Will the Chinese economy overtake us?

Beijing's new five-year plan : In which areas China wants to overtake the West by 2025

Over 200 members of the Central Committee sat close together in Beijing on Thursday as the four-day meeting for China's upcoming roadmap, the 14th Five-Year Plan, came to an end. The close amalgamation of the plenary, as shown by pictures in the state media, symbolizes what the Chinese leadership wants to expand in the years 2021 to 2025: Everyone must pull together. The most important points at a glance.

What is China planning to do?

The Beijing economic plan envisages that China will react less defensively in the future. The consequences of the corona pandemic around the world have accelerated this orientation, which has gained in importance under the head of state and party leader Xi Jinping. The country should become more independent from the rest of the world and at the same time gain more self-confidence.

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Xi wants to achieve this, among other things, by strengthening the domestic domestic market in particular. The Chinese economy is still too dependent on exports abroad and these could intensify, especially due to the ongoing global corona crisis, and thus become an uncontrollable risk for Chinese companies.

Therefore, Beijing has been strengthening the technology industry for years, whether it is cloud services, artificial intelligence or 5G. Any innovation that China could secure technological hegemony is often either promoted unbureaucratically or generously subsidized.

Because until 2025 the motto is that the People's Republic will become a “leading high-tech market”. The decisive factor will be whether China will be able to produce chips that it has developed in-house by then that can serve as a basis for the areas of artificial intelligence and autonomous vehicles.

What does that mean for the west?

Beijing has had painful experiences in recent months in the disputes with the USA over Huawei, Bytedance or the Internet giant Tencent. US President Trump had denied a number of Chinese technology companies access to American technology and put a stop to the social video platform TikTok from Bytedance and the messenger app WeChat from Tencent.

Semiconductors from the USA are no longer going to go to China in the future and punitive tariffs have been introduced, including for Chinese technology products, as well as measures to limit the number of Chinese companies on the New York stock exchanges.

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The “decoupling” of both countries does not just mean a shift in supply chains, if that is even possible. The trade dispute raises new geostrategic questions. Europe has to think carefully about where it wants to be when it comes to China and the USA, so that it does not become a “plaything between China and the USA”, as has been discussed more often in the western media recently.

Other countries in Asia are being wooed by China with the New Silk Road. The balancing act is to be there, but not to become too dependent on the loans from China.

Attack on Western Financial Markets

At first glance, issues such as China's financial market reform, which is currently being pushed ahead, and the opening of its markets look as if China is opening up to the world. So far, however, the five largest Wall Street banks had just 1.6 percent of their total investments in China and Hong Kong.

The former head of the Chinese central bank, Zhou Xiaochuan, once said that competition from abroad is helping China rise to the world class, as is the financial industry.

The first effects were not long in coming. "China's stock market is developing well compared to the global indices," remark the economic experts Max Zenglein, Maximilian Kärnfelt and François Chimits from the Merics think tank in Berlin in their latest report. "After a slump in the first half of the year, stocks are now up seven percent. The Chinese stock market has benefited from foreign capital inflows, a recovering economy, loose monetary policy and several large IPOs."

But even if China's economy appears to be recovering, it is being consumed more and more cautiously. Although the biggest driver is technology, people continue to work mainly in service sectors, which have hardly any contact with innovations there. Even if one has come very close to the goal of the five-year plan (2016–2020), which is now expiring, of achieving a society with “modest prosperity”, experts do not see this as a guarantee of long-term and lasting growth.

What kind of growth is expected?

While there have always been clearly quantified targets for economic growth in the past five-year plans, Beijing is unlikely to agree to any exact figures this time in view of the global crisis. After all, analysts expect framework data: "The leadership in China continues to expect that the size of the economy, household income and per capita GDP will reach a new milestone by 2035," said Raymond Yeung, chief economist for China at the Australian and New Zealand banking group .

"China has not given up the GDP target, it is only expressed more subtly," he told the Bloomberg news service. The next five-year plan will be similar to the previous ones. In the first and last year, it becomes clear how quickly and comprehensively the provinces implement the Beijing specifications.

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And a balance will be drawn before the end of 2025. The provincial governors beat each other in terms of speed again and again, especially in the first year, only to slow down the pace of implementation a little when Beijing no longer looks closely.

However, Xi Jinping has expanded his influence over the past few years and it will be difficult to gloss over things in front of Xi's inner circle of advisors. The pressure on the provincial governors will increase, and with it fear, if the goals set by Beijing appear unattainable.

Earlier this month, Xi Jinping toured southern Guangdong Province, where the major industrial sites are. It was once called “the workbench of the world”. He repeated Deng Xiaoping's trip from 1992. This is symbolic, because Deng's message, almost 30 years ago, was that China had to accelerate its economic opening to the world. Xi Jinping builds on this, but is now calling for technology leadership. The plan is to overtake the West with its own reforms and slowly let it become dependent on China.

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