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China - 13th Five-Year Plan 2016-2020

Issued by the 18th National People’s Congress on 14 February 2016, the Thirteenth Five-Year Plan for National Economic and Social Development of the People’s Republic of China (referred as the 13th Five-Year Plan) determined that China should uphold the philosophy of innovative, coordinated, green, open and shared development. It put forward the goals and tasks of economic and social development in the next five years. The implementation of the 13th Five-Year Plan will not only advance China’s growth into a new stage, but also create more opportunities to deepen cooperation around the globe.

The 13th Five-Year Plan sets the goal of keeping the average GDP growth rate above 6.5% in China in the next five years, whose realization is doubted by some people at home and abroad. This Five-Year Plan covers critical years in China’s necessary rebalancing from investment to consumption-led growth.

Given its need to lower the high rate of investment, China must see a significant and sustained increase in household consumption in order to support domestic demand and avoid too rapid a slowdown in the economy. China has the policy tools to support growth, especially through fiscal policies aimed at promoting consumption. Such measures include strengthening the social safety net with increased dividends from state-owned enterprises (SOEs); lowering consumption and payroll taxes; and cutting the value-added tax.

Some analysts suggested that an additional or alternative response to the slowdown could be to once again look to export markets to fuel growth, including by boosting competitiveness through a weaker exchange rate. Such an approach, however, would conflict with statements by Chinese leaders, who sought to reassure markets that the underlying fundamentals of their economy do not warrant continued RMB depreciation. Indeed, currency appreciation, alongside other measures, is essential to supporting a meaningful shift in China’s economy away from investment and exports toward greater reliance on household consumption. Similarly, relying – as in the past – on large-scale public investment projects fueled by bank credit to support growth could threaten to postpone or even derail rebalancing efforts.

Significant achievements have been chalked up in China’s modernization drive since the reform and opening-up. The past three decades saw how China became a country with middle and high income from low income, with per capita GDP nearly $8,000 in 2015, which, nonetheless, is four to six times less than that of the advanced economies. So there is still a long way to go before completing China’s modernization drive. The fact that it is not finished implies much room for China’s investment and demand to grow. With respect to the capital stock, China still has much room for the growth of investment demand. At present, capital stock per capita in China is less than 1/5 of that in the United States and only a quarter of that in Japan, meaning China’s modernization drive still requires a lot of capital investment in such fields as upgrading traditional industries, fostering new industries, creating infrastructure network within and among cities, advancing modernization drive, and promoting the development of rural and underdeveloped areas.

When it comes to current consumption, demand will greatly grow in China. At present, final consumption expenditure per capita in China is less than 1/14 of that in the US or 1/9 of that in Japan, suggesting China, in order to complete modernization drive, has to create more and more products and services for people’s growing demand. With regard of labor supply, China’s transformation of development mode is being backed by high-quality population. For one thing, China faces severe challenges like the decreasing number of labor and rising labor costs; for another, at the catch-up stage of industrialization, China has cultivated various specialized personnel suitable for the world’s complete industrial system. It produces more than 7 million college graduates and over 2 million graduates of adult higher education every year.

In the 13th Five-Year plan period, advancing the new type of urbanization with Chinese characteristics alone will create immeasurable demand for investment and consumption. In 2015, China’s urbanization rate reached 56.1%, but population with registered urban residency only accounted for less than 40%. There is a big gap between China and developed countries or even some developing ones in the extent and quality of urbanization. Therefore, the Chinese government attaches great importance to this, and the 13th Five-Year Plan proposes to raise the two figures to 60% and 45% respectively by 2020. To reach this goal, there will be another 55 million urban residents and some 70 million people with registered urban residency in the next five years, which will no doubt bring a huge amount of demand for investment and consumption. Second, China has not only enormous potential to grow, but also macroeconomic regulation and policy instruments facilitating the release of the potential. This can be proved by past experience that China succeeded in the reform and opening-up during the past 30 years.

