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China’s leaders have vowed to reduce its reliance on foreign advanced technology and boost strong domestic demand as it faces “headwinds” amid rising trade tensions with the US.
an outline of the decision Communist PartyThe blueprint for the next five years was laid out in a 5,000-word communique issued on Thursday after the four-day top-level meeting. BeijingJust days before the planned talks between the Chinese leader Xi Jinping and US President donald trump,
Five-year plans are reminiscent of the days of Soviet-style central planning. China still relies heavily on them to set policy priorities and decide on funding. Party “plenum” meetings held this week are also used to rally party cadres around Xi’s leadership.
Thursday’s announcement did not indicate any major policy changes. Despite rising trade tensions, China intends to remain a global manufacturing power while maintaining strong economic growth domestically.
China got confidence from trade war
A release issued by state media said China was facing “profound” changes and increasing uncertainties.
It does not directly mention the trade war between Beijing and Washington, but warns of growing “uncertainties and unpredictable factors.”
It says, “We must proactively identify, respond to and drive change… and dare to face strong winds, choppy waters and even dangerous storms.”
Han Wenxiu, a senior party official who oversees policymaking on financial, economic and rural affairs, told reporters on Friday that China is well prepared to handle such risks, adding, “There is always opportunity in crisis and crisis can be turned into opportunity.”
Chi Lo, Asia Pacific senior market strategist at BNP Paribas Asset Management, said the emphasis on substantially improving scientific and technological self-reliance reflects the belief that China is less vulnerable to trade war pressures.
Leah Fahy, China economist at Capital Economics, said the party has vowed to achieve “much stronger” international influence, economic and national strength by 2035, and “protect the multilateral trading system”, portraying Beijing as a defender of free trade.
Domestic economic challenges remain
China’s communique stressed the need to build a “strong” domestic market by boosting domestic demand and increasing consumer spending.
The slowdown in the property sector began when China was still amid disruptions from the COVID-19 pandemic, which has eroded consumer confidence, hit household wealth and led to mass layoffs.
To try to increase demand, the government has encouraged investment in more modern factories and equipment and paid subsidies to people replacing old equipment and vehicles with new equipment. But manufacturing capacity exceeds demand in many industries. This has led to damaging price wars and prompted companies to promote exports, resulting in increased trade frictions.
Despite strong government support, the economy grew 4.8% last quarter, the slowest pace in a year. And official data showed factory activity declined for the sixth consecutive month in September as domestic demand remained sluggish.
China’s leaders have set their goal of achieving “medium-level developed country” status and doubling the size of the economy in 2020 by 2035.
That means an average annual growth rate of about 4-5% over the next decade, said Lin Song, chief economist for Greater China at ING Bank.
China will remain a manufacturing giant
China is the world’s largest manufacturer, accounting for about 30% of global manufacturing output and about a quarter of its overall economy. According to the release, the new 5-year plan calls for keeping manufacturing at a “reasonable level” while keeping advanced industries as the backbone.
This signals that China’s focus on manufacturing “will remain a top priority even in the event of overcapacity (and) price wars”, said Capital Economics’ Lia.
Over the past few years, Chinese manufacturing has progressed from labor-intensive, low-cost production to high-value products including electric vehicles, robotics and batteries. Robin Jing, chief China economist at Morgan Stanley, said the emphasis will be on advanced manufacturing in the coming years.
This includes areas such as quantum technology, biomanufacturing, hydrogen and nuclear fusion energy, artificial intelligence and next-generation mobile communications, said Zheng Shanjie, head of the National Development and Reform Commission, Beijing’s main planning agency.
“These industries are poised to move forward,” Zheng said. “This means that over the next 10 years we will build another high-tech industry in China and this will provide a continued boost to our efforts to achieve Chinese modernization.”
Zheng said building a strong domestic market is a strategic priority.
“The economies of major countries are driven by domestic demand and the market is the most scarce resource in today’s world,” he said.
It is unclear whether China’s commitment to spur more consumer spending and domestic investment will have much of an impact on its exports.
According to Morgan Stanley, China’s share of EV sales globally is set to reach 46% in 2023, and major Chinese companies such as BYD and CATL have taken global leadership positions in battery technology and production.
China plays a key role in strategic control of global supply chains and access to rare earths, materials used in many products.
“The Chinese government views manufacturing as a core issue in security and geopolitical leverage over other countries,” said Gary Ng, a senior economist at Natixis.
Xi continues centralization of power
There was relatively low attendance at the four-day Plenary Session.
According to the release, the elite Communist Party Central Committee had only 168 of its 205 full members, along with 147 of its 171 alternate members.
This shows that “an unprecedented share of Central Committee members are in political crisis” amid Xi’s deep purge within the party, said Neil Thomas, a fellow at the Asia Society Policy Institute’s Center for China Analysis.
The largest personnel change was the promotion of General Zhang Shengmin to China’s second highest-ranking general. He replaces He Weidong, who was ousted from the party along with eight other senior officials in Xi’s latest anti-corruption campaign.
The changes signal an emphasis on political loyalty and anti-corruption under Xi, said Sun, of King’s College London. As the party continues to centralize power, “the political situation faced by Xi and his dominance within the party are still relatively secure,” Sun said.
___ Wu reported from Bangkok and Moritsugu reported from Beijing. Associated Press researchers Yu Bing and Shihuan Chen in Beijing contributed.