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China’s new Five-Year Plan
Read more on - Polity | Economy | Schemes | S&T | Environment
- March 2021 meet: China began its biggest annual political gathering in March, the so-called Two Sessions (lianghui). The early policy documents and speeches to come out of the Beijing gathering have surprised many investors and political analysts with their caution and lack of ambition. The era of striving for sky-high growth rates is clearly over. Rather, Chinese GDP growth is likely to underperform expectations this year and beyond. With sober-minded, fiscally conservative planners now firmly in control of policy, Beijing is turning its attention to debt reduction and a daunting agenda of structural reform.
- Shift: The first sign of the shift came when Chinese Premier Li Keqiang’s annual Government Work Report issued a strikingly conservative GDP target of more than 6 percent. Many financial analysts, following the International Monetary Fund’s projections, had expected 8 percent or more. This was after the nearly unprecedented decision last year to set no growth target at all, using the COVID-19 pandemic as an excuse. Leading up to this year’s Two Sessions, there were heated debates in Beijing about whether to return to the old targeting approach. Some economists argued that targets helped motivate local officials and provide an impetus for economic activity. Others advocated dropping them entirely and focusing on other metrics like employment.
- Settling down: In the end, Beijing compromised. In announcing his conservative GDP goal, Li noted that it would “enable [China] to devote full energy to promoting reform, innovation, and high-quality development.” He also set targets for reducing the central government’s budget deficit from 3.6 percent of GDP in 2020 to around 3.2 percent of GDP in 2021 and announced plans to lower the quota on local government special bond issuance, the crucial mechanism for financing infrastructure development. Beijing has also axed 1 trillion yuan ($140 billion) in special treasury bonds issued last year in response to COVID-19. As U.S. President Joe Biden and his administration double down on pandemic fiscal stimulus, China is rapidly phasing it out.
- One more shift: Another major sign of Beijing’s shifting strategy was on the second day of the Two Sessions, when the government unveiled another major document: the draft 14th Five-Year Plan, which will be the strategic blueprint for all aspects of national development through 2025. Previous plans have included explicit growth targets. This one did not. The omissions confirmed that the so-called “fiscal hawks,” who want to tackle China’s ballooning public and private debt levels, had won the internal policy debate.
- Regional inequality: Inequalities between provinces and regions continue to grow, as the northern rust belt provinces stagnate. Compared with previous years, this year’s Government Work Report dedicated much more attention to these domestic imbalances. Beijing also acknowledged its “low fertility trap”—marked by a 15 percent decline in births since last year. (The birth rate has fallen to the lowest level in seven decades, despite a spate of measures to encourage families to have second children.) Underlying structural trends like these are all deeply problematic for Beijing: a declining marriage rate, rising divorce rates, and financial disincentives to having more than one child.
- Hukou system: Chinese planners are also dragging their feet on much-needed reforms to the household registration (hukou) system. Hukou is the Chinese government’s tool for managing the internal movement by its 1.4 billion population. The system governs the country’s hundreds of millions of migrant workers—about 40 percent of the urban labor force—who move from rural areas to cities in search of work. The latest five-year plan pledges new reforms that would effectively lift most hukou requirements for rural migrant workers in cities with populations under 5 million. (The most desirable megacities, such as Beijing, Shanghai, and Shenzhen, would retain their points-based system for eligibility.)
- Why reform or why not: If anything, these reforms are likely to create more headaches for officials and increase economic inequality. Educated and wealthier migrants will gain hukou in richer cities with better public services. Poorer migrants will be stuck in smaller cities with tighter public finances and lower-quality social services. Some rural workers don’t want to swap their rural hukou for urban hukou at all, as it would mean losing their valuable rural land holdings.
- Summary: The Two Sessions was also a disappointment on environmental issues. State planners committed to ambitious anti-pollution targets, but they did not promise to cap total energy consumption and even left the door open to increased coal output. An NDRC report even seemed to contradict Li’s own, stating that China would “systematically increase [its] ability to ensure the supply of coal” and focus on expanding “clean coal,” as well as nuclear and renewables.
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