China has maintained an average economic growth rate of 8.4% and made the greatest contributions to global economic growth during the eight years since the 2008 global financial crisis. It will also be proved by future practice that China will implement strategies and measures of the 13th Five-Year Plan. Specific details are as follows. China could take advantage of proactive fiscal policy to expand total demand of the society and invigorate the market. The Chinese government is always cautious about fiscal deficit, thus capable of implementing more proactive fiscal policy. In 2016, China will act this way, designing a deficit of 2.18 trillion yuan, 560 billion yuan more than the previous year, and a deficit ratio up to 3% for the first time. This is a major measure that the Chinese government allows fiscal policy to play its role in expanding total demand of the society, reducing tax burden on enterprises, and invigorating the market.

China could improve the flexibility of monetary policy, reduce the cost of social financing and increase market liquidity. Unlike other major economies, China has been carrying out prudent monetary policy in the face of the financial crisis and economic downturn. The current lending and deposit benchmark rates, especially the former, are significantly higher than those of other economies and can be reduced. In addition, China has the most foreign exchange reserves, arriving at $3.3 trillion at the end of 2015, which will provide effective means and lay a solid foundation for stabilizing RMB exchange rate, inhibiting excessive volatility in financial markets, and creating favorable market expectations and development environment.

China could optimize allocation of resources and improve productivity, with the help of more scientific industrial policies, which are important means to guide and promote economic development in many countries. Besides, it is also common to set up industrial development guide funds as an important tool of industrial policy. China’s central government has set up funds for developing small and medium enterprises and for starting and investing in emerging industries, etc. With more financial resources and new requirements for industry development, China can further expand the scale of such funds and set up new ones, which can attract social capital and channel all kinds of resources to be allocated in more efficient sectors. China could encourage the whole society to innovate through more effective technology innovation policies. Ranking the second in R&D investment, China invested a total of 1.4 trillion yuan in R&D in 2015, only second to the United States. China is actively promoting innovation policies, including the Law of the PRC on Promoting the Transformation of Scientific and Technological Achievements, all of which will turn innovation resources to productivity. The large scale of innovation resources and effective innovation policies, combined together, will unleash innovation.

China has carried out a series of strategies and measures to reduce the incidence of occupational diseases, and has made progress in occupational health protection. However, occupational health in China still faces severe conditions and challenges for occupational diseases that have not been prevented and controlled effectively. To actively promote the future development of occupational health during the 13th FYP period, China has issued a series of important policy documents (such as the Plan for a Healthy China 2030, the 13th FYP for Occupational Disease Prevention and Control, and the 13th FYP for Occupational Health Hazard Prevention and Control) in the last two years.

The 13th Five-Year Plan lists a series of major tasks of China in the next five years, among which the greatest importance should be attached to advancing structural reform of the supply front and economic restructuring. Plenty of problems in the current development of China, like weaker growth momentum, decreasing resources, worsening environment, and prominent social problems, are closely related to its improper economic structure. To complete the major tasks in the 13th Five-Year Plan, China has to put more efforts in promoting economic restructuring, with the greatest attention given to structural reform of the supply front, and with the core of changing the growth pattern.

According to the “Made in China 2025" initiative announced by the government of the People's Republic of China in 2015, the PRC seeks to enhance the country's innovation, productivity, quality, digitalization and efficiency. The Made in China 2025initiative targets ten sectors, including aerospace, aviation equipment, and power generation. Additionally, the PRC's Thirteenth Five-Year Plan listed aviation engines and gas turbines as amajor project for 2030, including research on materials and manufacturing processes. Gas turbines that power aircraft are central to the development of the aviation industry in the PRC.

Chinese National Energy Bureau reported that Chinese wind power production was 185.6 TWh in 2015, increased by 16.17% compared with the wind power production in 2014. Thus, wind power production in China is quantitatively large and undergoing rapid development. According to the proposal for the thirteenth Five-Year Plan issued by the Chinese National Energy Bureau, the wind power capacity in China will maintain an annual growth rate of 9.9% over the next five years (2015–2020). Wind energy in China will continue to develop rapidly in the future.

As an important emitter of carbon dioxide, China has put forward “Thirteenth Five-Year Plan” (TFYP) outline that carbon dioxide emissions per unit of gross domestic product (GDP) will be 18% lower in 2020 than that in 2015.