China’s Planners Succeed, but What About China?

Trustee Chair in Chinese Business and Economics  >  Trustee China Hand
 
By Scott Kennedy  

China is in the midst of drafting its 14th Five-Year Plan (2021-2025). The Chinese Communist Party (CCP) adopted the general Proposal at its 5th plenum in late October, and the full plan will be adopted in March at the next annual session of the National People’s Congress (NPC). But before getting overly focused on the future, let’s reflect on the recent past. We are just over one month away from the end of the period covered by the 13th Five-Year Plan (2016-2020), and so it is an excellent time to take stock of what has occurred.

As we wrote in a 2016 CSIS report, Perfecting China, Inc., the 13th Five-Year Plan (5YP) was the first adopted on Xi Jinping’s watch. There was a question of whether it would reflect the more liberal philosophy of the 3rd plenum held in 2013, which emphasized the market as the primary determinant of the allocation of resources, or if it would be more in line with the “Made in China 2025” strategy adopted in 2015. It turned out to be definitively more consistent with the latter. Xi set about trying to restructure the economy but not the role of the party-state, which is as interventionist as ever.

Although advocates of free markets are rightly disappointed about China’s direction, it’s still useful to assess the country’s economic performance in light of the goals it set out in 2016. The Trustee Chair will provide a more comprehensive assessment when the full 14th FYP is unveiled in the spring, but we can begin by evaluating their record in relation to their own targets. And if you do so, at least on paper, their performance looks impressive.

Notes:
^* [Brackets] indicate numbers are cumulative over the five-year period.
^** By 2017
^{^} By 2018
^{^^} From January to September 2020

The 13th 5YP has 33 top-line quantitative targets, up from 23 in the 11th 5YP (2006-2010) and 28 in the 12th 5YP (2011-2015). The growth in numbers is almost exclusively due to the increase in targets related to the environment, with 8 in the 11th 5YP, 12 in the 12th 5YP, and 16 in the 13th 5YP. (For more on China’s five-year plans, see our microsite.)
 
In the 1980s and 1990s, the results were a mixed bag, with a number of metrics not being met. Since the 11th 5YP, there’s been a clear uptick in compliance. 20 of 23 metrics were achieved in the 11th 5YP, and all 28 were met in the 12th 5YP. That may partly be a product of setting more achievable targets and making sure the official numbers “add up,” but there are also strong bureaucratic incentives to reach the targets. So we should not chalk this all up to fakery.
 
The story with the 13th 5YP is similar. Based on the data we were able to find – authorities have not published a full update – it appears that China has a lot to crow about. It has already met 24 of 33 targets a year early and is on track to meet 7 others. China has met or is expected to meet all of the targets for social welfare and the environment and resources.
 
At the same time, it is worth discussing how these targets were chosen and their quantitative levels set, as well as why other targets were not selected. If I had to zero in on the most controversial, it would be the “science & technology progress contribution rate.” This data point measures the gross contribution of high-tech activity to the economy, but it is not as valuable a metric as total factor productivity (TFP), which authorities intentionally left out because they were less certain the target could be met. Independent studies show that China is struggling mightily to raise productivity.
 
Relatedly, the two targets China is unlikely to meet in the 13th 5YP are potentially quite revealing about the difficulties of guiding the economy through major transitions. Services as a share of the economy has not grown as fast as planned, which implies that household consumption also has not risen as fast as hoped. A key goal of this plan was to make growth less dependent on investment and more reliant on consumption. That has not occurred, and the pandemic (which the data here do not include) likely makes that transition more difficult. In addition, R&D spending is high for a country of China’s per capita income, but as a share GDP, it has not risen as fast as planned. Such resources, wisely allocated, is central to another needed transition, shifting economic activity from low-value added to high-value added segments of the supply chain.
 
In short, although achieving so many individual targets is admirable, the challenges with services and R&D raise questions about whether China is on a path to escape the middle-income trap. More generally, China’s performance record with respect to their official targets should be the start of the conversation, not the end.
 
Scott Kennedy is Senior Adviser and Trustee Chair in Chinese Business & Economics at the Center for Strategic & International Studies.

Related Trustee Chair Activity

Report: Scott Kennedy and Christopher K. Johnson, Perfecting China, Inc., May 2016.
 
Microsite: Perfecting China, Inc.
 
Event: “Perfecting China, Inc.: The 13th Five-Year Plan,” May 23, 2016.
 
Critical Questions:  Jude Blanchette and Scott Kennedy, “China’s Fifth Plenum: Reading the Initial Tea Leaves,” October 30, 2020.
 
Event: “Doubling Down on China, Inc.: An Initial Analysis of China’s 14th Five-Year Plan,” November 12, 2020.