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Economic Update

2020/11/02

Higher Quality of Growth Emphasized in the Next Five-Year Plan

The 19th Central Committee of the Communist Party of China has concluded its fifth plenary session in Beijing, laying out the framework of the 14th Five Year Plan – a blueprint for the nation’s economic and social development in the next few years – as well as ambitions for the longer term.

In contrast to the 6.5% average annual GDP growth target set for 2016 to 2020 in the 13th Plan, there is no specific growth target this time, a move which could help prevent the unintended consequence of over-investment and inefficient resources allocation.

Amid challenges such as mounting national debt, pollution and conflicts with the U.S. on multiple fronts, China is targeting to achieve “sustained and healthy” economic development. With an emphasis on higher quality of growth, the country, which is set to be the only major economy to grow this year, aims to boost its GDP per capita to the level of moderately developed countries by 2035.

Few expect to see a major change in Washington’s tough stance towards China, no matter who wins the U.S. presidential election on 3 November. Democratic candidate Joe Biden has pledged to coordinate with allies to pressure Beijing through the multilateral organisations that Donald Trump has little interest in.

With the supply of foreign goods – from agricultural commodities to processor chips – becoming less secure, pivoting towards self-sufficiency is perhaps more important than ever. The Plan promotes a “dual circulation” model as the strategy to reduce the country’s dependence on overseas markets and technologies, through spurring domestic demand and supporting local technological innovation.

But, make no mistake, this is not to suggest that China will become more inward-looking. The Plan stresses that China will continue to broaden foreign access to Chinese markets. In fact, a number of U.S. financial institutions have recently been given approval to expand their businesses in China. By the end of August this year, the amount of Chinese onshore bonds held by foreign institutional investors rose to 2.8 trillion RMB, up by more than 600 billion RMB from a year earlier.

Full details of the 14th Five Year Plan will be unveiled by early next year, when the Plan will be formally approved during the annual meeting of the National People’s Congress.

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