Why economic rebalancing will be at the heart of China’s next five-year plan

As Beijing seeks high-quality, more efficient and fairer development, rebalancing is likely to be key, especially given the increasingly complicated international environment

To achieve this, China may well advocate further marketisation reforms, while continuing to support the development of strategic sectors

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A 5G network tower on a street in Beijing on April 7. So-called new infrastructure such as 5G, smart power transmission and high-speed railways are expected to replace highways, airports and other traditional forms of infrastructure as investment targets in China’s next five-year plan. Photo: AFP

Published: 9:45pm, 18 Sep 2020Updated: 10:23pm, 18 Sep 2020

Profound adjustments will be called for in China’s forthcoming five-year economic plan as the country seeks to promote sustainable, high-quality development. The plan, covering 2021 to 2025, will be discussed and approved at the Fifth Plenum of the 19th Communist Party Central Committee in October.

China has produced economic development plans every five years since 1953. The planning style has evolved during China’s transition from a planned economy to a market economy. In the early days, the government set detailed quantitative rules to help establish an industrial system from almost zero. Gradually, the focus has shifted to strategic guidelines while increasingly relying on market mechanisms to achieve development goals.

In the most recent five-year plan, China achieved its objective to build a “moderately well-off” society. The target for the new plan has been upgraded to achieve high-quality, more efficient, fairer, more sustainable and safer development.

Rebalancing is expected to be the essence of the new plan, set against the backdrop of an increasingly complicated international environment in which it is critical for China to guarantee self-sufficiency in strategic resources including food, energy and technology. This requires large-scale, continuous investment in those sectors, in addition to policies focused on rebalancing between external and internal sectors, traditional and innovative sectors, and consumption and investment.

China’s latest policy proposal to establish a “dual circulation” development model reflects the government’s desire to rebalance between external and internal sectors. Food, energy and semiconductor chips are key categories on China’s import list. In the new five-year plan, guidelines might be proposed to enhance self-sufficiency of these products by securing domestic supply and improving efficiency.

Beyond industry-specific policies, the government might leverage fiscal measures to promote the development of inland provinces. Central and western provinces might receive more funding from the central government, which could be used to support urbanisation projects and public-service spending.