China 5 year plan header

The fifth plenary session of the 19th Chinese Communist Party (CPC) Central Committee was held from October 26-29. The outline of the 14th Five-Year Plan (FYP), as well as longer range policy targets leading up to 2035 were announced. These are the broad economic development goals the Communist Party has set for the nation. Further details are expected to be released at the National People’s Congress (NPC) (which will be the national government’s key policy gathering) in March 2021, when the NPC will also be expected to approve the FYP. For the first time, China has not mentioned a GDP target in a FYP. Instead, the quality of growth is the emphasis. The focusses of the 14th FYP are as following.

  1. Technological innovations. Beijing has put technological innovations as a top priority. China aims to innovate core technologies, partly in response to the increased tensions with the US which have exposed China’s vulnerabilities from its heavy reliance on imported high tech products, such as semiconductors.
  1. To cultivate “dual circulation” with a focus on boosting domestic consumption (‘internal circulation’). In this regime, the internal circulation will be centred on domestic consumption and import substitution. Boosting consumption will be accompanied by an expansion of domestic supply to satiate this greater consumption demand.
  1. To maintain a high intensity in reforms and liberalisation of both the financial markets and the real economy.
  1. To promote a green economy. President Xi’s declaration at the United Nations for China to achieve carbon neutrality by 2060, a decade later than the goal set by many other countries, was a pleasant surprise and could form the foundation for cooperation between China and Europe.
  1. The industrial upgrading. The industrial upgrading includes manufacturing upgrading, high-quality supply and digital economic development with an aim to push Chinese firms up in the global value chain.

As for the long-term overarching goal, China is aiming to become a moderately developed country by 2035 with GDP per capita of USD 25K.

In sum, the commitment to quality growth prioritizes the internal/domestic development and innovation, with negative implications for other economies (some EM) in the ecosystem centred on China. The reforms and the focus on the quality of growth should mean a deceleration in the headline growth rate of China over the medium- and long-term, following rapid recovery in the near term. This is the ‘L-shaped’ economic trajectory we have had in mind for some time.

Disclosure

None of the contents of this document should be understood as constituting research on investment matters, or as a recommendations, advice or suggestions, implicit or explicit, with respect to an investment strategy involving the financial instruments discussed, or the issuers of the financial instruments, nor as a solicitation or offer, nor as consulting on investment matters, of a legal, fiscal, or other nature. All the companies of the Intesa Sanpaolo Group, its administrators, representatives, or employees, decline any responsibility (fault-based or otherwise) deriving from indirect damages potentially caused by the use of this communication or its contents, or in any case deriving in relation to this document, nor may they be consequently held liable for any of the above. The information provided and the opinions contained in this document are based on sources considered reliable and in good faith. However no declaration or guarantee is offered by Eurizon SLJ Capital Limited, explicitly or implicitly, on the accuracy, exhaustiveness and correctness of the information, and there is no guarantee that results, or any other future events, will be compatible with the opinions, forecasts, or estimates contained herein.

Views accurate as at the time of publication. Opinions expressed by the authors are their own and do not necessarily reflect those of Eurizon SLJ Capital Limited, Eurizon Capital SGR or the Intesa Sanpaolo Group.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

ESLJ-041120-I1

Our Research

Our written research products aim to provide unique and orthogonal insights on key global economic and policy issues in a timely fashion.

Aerial view of forest during  colourful autumn season.