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On China’s Five-Year Plan

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On China’s Five-Year Plan

Written by Alfonso Elizondo

Created on Tuesday, August 16, 2016, 11:14

Views: 14

 

China’s new Five-Year Plan for the next 5 years was approved just a few days ago by the Central Committee of the Communist Party. This plan still has to be approved by the Legislature and includes, among other things, a gradual increase in the convertibility of the yuan by 2020 and further opening of the service sector to foreign investment. Although most of the Five-Year Plan relates to economic issues, it also makes it clear that the Communist Party will maintain its political control and expand its surveillance of the new digital areas and, in particular, the Internet sector.

 

According to a draft of the Five-Year Plan published by the official Xinhua News Agency, the central idea is to ‘maintain an average level of growth to improve the lives of average people so they can benefit from the country’s success in creating a moderately prosperous society.’ According to this official agency of the Chinese government, President Xi has said that one of the major objectives of his government is to commemorate the centenary of its founding by doubling the 2010 per capita GDP – which was $7,519 –  by 2020.

 

Although the figure indicated by President Xi does not appear in the official statement out of the meeting of the Central Committee of the Communist Party, it represents a decline of 0.5% compared to the growth target of 7% set by China for this year. This is due to the fact that the economy is experiencing a period of stagnation, and in the third quarter it fell to 6.9%, the lowest in the last 6 years. So this statement by President Xi anticipates that China’s targets could fall below 7% and may reach 6.3% of GDP. Xi also notes that China’s current per capita GDP is at $7.5 in a situation where 55% of the population lives in urban areas.

 

Another goal of the new Five-Year Plan is the reform of the system of internal residence permits. In 2013 the urban population with such permits was only 35.9% of the total, and the aim, according to the Xinhua Agency, is to reach 45% by 2020. These permits give access to basic services such as health care and education but are very difficult to obtain by the large masses of immigrants from the countryside, and this is a source of great inequality. However, the official measures for migrants to obtain permits are still not known, and a similar lack of specific details surrounds the measures aimed at ending the ‘one-child’ policy.

 

In summarizing the economic aspect of the new Chinese Five-Year Plan one could point to three main features:

 

1. Increasing the weight of the service sector to the detriment of industry.

 

2. Reducing public investment to give more importance to domestic consumption.

 

3. Lowering dependence on growth based on credit.

 

The draft Plan indicates that towards the end of 2015 China’s total debt stood at 254.8% of GDP, according to data supplied by the Bank for International Settlements, and much of it is in the hands of companies. Although the IMF still believes the debt is within a manageable range, it is urging the Chinese authorities to tighten budgetary restrictions for State-owned companies, liquidate companies with excessive debt and recognize and accept losses, including losses by the government.

 

According to the IMF, China has developed some initiatives to reduce the amount of receivables on the balance sheet of companies, such as debt/equity swap, but they still are not achieving good results, because, as the IMF notes, the basic problem is with the state-owned companies which account for 55% of corporate debt and contribute only 22% to economic activity. While the IMF insists that China implement macroeconomic policies that will lead to a reduction of these vulnerabilities, the Chinese Government has not accepted this and is seeking in its Five-Year Plan to maintain minimum economic growth of 6.5% of GDP until 2020, even if it means total disagreement with the IMF which, in fact, represents the West and the United States in particular.

 

Contrary to the view of the West, China’s new Five-Year Plan states that besides not allowing its economy to decline over the next five years, economic growth will be promoted through the Internet and its connection speed will be increased. At the same time, tariffs will be lowered, a clean Internet will be encouraged and a positive culture will be promoted in cyberspace.

 

Addendum: It is very clear that while China is developing a completely different economic policy from the West, trying not to intervene in matters which are not its concern, the United States is attempting to stay in control of the world, not only in the economic and financial spheres but also through the material possession of all territories in the world and their natural resources.

Perhaps the root problem is that the model of Western democratic republics is losing touch with reality in the new digital world, while a hybrid model using the most basic low-cost autocracy to control its citizens is being much more efficient than costly judicial, police and prison systems in the West and particularly in the United States.