China's next economic transition: What economists say about the 5-year plan

Economists zeroed in on China's focus on quality economic growth and its technology ambitions in the 14th five-year plan released Thursday.

A communique released after a four-day meeting of the Communist Party’s Central Committee gave a broad outline of the plan as well as sketching out a vision for the economy as far as 2035.

Here’s a look at what economists are saying about the plan:

Quality Growth

The communique implied an aggressive path of economic expansion without mentioning the pace of gross domestic product growth explicitly. The previous five-year plan in 2015 had outlined a goal for medium-to-high growth.

Thursday’s statement “said that China’s GDP per capita should match the level in moderately developed countries by 2035,” economists at Australia and New Zealand Banking Group, led by Raymond Yeung, wrote in a note. “Although no specific figures or names were mentioned, a reasonable expectation is that China will aim to reach GDP per capita levels similar to that of South Korea, Israel, or Spain over the next 15 years. The GDP per capita of these countries are $35,000-40,000 in today’s prices, compared with China’s $10,261 in 2019.”

What Bloomberg Economics Says...

Though the plan doesn’t mention a numerical growth target, “it requires significant enhancement in the quality of the economy, reflected in innovation, more advanced industrial fundamentals and a more modern economic system. To achieve these, it emphasized tech innovation, supply-side structural reform, dual cycle.”

-- David Qu, China economist

Innovation Push

UBS Group AG said the focus on technology and innovation will accelerate an industrial upgrading.

“We think China may target a higher spending in R&D (possibly 3% of GDP by 2025) and education in the new five year plan,” UBS economists Wang Tao and Ning Zhang, wrote in a note. “In light of tech restrictions, China may allocate more resources to fundamental and frontier research, and technology bottleneck areas.”

On its digitalization plans, “we think China will invest more in its “new infrastructure” including 5G networks, AI and data centers in the new five year plan,” the economists said.
 

Opening Up

China pledged to continue opening up its economy and to take it to a “higher level.”

“The fifth Plenum called for international collaboration through high-level opening up,” Barclays Plc economists led by Chang Jian in Hong Kong wrote in a note. “The communique called for promoting trade and investment liberalization, advancing the “Belt and Road” high-quality development, and actively participating in the reform of the global economic governance system.”

The commitments are in line with recent comments from President Xi Jinping, who says China must actively cooperate with all countries, regions and enterprises, including with those in the U.S., the economists wrote.

 

Domestic Demand

China’s focus of raising domestic demand to achieve more sustainable growth means “boosting total factor productivity and rebalancing economic development across sectors/regions,” economists at Goldman Sachs Group Inc. wrote in a note.

“Although the Chinese government has been calling for a transition in the development model for a number of years, given that the broad external and domestic environment has changed, we think the government is likely to accelerate the pace of relevant reforms in the next five years, to achieve sustainable, balanced and high quality growth and enter the high income group from the upper middle income group.”