China turns to domestic demand to power economy

China will prioritise expanding domestic demand in the world’s second-largest economy and achieving “major breakthroughs in core technologies”, the ruling Chinese Communist party said on Thursday as it wrapped up an annual planning meeting in Beijing.

After four days of deliberations, the party’s 200-member Central Committee signed off on a planning blueprint through to 2025, when President Xi Jinping is expected to be at the midpoint of an unprecedented third term in office. But details were scant and the party’s 14th five-year plan may not be fully revealed until it is rubber-stamped by China’s parliament early next year.

Having spent recent years trying to reduce domestic debt levels and weathering a trade war launched by President Donald Trump two years ago, Mr Xi’s administration is turning its attention to achieving “self-sufficiency” in range of technological sectors currently dominated by the US.

While noting that economic growth had been “better than expected” thanks to China’s successful containment of the Covid-19 pandemic, the Central Committee warned that “the international environment is increasingly complicated” with greater “instability and uncertainty”.

Mr Xi and Mr Trump temporarily suspended their trade war with a “phase one” agreement in January, but the US has kept up the pressure on other fronts by seeking to deny crucial American technologies to Chinese companies such as Huawei. In response, Mr Xi’s administration has emphasised the importance of ending its dependence on foreign technology suppliers.

China’s president has also outlined a new “dual circulation” economic strategy, which prioritises the importance of strengthening domestic demand and technological innovation over closer integration with the outside world.

In October 2017 Mr Xi, China’s most powerful leader since Mao Zedong, said at the start of his second five-year term in office that the world’s most populous nation would achieve “moderate prosperity” by 2035 and then join the ranks of the world’s richest and most technologically advanced societies by 2050. A few months later, China’s parliament removed the two-term limit on the presidency, potentially allowing Mr Xi to rule for life.

Chinese officials did not confirm whether the party would announce a formal economic growth target for the 14th five-year plan. But most analysts expect average annual growth to come in at about five per cent, down from the 6.5 to 7.5 per cent target rates in China’s most recent five-year plans.

In 2010 the Chinese government committed itself to an ambitious growth target that required large, debt-fuelled investments to meet. The first five-year plan that Mr Xi presided over, running from 2016 to 2020, focused on reducing the industrial overcapacities and high debt levels generated by the earlier investment spree.

“If they set a growth target which is too high, Beijing might have to leverage up again in a future downturn,” said Larry Hu, chief China economist at Macquarie. “Potential decoupling with the US and deglobalisation could hurt China’s external demand and add pressure. Beijing is therefore keen to find new areas for domestic demand in the new five-year plan.”

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