I spent a week in Beijing, where I talked with Chinese officials and
attended the China Development Forum, the major annual gathering of
Chinese and senior foreign officials and top business executives. The
Chinese government had just released its 13th five-year plan and
officials were eager to explain what it means for China’s future.
the latest plan contains a seemingly endless list of specific projects
and goals, the major new theme this year is “supply-side restructuring,”
a term that includes a wide range of policies aimed at boosting
economic growth and living standards. The term “supply side” is intended
to distinguish the new policies from the traditional demand-side
measures of easy money and a slightly larger fiscal deficit that are
already aimed at strengthening economic activity.
High on the list
of supply-side policies is eliminating some of the excess capacity of
state-owned firms in the steel and coal industries. This means shedding
about 4 million workers, a number equal to about 0.5 percent of China’s
The plan authorizes a special fund to provide
assistance to those who are unemployed. Experts believe that much more
downsizing is needed, but the authorities are starting small to see how
it works and to monitor the public’s response.
China also plans to
shift millions of people from low-productivity agricultural areas to
dozens of new cities, accompanied by ambitious plans to build 50 new
airports and thousands of kilometers of new roads and railroads. The
authorities also tout the “One Belt, One Road” initiative, which is to
use Chinese financial assistance and resources to develop ports,
railroads and highways linking China with other parts of Asia, central
Asia and potentially even Europe.
The foreign-policy goal is to expand Chinese influence in the region
and beyond. It would also provide an opportunity to export some of
China’s excess industrial capacity.
In addition, officials intend
to stimulate innovation through research and development, including by
lowering tax rates for high-tech firms. Tax reform would also extend
China’s value-added tax to the service sector and financial reforms
would eliminate the limits on interest rates that banks can pay on
deposits and charge on loans.
At the same time, there is
substantial confusion about China’s new foreign-exchange regime. In
recent years, the yuan’s decline relative to the US dollar has prompted
complaints from US firms that compete with Chinese products. However,
the yuan has also strengthened by 25 percent relative to other
advanced-country currencies since 2010. The authorities promise to allow
the market to determine the exchange rate and that there is no reason
for a sustained decline. However, officials continue to report the
yuan’s movements relative to the US dollar, because they fear that
emphasizing exchange-rate management relative to a currency basket would
suggest further declines relative to the US dollar, an expectation that
would increase capital outflows.
Policies to improve the
environment are also high on the government’s agenda for the next five
years. The public is eager for cleaner air, rivers and land. To achieve
this, the government is to adopt new regulations and create “green
bonds” to finance remediation and low-carbon energy sources. Chinese
automakers are being encouraged to produce hybrid cars and the
government is warning foreign auto companies that it plans to take steps
to reduce their market share if they do not conform.