China’s leaders face challenge of drawing up a five-year plan for an uncertain world

When China’s economic planners drafted the country’s last five-year plan in 2015, they said the international environment had “never been more complicated”.

They might have spoken too soon.

At that time, policymakers in Beijing saw the Trans-Pacific Partnership, a trade agreement proposed by the Barack Obama administration to lift trade standards among major economies, as one of their biggest headaches.

This year, with the collapse of the TPP – after Donald Trump pulled the US out – Beijing is faced with something much worse: across the board confrontational policies from Washington, technology ambitions choked by sanctions imposed by the US, and economic growth dragged down by overseas markets struggling to recover from the coronavirus pandemic.

Against that backdrop, Beijing will roll out a new five-year plan for 2021-25 at a key party conclave set to run from October 26-29, just a week before the presidential election in the US.

“China is seeing much more international uncertainty than when it drafted its last five-year plan,” said Shi Yinhong, an international affairs expert at Renmin University and an adviser to the State Council, China’s cabinet.

With strong headwinds on the economic, diplomatic and industrial fronts, the task of drafting the plan would be challenging, he said.

“We could say that it’s the most uncertain period for China’s international environment since 1976,” Shi said, referring to the year Mao Zedong died and the country began to promote a new market economy.

“On one hand, China needs to have some sort of long-term planning like setting a growth target, to avoid sloth among its lower-level officials, but it also risks making major adjustments if its plans are too detailed,” Shi said.

Despite mounting pressure on the diplomatic and economic fronts, China’s leadership has already hinted at some of its strategies for the years ahead, according to Deng Yuwen, a former deputy editor of Study Times, a newspaper affiliated with the Communist Party.

“With the dual circulation, the party is trying to build a boundary within which it feels safe from outside uncertainties,” he said.

“By ‘fixing the short planks’, Beijing is seeking to outcompete the US by fixing its most vulnerable spots in technology.”

Chinese President Xi Jinping said in May that a new “dual circulation” plan focusing more on the domestic market would be the strategic approach to surviving and thriving in an increasingly unstable and hostile world.

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But some observers have expressed doubts about China’s ability to shift its growth engine from state-led investment and exports to consumer spending without reforming its wealth-distribution system.

“Fixing the short planks” – as in making the slats of a wooden bucket longer so it can hold more water – is a trendy phrase among Chinese officials that refers to pouring resources into the weakest spots of China’s economy, including its hi-tech sector, which relies heavily on American components and knowledge.

Zhao Xijun, deputy dean of the school of finance at Renmin University in Beijing, said the next five-year plan would see dual circulation as the main approach to tackling uncertainty in the global market and confrontation from the US.

“All resources will be tilted towards the strategy, which sees the domestic economy as its priority,” he said. “It will mainly seek to make up for products that China is not yet able to make on its own, especially in areas that have been heavily restricted by the US.”

Following the announcement of the dual circulation strategy, Xi denied suggestions China was planning to close its doors to foreign businesses, but experts say the US-centric thinking about China’s opening up is set to change.

“China had been mostly centred on joining a US-led international order, but there has been a major change in the nature of Sino-US relations recently,” Zhao said.

Instead, China might seek to deepen cooperation with multilateral organisations the US is trying to distance, build closer relationships with the European Union and the Association of Southeast Asian Nations (Asean), and double down on its Belt and Road Initiative, he said.

In the general debate at the United Nations General Assembly last month, Xi reiterated China’s commitment to the Paris Agreement on climate change, which the US has left, and announced additional targets of carbon emission, including reaching carbon neutrality by 2060.

Beijing is also expected to sign the Regional Comprehensive Economic Partnership, a trade agreement with the 10 members of Asean countries plus Japan, South Korea, Australia and New Zealand, by the end of the year.

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It also said it hoped to sign another major investment agreement with the EU by year end.

China’s next five-year plan is likely to mention Hong Kong but not say too much about its role in Beijing’s grand strategy, according to Tian Feilong, a law professor at Beihang University in the Chinese capital.

“I think the central government has come to a conclusion that at this moment, there’s a lack of willingness for Hong Kong to participate in China’s grand strategies,” he said.

“But on the other hand, the national to-do list keeps growing and it might be a better idea to give the city some time to pull itself together first.”

Washington’s response to Beijing imposing a controversial national security law on Hong Kong in the summer added to the uncertainty as to what role the city would play in China’s grand strategy, Tian said.

Following the introduction of the law, Trump said Hong Kong was “no longer sufficiently autonomous” to enjoy differential treatment than mainland China. He also imposed sanctions against some of the city’s top officials.

As well as economic planning, the October conclave is expected to see the passage of a new regulation for the Communist Party’s Central Committee, which will concentrate the power of the party’s top leadership, according to the official readout from the Politburo’s meeting last month.

“This will undoubtedly provide a binding effect of the de facto power structure of the party,” Deng said.

“Part of Xi’s vision for modern governance is having laws or rules to abide by, but his personal power will also be embedded in them.”

The 2016 party plenum anointed Xi as the “core” of the party, giving him a status his predecessor Hu Jintao did not enjoy.

In 2018, the plenum proposed scrapping the presidential term limit and the motion was later passed.