Plenum recommendations and explanation; US-China consensus speculation; China and ASEAN; Third “Zhong Taiwen 钟台文” commentary
As the international landscape becomes increasingly challenging and complex, we must move faster to create a new development pattern and keep a firm hold on the initiative in development. At present and for some time to come, we must work to strengthen the domestic economy and boost domestic economic flows, so as to leverage the stability of the domestic economy as a hedge against uncertainties in the international economy. - Xi Jinping
Summary of today’s top items:
1. Xi’s explanation of the Plenum recommendations - On Tuesday the Party released the Explanation of the Recommendations of the Central Committee of the Communist Party of China for Formulating the 15th Five-Year Plan for National Economic and Social Development and the Recommendations of the Central Committee of the Communist Party of China for Formulating the 15th Five-Year Plan for National Economic and Social Development. Both documents go much further towards revealing what will be in the 15th Five-Year Plan, but there are still many details and targets that we will not see until next March when the NPC will approve the plan.
The explainer is written in Xi’s name. Xi writes:
In January this year, the Political Bureau decided that the 20th Central Committee would discuss recommendations for the 15th Five-Year Plan at its fourth plenary session. A group was then established for the purpose of drafting the recommendations under the auspices of the Standing Committee of the Political Bureau. I was chief of this group, while my colleagues Li Qiang, Wang Huning, Cai Qi, and Ding Xuexiang served as its deputy chiefs. The group also included heads of relevant departments and localities. On February 11, the group convened its first meeting, after which the drafting work officially began…
An important benchmark for basically achieving socialist modernization by 2035 is that China’s per capita GDP will be on a par with that of a mid-level developed country by that time. This dictates that we must maintain an appropriate rate of economic and social development during the 15th Five-Year Plan period. On the basis of thorough research and scientific analysis, the draft document puts forward a range of important objectives, such as ensuring economy keeps growing within an appropriate range, realizing steady gains in total factor productivity, fully unleashing the potential for growth, ensuring personal incomes increase in step with economic growth and remuneration rises in tandem with labor productivity increases, and continuing to expand the middle-income group. In addition, in response to prominent issues in the current stage, such as mounting downward economic pressure and insufficient effective demand, the draft document also sets out objectives, including delivering a notable increase in the rate of consumer spending and reinforcing the role of domestic demand as the principal engine of economic growth.
Based on past experience, the objectives for economic and social development in this draft document are primarily qualitative in nature, as it is a document of overall guidance. The necessary quantitative requirements and certain specific arrangements should be studied and determined during the formulation of the 15th Five-Year Plan for National Economic and Social Development...
So this explainer and the recommendations do not have “quantitative requirements”, a.k.a. targets, but the actual plan will have some.
2. Recommendations of the Central Committee of the Communist Party of China for Formulating the 15th Five-Year Plan for National Economic and Social Development - The “Recommendations” document has 61 points. The ambitions for further dominating manufacturing are clear:
7. Upgrading traditional industries
We should upgrade key industries and consolidate and enhance the position and competitiveness of China’s industries such as mining, metallurgy, chemical industry, light industries, textiles, machinery, vessels, and construction in the global industrial division of labor. We should ensure that China’s industrial chains become more self-supporting and risk-resilient. We should advance industrial foundation reengineering and research on major technologies and equipment. We should promote rolling implementation of high-quality development initiatives for key industrial chains in the manufacturing sector and develop advanced manufacturing clusters.
A Xinhua Commentary titled “Consolidate and Strengthen the Foundation of the Real Economy 巩固壮大实体经济根基” emphasizes the importance of “building a modern industrial system”:
A major country must shoulder major responsibilities. Without a solid material and technological foundation, it is impossible to build a great modern socialist country in all respects. Especially during the 15th Five-Year Plan period—a crucial stage for “consolidating the foundation and making an all-out push”—China’s development environment is undergoing profound and complex changes: economic growth needs to maintain an appropriate pace; safeguarding national security requires cultivating strong development resilience; and scientific and technological innovation must seize the window of opportunity to ride the momentum. All this requires us to keep the focus of economic development on the real economy, to build a modern industrial system that solidly consolidates the groundwork and advances toward the new.
“Promoting advances in original innovation and breakthroughs in core technologies in key fields” is point 11, and in it they call for “unconventional measures to drive decisive breakthroughs in core technologies across entire chains in key fields such as integrated circuits, industrial machine tools, high-end equipment, basic software, advanced materials, and biomanufacturing”.
11. Promoting advances in original innovation and breakthroughs in core technologies in key fields
We should improve the new system for mobilizing resources nationwide and adopt unconventional measures to drive decisive breakthroughs in core technologies across entire chains in key fields such as integrated circuits, industrial machine tools, high-end equipment, basic software, advanced materials, and biomanufacturing. A number of major national science and technology programs should be launched, with a focus on meeting our country’s strategic needs.
We should strengthen strategic, forward-looking, and systematic planning for basic research, direct a greater share of total R&D spending toward this field, and increase long-term, stable support. We need to place a stronger emphasis on original innovation in scientific research and technological development and create an optimal environment for original and disruptive innovation, in a bid to produce a larger number of original, landmark advances.
12. Promoting full integration between technological and industrial innovation
We should coordinate efforts to build up China’s strength in strategic science and technology and enhance our capacity for making systematic breakthroughs. We should strengthen self-sufficiency in scientific and technological infrastructure and take well-coordinated steps to develop innovation platforms and centers. We should improve regional innovation systems, develop regional technological innovation centers and industrial technological innovation hubs, and reinforce the role of international technological innovation centers as drivers of innovation.
This is a very important document that I recommend everyone read. As I wrote last Thursday, “Xi and the Party have a plan ‘to secure decisive progress toward basically achieving socialist modernization’, and they are preparing for a long struggle with the US.”
3. US-China framework questions - We still have very few specifics about what the two sides agreed to in Kuala Lumpur, and the Chinese have yet to confirm there will be a Trump-Xi meeting, but we should still expect it to happen. There are lots of rumors going around about what the US may have conceded, including rolling back the BIS 50% entity list rule, but I am skeptical that retreat would be enough for the PRC to delay implementation of the expanded rare earths-related export controls. The US administration is being very cagey about what they conceded, but we should have more clarity by Thursday. We recorded this week’s episode of Sharp China earlier today, and in it we have a long discussion about the KL consensus and the upcoming Trump-Xi meeting. Look for it in your inboxes at 5 AM ET Wednesday.