CHINA FIVE YEAR PLAN: PROS & CONS

Every year on March, Chinese Government’s one and only party, the Communist Party of China holds their annual meeting. Hey ho, thanks to this meeting, foreigners cannot access Google, Facebook, Instagram and other things, except Chinese websites. Anytime government has important events, they tighten their what so called “Great Wall“, that the VPN (a network to break the “Great Wall” so that we can open our beloved Google) cannot pass through.

The Congress

In the meeting or congress, they’re discussing many important things, including their policies and plans for the future. How important China is to the world plus the big waves that hit China recently, in this article we’ll discuss the pros vs cons or the benefit vs risks of the fresh made China five year plan. (Read the article about their plan to boost the economic growth here)

Above 6.5% Average Growth

What do you think? Is it possible? Above 6.5% average growth target for the period and doubling the size of its economy and per capita income by 2020 from the 2010 baseline.

Nobody says it’d be easy… Based on its “Made in China 2025” agenda, China is moving forward to quality, not quantity. But, there are piles of unfinished problems such as industrial overcapacity, a backlog of unsold houses, mounting government debt and subdued global demand cannot be solved overnight. Many economic analysts have been asking “Why the speed, China?”, instead they suggest China to breathe and address other priorities, such as restructuring state-owned enterprises, curbing wasteful investment and environmental protection.

For year 2016, which is this year, government set the growth target between 6.5 and 7%. They also reduced the weighting of GDP when assessing the performance of local officials. Besides, China also has committed to lay off 1.8 million workers in the “zombie enterprises” of the bloated coal and steel sectors. Don’t worry, regarding this decision, government has prepared 15.3 billion U.S. dollars to help those workers.

Matters of Luck?

President Xi and Premier Li

An international corporate strategist said that the dramatic development could cause common problems plus placing China in the midst of contradictions and challenges. Ideally, new growth drivers should grab the baton from old ones and propel growth seamlessly. But, in reality, Chinese domestic consumption and services haven’t been mature enough to pick up the slack.

Supply-side reform, innovation, technological upgrades, market competition, more efficient state-owned enterprises and low fossil-fuel dependency made China five year plan fully stuffed. China’s expenditure on research and development in the next five years will take 2.5% from the GDP, paying more attention on deep space exploration and robotics.

Chen Qihua, chairman of Caterpillar China, said the higher premium China has placed on innovation, smart manufacturing and energy saving means more collaboration opportunities for the company. He added that we have see in the long term perspective and we have to be patient. Innovation needs time, it’s not instant. Remember that innovation cannot be legislated and innovation-based economy must accept failure as a necessary part of the process.