The power of five

For the Communist Party of China (CPC), a planning exercise bestowed by comrades from the former Soviet Union is a gift that keeps on giving.

In the early 1950s Chinese leaders watched as the USSR rapidly rebuilt its war-torn economy. They decided to import the same policy process themselves, implementing their own ‘Five-Year Plan’. They persisted with it despite the evidence from the mid-1980s that the planning cycle was doing little to address the Soviet Union’s economic sclerosis as it fell far behind the West in economic and technological terms. The Russians’ 12th Five-Year Plan, running from 1986 to 1990, set out to address some of these shortcomings but it was never seen through, as the Communist bloc crumbled in Europe.

Fast forward to the present day and Five-Year Plans are still making headlines in the Chinese press, however. That’s because the Fifth Plenum of the CPC’s current crop of leaders has just finalised the mapping out of the country’s 14th Five-Year Plan. The blueprint offers an important insight into where the Chinese economy is heading, as well as some of the policy priorities of the Beijing leadership.

When was China’s first Five-Year Plan?

It took the CPC nearly five years to draft the first of the planning cycles, which covered the 1953-1957 period. In fact, the plan was already well into implementation by the time it was approved by the National People’s Congress in mid-1955 (the legislature was less of a rubber stamp in its early days and debate among the leading politicians could be fierce).

That plan was drawn up under the heavy influence of the Soviet Union, which was providing loans and, more importantly, the services of several thousand personnel for 156 “key projects”.

The then Chinese premier Zhou Enlai even travelled to Moscow in 1952 with a draft of the document to solicit feedback from Joseph Stalin, who suggested that Chinese policymakers scale back some of their economic targets.

The first of the plans laid the foundations for the country’s attempt at large-scale industrialisation. As a result, China’s first car factory was built in the northeastern city of Changchun in 1956. Overall steel production during the period also reached 16.6 million tonnes, or more than twice the total output of the industrial metal between 1900 and 1949.

The success of the plan sowed an unrealistic level of optimism and the pace of the Party’s “socialist transformation” was pushed too quickly into the 2nd Five-Year Plan (1958-1962). The Great Leap Forward campaign during that period disrupted the economy so disastrously (see WiC98) that the 3rd Five-Year Plan only kicked off in 1966 after a four-year void.

How are Five-Year Plans formulated?

In the early days Mao Zedong set high-level goals for his planning team. His ambitions that the Chinese would surpass the British and catch up to America as an industrial power sowed the seeds of the catastrophes of the Great Leap Forward (see WiC513).

During the post-1979 reform era the processes for formulating the Five-Year Plan (FYP) became more professional and pluralistic, involving wider input from the private sector and specialist economists.

These days the drafting of the policy blueprint typically rests with the key state planning agency, the National Development and Reform Commission (NDRC). It is a standardised, choreographed process: for instance, preparation for the ongoing 13th FYP (2016-2020) started as early as August 2013, when the NDRC conducted a “mid-term review” of the previous plan as part of a formal assessment process first introduced in the planning cycle in 2001.

The NDRC got to work on the current FYP in April 2014 by publishing consultation documents on at least 25 major areas where it wanted research support from scholars, experts and think tanks.

It then submitted a report on the outcome of the research to the CPC’s Central Committee, a decisionmaking body comprising the most senior 300 or so Party members.

They designated a special team to draft a “report of recommendations” to be discussed at the Central Committee’s Fifth Plenum in October 2015 (a high-powered body that typically convenes seven times during its five-year term).

All of these arrangements mean the CPC retains a heavy influence on the planning process. But the actual task of drafting the final document usually goes to the Central Policy Research Office, arguably China’s top think tank. At this point the NDRC finalises the FYP based on CPC leaders’ recommendations. Following another round of public consultation, the final document is approved by the National People’s Congress (in the case of the legislature’s annual meeting in 2016, 2,778 members gave their assent for the 13th FYP with 53 vetoes and 25 abstentions).

The upcoming FYP – the 14th – has been no different, with the domestic press reporting how Chinese leader Xi Jinping has insisted on an even more active role in its drafting.

That’s not hugely surprising as Xi is widely held to have accumulated unprecedented authority by centralising power around his dual roles as head of the Party and head of state.

Between July and last month’s meeting of the Central Committee’s Fifth Plenum, he is said to have participated in seven seminars or inspection tours with a view to seeking input from scholars, entrepreneurs and the wider public. In a newer twist the State Council has set up an “advice-seeking office” – effectively an online platform that allows the public to submit its suggestions on China’s future direction. But the political narrative is that Xi is in charge and that he will be for some time to come.

How are Five-Year Plans typically announced?

A standard FYP spans 100 pages, although not all of the plans of the past have been made public. More recently the CPC has been keener to communicate the policy direction to the outside world. State media outlets now publish the full text of the planning document. When a new blueprint is paraded to the public, it comes with illustrative graphics on its key objectives, plus analysis of whether the strategic goals of the previous FYP have been achieved.

The Chinese government seems keener to publicise the plan to an international audience as well. Five years ago Xinhua, the state news agency, even posted an online video featuring a group of singers promoting the 13th FYP (in American accents) with the repeated lyric: “If you wanna know what China’s gonna to do, best pay attention to the shi san wu [13-5, i.e. 13th Five-Year Plan].”

What were the key focuses of previous Five-Year Plans?

Planners incorporate more long-term policy initiatives into the FYPs.

