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CvT: China – A ‘Moderately Prosperous’ Nation Seeking ‘National Rejuvenation’

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In October 2020, CCP leadership plans to convene in Beijing to begin finalizing proposals for the nation’s 14th five-year plan that will outline China’s policy blueprint for the 2021-25 period. The previous five-year plan laid the roadmap for China to become a moderately prosperous nation by 2021, and Beijing has signaled that the upcoming plan will lay the foundation for China to become a fully-developed, powerful nation by 2049. Having more than doubled its GDP and GDP per capita since 2010 as well as sharply reduced extreme poverty domestically, Beijing can reasonably claim to have met its most important development targets and therefore qualify as a “moderately prosperous nation.”

National rejuvenation as a goal

Sights have now been set on moving beyond the “middle-income trap” and achieving “national rejuvenation” by 2049. Although the exact implications of “national rejuvenation” remain undefined, the term often refers to the restoration of China’s political and economic significance on the world stage. Well aware that an increased role for China in world affairs would upset the global balance of power, China’s leaders believe that the greatest external threat to “national rejuvenation” will come from the US, the current global hegemon. Believing that the US feels threatened by China’s rise and therefore seeks to contain it, China’s top diplomats and political thinkers use the term “strategic anxiety” to describe recent US actions targeting Chinese entities. Therefore, to achieve “national rejuvenation” by 2049, the upcoming five-year plan will bolster support for and introduce new initiatives designed to combat US “strategic anxiety.”

Full steam ahead towards manufacturing technology autonomy

Recent five-year plans have increasingly emphasized moving China up the value-added manufacturing chain and building its technological edge. Until recently, global supply chains have enabled China’s progress toward this goal. Huawei, for example, relied on Qualcomm, a US company, for the semiconductors that went into its telecommunications gear and consumer handsets. However, as the US escalates its attacks on the global supply chains of Chinese technology companies, Beijing is responding with measures aimed at accelerating progress toward autonomy in technology manufacturing capabilities. President Xi’s announcement earlier this year that China would invest an eye-watering US$1.4 trillion over the next five years to promote “indigenous innovation” fits within this narrative. However, much to the consternation of foreign companies that operate in China, it also cements the central role of the state in China’s political economy and the secondary role of the market in allocating resources.

Institutional advantage: the cornerstone of China’s political economy

While Chinese state capitalism attracts criticism for the inefficiencies it engenders, President Xi often trumpets China’s mixed economy as an “institutional advantage,” or the idea that China can productively allocate resources at a moment’s notice by marrying the innovative spirit of private enterprise with the raw power of the state.
The embodiment of China’s “institutional advantage,” the state-owned enterprise (SOE), has acquired an increasingly prominent role in Beijing’s development strategy in recent years. At the end of 2018, the foreign assets of SOEs totaled over US$1 trillion, revealing the magnitude of the role that SOEs play in China’s overseas multilateral OBOR initiative. Beijing’s support for SOEs and public-private partnerships have allowed China to expand its global footprint in a relatively short period of time, but it has also created an uneven playing field at home for foreign companies.

The next five-year plan is unlikely to reverse the trends that have gradually coalesced over the past several years as a response to geopolitical competition with the US. As Beijing doubles down on its current development strategy to compete more effectively with the US, foreign companies operating in China should not expect market reforms intended to even the long-term playing field any time soon.

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