China’s Plenum on Next Five Year Plan? Actually, More of the Same

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Op-Ed Commentary: Chris Devonshire-Ellis

Oct. 19 – The Chinese Central Government has just released its commentary on the discussions held on the working report delivered by President Hu Jintao, who has been responsible for the drafting of the next five-year plan. That plan, in typical long-winded style, is known officially as the “Communist Party of China Central Committee’s Proposal for Formulating the 12th Five-Year Program for China’s Economic and Social Development (2011-2015).” China’s Premier Wen Jiabao also made an explanatory speech on the draft proposal to the plenum.

Despite the inevitable rhetoric, mutual backslapping, awarding of self-congratulatory prose and the inherent blaming of China’s problems on the international financial crisis, what does the report actually conclude or say that can provide pointers to the full address that Hu will make when formally announcing the next five-year plan in March?

The text itself was relatively aggressive, stating that the CPC needed to “Seize and effectively utilize our country’s important period of strategic opportunity” and “win new victories,” while at the same time congratulating itself for unifying and leading the Chinese people in “building a moderately prosperous society and pushing forward the great cause of building socialism with Chinese characteristics.” In which case, the political system is the be-all and end-all, and the economic and social aspects of China are purely the building blocks. Its system for systems sake, rather than being more intellectually diverse.

The terms “moderately prosperous” also seem odd. As I noted in my concerns over the amount of money China has been spending on temporary events, and the establishing of Rolls Royce and Ferrari dealerships in second tier cities, being “moderately prosperous” has not really been defined. A rise in income for sure, but would that be for the inland regions at the expense of the wealthy coast?

Coded messages also exist within international relations, stating that, concerning international situations, “China is still in an important period of strategic opportunities during which there is a great deal China can achieve, and it is faced with both precious historic opportunities and plenty of foreseeable and unforeseeable risks and challenges. We should strengthen the awareness of opportunities and potential risks.” The historical aspect is interesting, with China often using its version of history as the correct one. However, China faces plenty of obstacles in border disputes where a strong second opinion also exists, and one that may violently disagree with China’s version. The plenum agreed to “remarkably strengthen the country’s comprehensive national power, international competitiveness and capability in shielding against risks.” Expect more border incursions and regional friction seems to be the message deployed, perhaps even acknowledging war: “The building of a modern national defense system and modern armed forces must be strengthened with the abilities to conduct diverse military missions with a focus on the ability to win regional wars under information-based conditions.” Cyber-attacks, an increase in spying and potential for actual conflict? They certainly considered the issue. Dovish this plenum was not.

Constantly within the draft are references to “socialist modernization,” “the great banner of socialism with Chinese characteristics,” and “Deng Xiaoping Theory,” which appear littered throughout the text. Clearly, any movement away from the current political structure in China remains wishful thinking. The entire five-year plan is based on a political platform, not an economic or social one. That may turn out to be a major weakness if challenges to China’s current political standing face unforeseen obstacles – the plan does not, for example, appear to predict or even be aware of any.

However, on the development front, it did state the need to “Quicken the pace of a new growth pattern that is jointly driven by consumption, investment and exports. Efforts should be made to push forward rural modernization, accelerate the construction of new socialist rural areas, maintain coordinated development in rural and urban regions, promote the development of modern agriculture, improve public services and infrastructure construction in rural areas, and seek new ways to increase farmers’ incomes.”

In doing so, the CPC specifically acknowledge the threat of dissent amongst China’s massive rural population – after all, the CPC came into power on the back of a people-led revolution. Getting them into the picture seems to be a priority for this period, and I quote: “The rural development system will also be improved to build contented homes for farmers. Poverty alleviation work that targets old revolutionary base areas, ethnic regions, border areas and poverty-stricken areas will be strengthened.” More money then, for the “old revolutionary peasants that put the Party into power in the first place. But apart from that, the peasant issue was skirted over, but internal security was more specific. “To properly handle contradictions among the people, and to take concrete measures to secure social harmony and stability.” That usually means more policing and crackdowns on dissenting voices.

More importantly, China wants to upgrade. “The enhancement of the core competitiveness of industries by transforming and upgrading the manufacturing sector, developing strategic emerging industries, and accelerating the growth of the service sector.” A “modern energy” industry and “the development of a comprehensive transport system” are as far as it commits to alternative energy and electric vehicles, while “the building of a resource-saving and environment-friendly society should be accelerated, and the ecological conservation culture should be promoted.” Clearly, China is running out of the resources needed to get it to the next stage of development using existing technology. That went hand in hand with calling on the development for “upgrading China’s scientific innovation ability, improving the innovation system and accelerating educational reform and development, which encourages talent and lays a solid foundation in terms of science and technology and human resources for the transformation of economic development pattern and achieving the goal of building a moderately prosperous society in an all-round way.” In short, innovation brings happiness. But I rather think the details are lacking.

Workers and pensioners may also expect to receive more, although it didn’t say where the money would come from (presumably something the State Administration of Taxation will be called on to deliver) but it appears that welfare payments for employers may take a hit. “To increase the ratio of people’s incomes to the national income and the ratio of workers’ incomes in the primary distribution of national income, to perfect the social security system that covers urban and rural residents, and to accelerate the reform and development of the healthcare sector” are all very much aspects of China’s mandatory welfare system for employees. It looks like employers will be called on to deliver “more salary, more unemployment and pension funds”. Ominously, they go on to mention “reforms of fiscal and taxation systems should be accelerated.”

