Part of theQuick Takes
As we wait with bated breath for the Biden Administration to unveil its China policy, today’s kick-off of the annual meeting of China’s National People’s Congress (NPC) is a good reminder that China is moving full-steam ahead on a radical economic transformation – regardless of what the U.S. does.
The NPC and the concurrent China People’s Political Consultative Congress (CPPCC) – collectively known as the “two sessions” – begins on March 4 and will be only one week this year, versus the regular two weeks. The top items on the agenda will be post-COVID recovery and passing the 14th Five Year Plan for the economy, which outlines the economic plan for 2021-2025. In China, these plans and subsequent policies key off of the propaganda buzzwords du jour. It is important as companies develop a long-term strategy in China to understand what these actually mean. If you can place your goals into China’s context, it is often easier to get traction on those goals. Therefore, we thought it would be handy to have a cheat sheet for all of those buzzwords that boils down to what they really mean.
New Development Concept (NDC)
Laying the theoretical foundation for the 14th Five Year Plan, President Xi Jinping first introduced the New Development Concept in 2015. The NDC prioritizes “five developments”: innovative, coordinated, green, open, and shared. These are the lofty goals rather than the policy. “Innovation” is broad but translates to the push for self-reliance in technology. And “coordinated” means reducing inequality in China across a spectrum of issues, such as uneven growth rates among the provinces and unequal income distribution. Economic benchmarks will be oriented around this framework.
To further highlight the priority placed on innovation under the NDC, Chinese leaders began talking about Innovation-Driven Development during the Communist Party’s (CCP) 5th Plenum last October. In fact, it was the first item listed in the Communique released after the meeting. At its most fundamental level, the goal is science and technology self-reliance. This priority gained new momentum after the Trump Administration took drastic action to limit Huawei and ZTE’s access to semiconductors, thus highlighting a major vulnerability for China’s tech sector. Policy-wise, this framework will translate into efforts to support and reward companies that innovate and to support and promote talent in the science and technology fields.
The most widely analyzed and mischaracterized policy of the new economic lexicon, DCS, was unveiled at the Politburo meetings in May 2020 by President Xi. The dual circulations are domestic and international, and the goal is for them to reinforce one other mutually. Many have interpreted this policy, which is the guiding macroeconomic framework, as China turning inward because of the focus on boosting domestic consumption and becoming tech self-reliant. But Chinese officials have said the policy by no means closes China’s doors. Instead, they describe DCS as inoculating the economy against “external shocks” such as rising protectionism, global economic downturn, and shrinking global markets. They emphasize their concurrent efforts to open new sectors and markets to foreign investment by citing the dramatic reductions to the Negative List, which lists sectors closed to foreign investment. Also, China has announced significant market openings in services.
Last month, the Chinese government celebrated the eradication of extreme poverty, so now the work shifts to rural revitalization. This is a multifaceted policy geared toward boosting rural economies and preventing any backsliding. It includes attracting talent to the villages, encouraging rural consumption, and agricultural innovation and research. For decades, the annual “No. 1” policy document released by the government details the goals for rural China, signaling how the countryside remains a priority to the leadership. This year’s document notably includes rural revitalization benchmarks for Party cadre performance evaluation, which means if you are a local official, your promotion now depends on metrics related to implementing rural reforms. For every single policy released by the central government, the greatest challenge is getting the local leaders to implement policy. This new criterion is meant to tackle that challenge. Rural revitalization has earned its own administrative unit in the government to oversee the initiative. The Leading Group on Poverty Alleviation was upgraded in February to the National Administration for Rural Revitalization, which will be a vice-ministerial level unit under the State Council.
Chinese leaders often employ enumeration in their hallmark policies, and the current reigning example is the six stabilities and six ensures. This is another broad policy framework that incorporates domestic, international, micro, and macro policies. The stabilities were introduced first in response to the U.S. trade frictions and are described as being overall protection to the Chinese economy. The six priorities are stability in: employment, finance, foreign trade, foreign investment, domestic investment, and market expectations. The ensures were added in April in response to the pandemic, and the Chinese government describes them as the “bottom line” for precise measurements of policy and progress. But they are best interpreted as indicators of what tops the Chinese leaders’ concerns. They include ensuring employment, basic livelihood, market entities, food and energy security, supply chain stability, and the functioning of grassroots institutions.
President Xi dominated headlines at last year’s UN General Assembly meeting with his announcement that China would be carbon neutral by 2060. The carbon peak will be 2030. An ambitious goal that is in the process of being fleshed out, this bold move further reinforces that China is serious about climate and sees tackling climate as a global political strength. The policy focus will be on targets for reducing emissions and more systemic issues like promoting green finance and green supply chains. Climate is being talked about publicly as the premier area for international cooperation not only with international governments and multilateral institutions but also with foreign companies. But there is also the potential that the competition with China extends into the green space, particularly in green tech.
New policy constructs are trotted out constantly as the global context shifts. Taken together, these frameworks are interconnected and overlapping – and sometimes downright confusing as the government invents new ways to talk about the same things. However, at their core, these buzzwords all reinforce the fundamental premise that China is embarking on economic transformation grounded in boosting domestic consumption, maintaining foreign trade, winning the race to dominate transformational technologies, cleaning up the environment, and keeping the countryside happy.