Beijing’s big bet on self-reliance

On March 12, China firmed up its roadmap for a changing world order by introducing its 15th Five-Year Plan (FYP), which is set to be completed by 2030. In light of the intensifying strategic competition with the United States, Beijing is trying to rejig its domestic sector towards technological self-reliance and enhancing domestic demand. A marked shift is its great-power ambition, reflected in its slogan of “leading” the global order, compared to its previous agenda of active participation in globalisation.

Beijing is taking a cue from the loss of the Panama Canal projects, energy contracts in Venezuela, and disruptions in Ukraine and Iran, by domestic balancing efforts. Even though the country had lowered annual economic growth rates to about 4.5-5%, it is preparing for long-term strategic competition with the US by first reducing external vulnerabilities and by enhancing “new quality productive forces”.

As with the 2022 Communist Party Congress, which focused on national security, the 15th FYP underlines preparedness for “high winds and rough waves” as “geopolitical conflict [became] more frequent”. China has called for the protection of its “overseas interests” and steps to counter Western sanctions and “long-arm jurisdiction”. Where the FYP talks about striking the Taiwan independence “separatist forces”, there is a clear tilt towards geo-political and security issues in an otherwise economy-focused roadmap. Ironically, Taiwan supported China’s semiconductor and other advanced technologies over the past few decades.

The FYP’s focus, generally, is on short- to medium-range preparation in the economic and, more recently, technological fronts. China’s centralised party-State has relied on the FYPs for redirection of capital and resources to different parts of the country and to different sectors. Given the power competition with the US, and set against local debt, ageing, and real estate worries, the country is redirecting its resources towards ten core new industries, including drones, quantum technology, embodied AI, brain-computer interfaces, 6G, and semiconductors.

Since China opened up its market to the US, Europe, Japan, Korea, and Taiwan from the late 1970s, it has absorbed technologies and investments. While becoming acutely dependent on foreign critical technologies, it reports more than 72% of the global EV production, and holds more than half of the global steel, cement, and aluminium products. An unintended consequence of this approach has been the dumping of such overcapacities in markets abroad, often with heavy State subsidies. The world needs to brace for such trade surpluses.

The current FYP demands a “whole of nation” approach to reduce dependence on external sources for such technologies, while calling for self-reliance. However, it would be incorrect to view this approach as going back to the Mao-era import-substitution policies, as China is still dependent on the world markets for exports. The leadership is preparing the country to resist sanctions and tariffs.

The FYP’s targets for 2030 are audacious, but when compared to the previous plan, are incremental in nature. For instance, China wants to raise its digital economy’s value addition to 12.5% of the GDP, increase its R&D spending by 7%, and reduce carbon intensity by 17%, while increasing renewable sources of energy by a quarter, by 2030. These are marginal increases compared to the 14th FYP targets. Even though China has remained the world’s manufacturing hub for the past 16 years, it now intends to accelerate technological breakthroughs through innovation, as its total factor productivity has declined from 3.5% two decades ago to about 1.5%.

The current FYP reflects the ever-increasing demands of the party-State from the Chinese society, which has consistently faced turmoil over the past seven decades. Such demands are straining the social fabric, with the urban youth unemployment now estimated at 41%. The discontent is reflected in a generation that is not convinced of, and hence decries, the party-State vision. The call for long working hours is also sapping the energies of a generation that is inclined to exhibit its dissatisfaction through a slowdown.

Also, for an economy of nearly $20 trillion, domestic consumption is only above $7 trillion, less than 40% of the GDP, while global averages are around 60%. This lends context to the slogan for “vigorously boosting consumption”. In the 14th FYP, China was positioned to shift from an export-oriented economy towards one driven by domestic consumption – this was aimed to ensure sustainable development. The vision, extended to the current plan, is credible but will continue to be tested by weak consumption, caused by a host of structural issues.

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.