SUB: China – New Development Strategy Sets Lofty Economic Ambitions in the Face of Persistent Geopolitical Challenges

Key Takeaways 

China's lawmakers and top political advisors are set to formally adopt the new socio-economic development blueprint that has already been drafted and endorsed by the Chinese Communist Party (CCP) at the annual plenary meetings in Beijing.

The 14th Five-Year Plan (FYP) will guide development strategy and policy for the next five years, with technological innovation, self-sufficiency and supply chain security topping the priority list. Marking the CCP's centenary year, the government also attaches a "vision 2035" with the new FYP, laying out a roadmap for China to become the world's largest economy.

With an ambitious goal of achieving net-zero emission by 2060, environmental protection and decarbonisation will also be high on the agenda for the next five years and beyond. Industries such as green technology and clean/renewable energy will receive strong political backing and favourable policy, potentially presenting fresh business opportunities for foreign companies. Likewise, significant public investment is expected for "choke-point" sectors such as semiconductors, in Beijing's quest for technological self-sufficiency against the backdrop of a complex and challenging international environment.

While China's robust post-pandemic economic recovery will inject some confidence in the CCP's leadership, long-running friction points, including the South China Sea disputes, Taiwan and Hong Kong, will continue to shape the regional geopolitical landscape, and China's relations with major powers and its neighbours. Beijing will also make efforts to transform its outbound investment strategy with a stronger focus on areas and industries highlighted in the new socio-economic development plan.

Background and Context 

More than 5,000 members of China's political elite have converged on Beijing this week for one of the flagship events in the country's political calendar – the annual plenary meetings of the National People's Congress (NPC – the parliament) and the Chinese People's Political Consultative Conference (CPPCC – the top political advisory body). Collectively known as the Two Sessions, or lianghui, the important gatherings have begun on 4 March, and will last around seven days. As well as triggering a major security operation in and around the capital, the annual legislative set-piece always attracts significant attention from domestic and international media, often with wall-to-wall coverage by state-run news outlets for several weeks in China. The

Two Sessions provides a valuable snapshot of the central government's plans and policy priorities for the next 12 months, though this year's event is attached with much greater significance as the NPC is set to rubber stamp a new socio-economic development blueprint, the 14th Five-Year Plan (FYP). With 2021 marking the centenary of the founding of the Chinese Communist Party (CCP), the meetings could also play a key role in shaping President and the 'core leader' Xi Jinping's legacy, as he prepares to retain power into a third term, contrary to the party's modern convention. The CCP's intention to release a "vision 2035" along with key objectives for the next five years not only lays out a longer-term strategy for China to replace the US as the world's largest economy, but also raises the possibility of Xi staying on beyond 2022 when his second term ends (see Sibylline Special Report: Ten Themes for the Next Ten Years – February 2021 for analysis on China overtaking the US in economy).

Economic transition and technological self-sufficiency top the agenda in new development strategy

Although the new FYP will not be released until the conclusion of the NPC plenary session, after it has been formally approved by the parliament, the summary of the CCP's endorsement and recommendations of the socio-economic development blueprint released last October provides a snippet of the government's key priorities. The core strategy for the next five years is centred around creating and strengthening new growth drivers as Beijing seeks to deepen reform of the economy to a model led by innovation and consumption. Revolving around a 'dual circulation' system of development, with a focus on boosting 'internal circulation' or the domestic economy, the 14th FYP will place scientific innovation and technological advancement as a top priority. Associated industries, such as advanced manufacturing, automation and artificial intelligence (AI), healthcare, and aerospace engineering, are set to receive the strongest policy backing going forward.

The new development strategy will also prioritise what the government considers "choke-point" industries, putting down a concerted push to improve self-sufficiency in these sectors. The Covid-19 pandemic along with protracted tensions with Washington and its allies have exposed China's shortcomings in some critical technologies. As governments in major Western capitals take a hardened stance on Beijing, many Chinese firms, particularly those in the thriving tech sector, have been affected by the increasing trade restrictions and political scrutiny on themselves and their integrated supply chains. The new development plan, with an emphasis on technological self-sufficiency, is designed to address this pressing issue. To this end, the government will likely commit considerable resources, in the form of subsidies, favourable fiscal terms and/or talent acquisition programmes, to "choke-point" sectors such as semiconductors, deep-sea and space exploration and advanced jet engine manufacturing, while also consolidating supply chain security for vital raw materials and components.

Beijing's pursuit of technological innovation and self-sufficiency also suggests that China will remain a key cyber security threat to many governments and corporations. Chinese-linked groups will continue to operate cyber espionage and hacking campaigns targeting Western businesses and government agencies. Countries with ongoing quarrels with Beijing are likely to face higher cyber security risks from Chinese threat vectors...

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