One illustrative example is the creation of the country’s high-speed railway network. In January 2004, the State Council approved the “Mid and Long-term Railway Network Plan”, which stipulated at least 100,000 kilometres of track by 2020. Prior to this point there were debates on the merits of railways versus toll roads in fostering economic development. Once these had been settled largely in favour of rail, a longer-term blueprint for the railway network was incorporated into subsequent FYPs. The scope of the railway plan was also expanded, according to the demands of the macroeconomic environment, such as the need for a spike in infrastructure spending following the 2008 global financial crisis.

By this July, China’s railway network was 140,000km in length, out of which 36,000km was high-speed rail.

Most of the goals in that long-term approach have been achieved despite the political disruption that occurred in 2013 when the powerful Ministry of Railways was dissolved and its erstwhile boss (a driving force of the high-speed rail push) was jailed for corruption. All the same, promoters of the planning process cite the railway’s rollout as evidence of its success, contrasting it with the inadequacies of the United States government in major infrastructure initiatives, where the four-year electoral cycle breeds shorter term thinking.

Another case study is telecoms, where China’s government learned the importance of developing and patenting new technology from the introduction of 3G. As early as the 11th FYP it was mandating nationwide internet coverage as a target for the telco carriers and it started to call for investment in the 5G-dependent ‘Internet of Things’ a decade ago in the FYP. Arguably, its longer term horizons for the 5G revolution can be correlated with the rise of a number of Chinese technology providers, most notably Huawei. In contrast, a lack of similarly strategic planning has left the US with no domestic contender capable of rivalling Huawei in 5G infrastructure – even though both governments were equally aware that the next-generation standard was going to be transformational in an array of sectors ranging from driverless cars to smart manufacturing (Washington’s belated strategy is an attempt to hobble Huawei through the imposition of semiconductor sanctions).

What’s in the latest of the Five-Year Plans?

Another longer-term national strategy called ‘Made in China 2025’ was written into the 13th FYP (2016-2020) with the goal of further upgrading the manufacturing sector and promoting tech innovation.

That said, the Chinese have largely gone quiet on the directive over the last two years amid escalating tech and trade rows with other governments.

Reports on the draft version of the 14th FYP in the state media suggest that it includes longer-range objectives that go through to 2035. With a whole chapter to be dedicated to technology development, expect a reworded version of the Made in China 2025 mission.

The presence of Wang Zhigang, minister of science and technology, at a press conference discussing the upcoming plan is also being taken as an oblique signal of Beijing’s determination to close the gap on its rivals in technological know-how. Wang revealed that it will be the first time that a FYP has dedicated a specific chapter to technology, as China makes self-sufficiency in science and tech a national strategy.

Previous plans have also included goals to become a world leader in electric car production – an area where the Chinese are already delivering. Expect another of the targets in the forthcoming plan to be a nationwide network of charging stations (a vision that will be embraced by the gigantic State Grid, even if it proves a lossmaker in the short term with huge upfront investment).

Likely to also make it into the plan: quantum technology. As we reported in WiC516 the Politburo’s most recent ‘study session’ – a key litmus test for future priorities – was on this area and how China needs to take the lead in this field. It is already ahead in quantum communications – technology that’s valued by the military for ensuring unhackable messaging – but the plan will likely emphasise a greater push in quantum computing where it still lags behind the US.

Another of the priorities in recent plans are the marking of the so-called “Two Centenaries”. These are the 100th anniversary of the CPC’s founding in 2021, when the Party has committed to achieving a “moderately well-off society”. Further into the future, the government is preparing for the 100th anniversary of the founding of the People’s Republic of China in 2049, by which time it will have delivered a “modern socialist country”.

Have the policy targets generally been met in the five-year timeframe?

The targets for the anniversaries are broad enough to allow for their achievement in almost any circumstances.

Then there are the “compulsory objectives” in the planning cycle, often related to social and environmental issues. For instance, all of the recent FYPs have drawn a ‘red line’ around the minimum availability of arable land at 186 million mu or more. Since the 13th FYP compulsory targets have also been created to measure progress in containing air pollution and improving livelihoods (including lifting more than 50 million people from poverty each year). These are targets that Xi Jinping and the Party leadership will be expecting to exceed.

The government also uses the five-year planning cycles to demonstrate how it is always preparing for the future and to show – better still – that things often work out according to its stated goals.

Often the government has delivered results in excess of the targets that it sets for itself and the economy. Starting from the 7th FYP (1986-1990), every plan projected a single-digit annual growth rate. Yet the economy ended up growing at more than or close to 10% in four of the five-year periods that followed.

Critics will claim that it was politically expedient for the authorities to exceed their GDP goals, which was probably true. That will be tested again in 2020, however. The average growth target for the 13th FYP was set at 6.5% so this year is likely to be the first time that a GDP target is missed.

In fact, many of the economic goals in the FYPs are classified as “indicative objectives”. And there has been talk that planners will drop the most totemic of the goals – the GDP growth target – in the upcoming FYP as part of the new emphasis on looking for a more qualitative improvement in the economy.

A communiqué published after the Fifth Plenum late last month proclaimed that Chinese GDP is still expected to exceed Rmb100 trillion ($14.9 trillion) this year, or more than double the size in 2010 (one of the targets of the 12th FYP).

There was no mention of how quickly the economy is then expected to grow, although the state news agency said it was “completely possible” for China to double its total economy by 2035. Last week’s communique also set the goal of raising GDP per capita to the level of a “moderately developed country” – another goal, but one that leaves room for flexibility.

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