and methods of implementation of development programs.

5 FYP and China’s New Normal

The two professors leading the conversation last Thursday in Brussels echoed the clear statement that China is setting now the goal to be a moderately high growth economy. This qualitative and quantitative goal is described by the famous term New Normal.

Professor Cai Fang put it simply: China is described as a moderately high growth economy, because compared to the past “exponential” Chinese growth and the world’s average growth figures, this new normal of Chinese development is neither high nor medium. Besides, the moderately high growth speed model is enough for China to succeed its great goal to double its GDP by 2020.

In fact, the two Chinese Professors did not stay there but elaborated further on how moderately high speed can be actually realised in the future. Especially, Dr Cai Faing clarified two terms for the public: potential growth rate and reform dividend. The former refers to what according to new normal is achievable due to disappearance of demographic dividend. In hard figures this is translated to 6,2% potential growth in 2016-2020.

Instead, reform dividend implies all those reforms that enhance labour supply, productivity and fertility rate, which can spur further potential growth. The reform dividend, as insightfully the professor explains in numbers, is equal to 0,33% of growth, which comes from subtracting 6,2% (potential growth) from 6,53% (current growth).

Hukou urbanisation

The 13th five year plan of China aims to empower a massive part of the population, people born in rural areas in China, in order to contribute to unparalleled growth. We are talking here about 170 million people, below the poverty threshold in rural China. In Chinese the people are called “Hukou”. In short, the 13th five year plan will take forward policies to move a big part of these people to cities, to upgrade their lives and strengthen the Chinese labor force.

As Professor Cai Fang puts it, China’s aim is to kill 3 birds with one stone, rather than just 2 as the West would say: increase labour supply, continuation of labour mobility to gain re-allocative efficiency and expansion of domestic consumption. All this will be succeeded by moving 170 million migrant workers, plus 100 million more who currently have local non-agricultural jobs, to become integrated urban residents.

13th Five Year Plan & Europe

Towards the end of the discussion last Thursday in Brussels, the panelists came right to the point by outlining the opportunities that lay for Europe during China’s 2016-2020 “blueprint” for growth. The two professors pointed out five specific and significant opportunities:

  • Innovative development means international cooperation in science, technology and education
  • Coordinative development opens opportunities to invest in lagging regions of China
  • Greener development demands investment in environmental protection and CO2 emission.
  • Open development offers more opportunities (e.g. the Belt and Road Initiative)
  • Shared (inclusive) development expands scale and scope of consumption with bigger middle-income group (in technology, culture, tourism and  high quality jobs).

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