Decoding China's five-year plan

Posted on 05 April 2016

Source: Taipei Times
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.

Although 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 workforce.

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.

«  Back

Copyright © 2016 SEASI Site. All Rights Reserved.