Interestingly, the plan calls for the recognition of a political system as a definable, and perhaps the most important aspect, of Chinese culture. Therefore, in the land of Confucius, gong fu, and some of the world’s most beautiful poetry, we are asked to acknowledge that “culture is the spirit and soul of a nation, and is the power to propel development of a country and the revitalization of a nation. Efforts should be made to help the culture sector prosper, and to consistently advance the development of the socialist culture.” Even McCarthy might have thought describing a political system as a culture a bit much. But there may be some religious reforms on the way, as they noted, “to build a spiritual home for the Chinese nation.” But is that political spiritualism? The old revolutionary pictures of a deliberately Christ-like Mao Zedong spring to mind.

Much though is made of scientific development, hardly surprising when most of the Party’s leadership are educated in engineering. Political connections mean rebuilding the nation “socially” as well as literally, and those Marxist principles die hard here.

China does want to go more global. Quietly exporting labor worldwide seems to be a bit of a wheeze, and they have stated the same. “More efforts should be made to further open up to the outside world, optimize the foreign trade structure, improve the quality of foreign investment utilization and accelerate the pace in implementing the ‘going global’ strategy. It is necessary to actively participate in global economic governance and regional cooperation, to push forward development, deepen reform and promote innovation by opening up, and to vigorously create new advantages for participating in global economic cooperation and competition.” Have passport, will travel. Wait until Chinese assembly line workers start appearing in Detroit, then you’ll see sparks. Think I’m kidding? Just ask Russia, India, South America, Africa and even Sri Lanka. All having to clamp down, not on the exporting of jobs, but on the importing of Chinese labor.

Then we get back to personal guarantees that only the Party leadership can deliver: “The plenum stressed that the leadership by the Party is the fundamental guarantee for achieving the goals of economic and social development during the 12th five-year plan period. Work in improving the CPC’s ruling capacity and maintaining the Party’s advanced nature must be strengthened to promote the Party’s competence in leading the country’s economic and social development.” They’re right of course, the alternative to the Party is revolution, and no one wants that. But Party reform in terms of strategic thinking beyond tired political clichés seems thin on the ground.

In summarizing, the plenum “called on all CPC members and peoples of all ethnic groups to closely unite around the Party’s Central Committee, led by Hu Jintao, General Secretary of the CPC Central Committee, to earnestly learn and implement the spirit of the plenum, emancipate their minds, seek truth from facts, keep pace with the times, blaze new trails in a pioneering spirit, and unite as one to strive to achieve the goals of the 12th five-year plan (2011-2015) on national economic and social development.” After the Olympics, I kind of expected a blast of trumpets and fireworks after sifting through that lot, but it wasn’t to be. “Fanfare for the Common Man” isn’t appropriate in China just yet it seems.

In summary, though, the report didn’t say very much we don’t already know, although the fact that it has been “agreed” actually means they look at the text they’ve just produced and then work out how to achieve it. Hu Jintao will flesh it out come March, but political reform looks definitely off the agenda, while increases in regional tensions, taxes and welfare payments look like potential issues China’s leadership is expecting. We’ll have to wait and see just how the rhetoric develops into something rather more cohesive and less gratuitously political than the plenum just managed to deliver.

The part most people will concentrate on is the promotion of Xi Jinping as vice chairman of the Central Military Commission of the Communist Party. That role is assumed to pave the way for future president after Hu Jintao’s term expires in 2012. While the VC position is intended to allow Xi to forge closer ties with China’s top military, it is by no means a done deal that he will be the next premier, although he does get a step closer. Even should that transpire, it’ll be Hu’s five-year plan he has to work with, and any succession will still have to follow the five-year plan the plenum have just outlined. Plenty of water still has to flow under this particular bridge.

Chris Devonshire-Ellis is the principal and founding partner of Dezan Shira & Associates, establishing the firm’s China practice in 1992. The firm now has 10 offices in China. For advice over China strategy, trade, investment, legal and tax matters please contact the firm at info@dezshira.com. The firm’s brochure may be downloaded here. Chris also contributes to India Briefing , Vietnam Briefing , Asia Briefing and 2point6billion

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3 thoughts on “China’s Plenum on Next Five Year Plan? Actually, More of the Same

    Bryan says:

    Thanks for this interesting analysis. As you said “a lot of water to flow”.

    Mark says:

    These five year plans seem a bit like other countries’ annual national budgets – everyone will be looking to it to see “what’s in it for me?”.

    R.e. foreign companies invested in China – doesn’t seem to be anything specificly mentioned here that will affect us.

    I keep wondering when China is going to bring in something like the “Saudization” in Saudi Arabia – Government pressuring private companies to get nationals into jobs currently held by foreigners.

    Chris Devonshire-Ellis says:

    @Mark – the key issues for foreign investors are the incentives that they say will be provided in nine key industries. They weren’t directly addressed in the official plenum statement, but we have leaked details on what they are and the USD600billion they’re going to invest in them here:
    https://www.china-briefing.com/news/2010/10/15/china-to-provide-us600-billion-in-incentives-for-emerging-industries.html
    Those are going to be of interest to foreign investors involved with those industries.
    Otherwise – I suspect a series of 1-2% points to be added to mandatory welfare contributions at some point, which will hit businesses in the pockets.
    Thanks – Chris

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