China’s new plan to counter the US economy
Minxin Pei is professor of government at Claremont McKenna College and a nonresident senior fellow of the German Marshall Fund of the United States.
At the end of each year, the Chinese government convenes the Central Economic Work Conference to set priorities for the coming 12 months.
The importance and status of this annual event is underscored by the attendance of all seven members of the Politburo Standing Committee. Last year’s conference, which took place between Dec. 16 and 18, was a much-anticipated event because the business community wanted to learn what policies the conference would unveil to help achieve a robust economic rebound in 2021.
However, the news release issued afterward did not mention a growth target for 2021, nor did it contain references to macroeconomic policies that may boost growth. Instead, of the seven priority tasks set for 2021, four are explicitly connected to the strengthening of China’s economic security.
The contrast with the priority tasks set in the Central Economic Work Conference in 2019 which took place between Dec. 10 and 12 of that year is especially striking. The news release for the conference identified poverty relief, environmental protection, structural reform and other conventional economic objectives as priority tasks for 2020.
Of course, the coronavirus pandemic in 2020 upended Beijing’s old economic plans. But the puzzle about China’s economic priorities for 2021 is why its leaders have abandoned the goals it set a year ago even though they remain largely unfulfilled. Instead, they have embraced a completely different set of goals.
The answer must be found in the rapid deterioration in U.S.-China relations in 2020. As the trade war and tech war between the world’s two largest economies escalated after the outbreak of the coronavirus pandemic, Chinese leaders concluded that they must prioritize national security in their economic planning. In early April of 2020, the Chinese government began to draft its 14th five-year plan and formulate a long-term economic strategy. Xi personally headed the drafting committee, which also included Premier Li Keqiang and two other members of the Politburo Standing Committee.
The plan was approved by the fifth plenum of the Central Committee of the Chinese Communist Party at the end of October, and was made public in early November. Even a cursory reading of China’s new economic strategy for the next 15 years reveals the determination of China’s leaders to ensure national and economic security in an increasingly uncertain and hostile external environment.
Since 2021 is the first year of the CCP’s 14th five-year plan, the priority tasks for the year set by last year’s Central Economic Work Conference naturally reflect the two prongs of China’s new economic strategy: technological self-sufficiency and growth based mainly on domestic consumption.
Therefore, China’s number one and two priority tasks for 2021 are, respectively, “strengthening the nation’s scientific and technological capabilities” and “strengthening [China’s] capabilities of maintaining the self-reliance and control of production and supply chains.”
After the U.S. government cut off supplies of critical technologies such as high-end computer chips and software to a large number of Chinese companies in 2020, Beijing realized that it must mobilize the resources of a whole nation to ensure that the U.S. will not be allowed to “choke our neck” in the future. In the new year, we should expect China to launch an ambitious and generously funded program to beef up R&D and focus on building domestic capabilities in sectors now dominated by American companies.
The number five task, food security, also reflects the concerns of China’s leaders about overreliance on high-yield seeds produced by foreign suppliers. Three American companies, Monsanto, DuPont and Dow Chemicals, are among the world’s top five seed companies while China has only one.
The shift to domestic demand as the principal source of growth was listed as the number three priority for 2021. Chinese leaders hope to achieve this with measures to promote employment, improve social safety nets, expand middle-income groups and increase consumption in local administrative areas and towns. In his remarks in early April on the 14th five-year plan, Xi argued that the shift was necessitated by protectionism and would be feasible thanks to China’s vast internal market.
Investors in profitable Chinese tech giants like Alibaba Group Holding and Tencent Holdings should pay attention to priority task number six. The Chinese government has pledged to strengthen anti-monopoly measures and prevent “expansion of capital without order.” Since it is highly unlikely that the Chinese government will break up state-owned monopolies or duopolies such as China Petroleum & Chemical (Sinopec), China National Petroleum Corp., China Mobile and others, privately-owned tech giants will be the most tempting targets.
Indeed, Beijing launched an “anti-monopoly investigation” of Alibaba, the e-commerce behemoth, immediately after the conference. Its fintech subsidiary Ant Group may be broken up and placed under more strict state control. Other large private companies in e-commerce could face similar regulatory actions in the new year.
In all likelihood, China will make modest progress in bolstering its national and economic security in the new year. But that may not bother Xi. What really matters to him is that the rest of the world, especially the U.S., get the message that China is prepared to counter America’s economic offensive.