China Research

Recently, China held its fifth session of the 18^th Central Committee of the Communist Party, dealing with the 5-year plan for 2016-2020. Some results and plans deserve attention. Particularly striking is again that the Chinese political leaders focus on specific contributors to economic growth (GDP) and the quality of GDP growth. Quite a number of Chinese growth aspects could actually be picked from textbooks in economics from our part of the world.

Altogether, many intentions are good. However, three questions remain:

• How much of the plans can be achieved?
• Where and how do we find the evaluations of most plans? (Probably only by news picking).
• Can we rely on the achieved and published results?

In this brief blogg, I would like to focus on a few details from the 5-year plan:

1. GDP growth down
   Chinese leaders want to achieve at least 6.5 percent on average when it comes to GDP growth during 2016 and 2020 (in order to meet the objective to double GDP per capita between 2010 and 2020). Such a growth number would mean some official downsizing of GDP projections – but would be still quite alright (if we for a moment trust GDP statistics). President Xi Jinping pointed strongly at the importance of improved growth quality. This is in principle the right approach – but has not yet reached global financial markets. Will this analytical neglect ever change?
2. Poverty relief
   Today, still 70 million people are defined as poor by the Chinese. The official plan is to wipe out defined poverty completely by 2020.
3. More people to join middle-income class – green development, health and fight against corruption emphasized as growth factors
   Interdisciplinary policy approaches gain obviously momentum. Theoretically clearly a good orientation toward a better future.
4. Financial reforms
   In our last blog, we have already clarified that China only gradually will move toward a fully convertible currency; it could even last more than five years. It should also be mentioned that ambitious plans exist of a ”transparent and healthy capital market”. What will be the definition of ”transparent”?
5. FDI
   It should be noted that foreign direct investments (FDI) still receive official priority, both from abroad and by the Chinese to other countries.

Addendum:

Particular attention has been paid by political leaders during and after the congress to innovation and China’s new 2-children policy – both factors being considered as very important to future economic growth. This is certainly theoretically the right conclusion. However, we need to wait for developments in reality to see more exactly the real impact on China’s future GDP-growth trend.

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
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