China’s 2020 vision

Everybody’s doing the Shisanwu. Well, at least hundreds of millions of Chinese are.

Here’s the pop version; call it the new Chinese five-year plan for dummies. You can even sing along, as you mull how to break down the road map for China's economic and social development from 2016 to 2020.

The People's Daily said the 13th five-year plan is mostly about economic growth, institutional reforms, the environment, and poverty alleviation. What’s unsaid is that’s a make-or-break road map for China to escape the dreaded middle-income trap.

The first glaring feat of Shisanwu is to enshrine President Xi Jinping’s by now famous "new normal" – as in China’s economy entering a slower, sustainable growth pattern; still a whopping 6.5 percent a year down from the current 7 percent. Premier Li Keqiang has stressed that China needs 6.5 percent over the next five years if it is to become a "moderately prosperous" society.

Beijing Renmin University professor Zhao Xijun breaks it all down: "The timing of the 13th five-year plan is crucial, because by 2020, the nation is supposed to have met its first centenary goal, marking the 100th anniversary of the party's founding [in 1921], to complete the building of a moderately prosperous society."

Yet how’s that superhuman task to be accomplished? Essentially, by Beijing shifting the focus from labor intensive manufacturing leading to exports, the basis of the model so far, towards a service/consumption economy, with a key role also for modernized agriculture.  

Everyone in Asia knows how Chinese manufacturers have been steadily losing that famous “competitive edge,” as labor and land costs rise, especially in the developed Eastern seaboard. So Xi’s “new normal” implies a complex process of transferring jobs from manufacturing to the service sector. That also implies increased Chinese innovation in technology, industry, design and business management.

Meet the zombie killer

A five-year plan may be seen as a relic from China’s Soviet-style economy. The first five-year plan was indeed penned in 1953, a straight copy from the USSR. Yet CCP conservatives insist strong state control is a must, given notorious Western market disasters such as the 2008 sub-prime mortgage-induced financial crisis.

The draft plan is something like 100 pages long; listing Beijing’s main policy goals and loads of important targets, related to economic growth, exports, direct foreign investment and job creation. Virtually all central ministries and agencies, as well as provincial, regional and municipal governments, contribute to the draft.

With the guidelines published by the State Council, planners from central government ministries and agencies, as well as regional governments, will have to get down and figure out all the details. The plan will then be debated at the annual session of the National People's Congress in the spring of 2016.

A general view of the financial Central district in Hong Kong © Bobby Yip © Reuters

Xi – fresh from his recent, spectacular, tour de force in the former British Empire – had been very busy promoting and explaining the road map. From May to July, he met party leaders from half of China’s 31 provinces, way before the stock market crisis and China’s quarterly GDP growth plunging below 7 per cent for the first time since 2009.

This week, party leaders spent many hours reviewing the draft of the plan at the Jingxi Hotel in western Beijing, as part of the closed-door Fifth Plenum of the CCP.

All of them are of course familiar with the man with the plan: Liu He, one of Xi’s top economic advisers, an industrial economics graduate of Renmin University with a Masters in public administration at Harvard.

Liu He also happens to be the vice-director of the National Development and Reform Commission, the all powerful agency that creates policies for China’s economic and social development.

And he is the cherry in the cake, a zombie killer.

“Zombie killer”, in a Chinese pop context, means someone who wants to close down for good dodgy businesses known as zombie enterprises.

So naturally Liu He is a man they love to hate, as many of the zombies are powerfully-connected state-owned companies (SOEs). Local governments refuse to close them down because they fear bad loans spiking up; rising unemployment; and a huge drop in their local fiscal take.

On the record, Liu He is totally pragmatic; he insists China needs “market-oriented reforms, more management focus on supply, intensified efforts in shutting down zombie firms and an end to overcapacity.” But this structural adjustment must be gradual; the CCP is terrified of unemployment and social instability.

As if his zombie business was not enough, Liu is also head of the General Office of the Leading Group for Financial and Economic Affairs, China’s number one economic policymaking body chaired by, who else, Xi.

Liu He was instrumental in approving China’s 4 trillion yuan stimulus package in 2009, which was Beijing’s counterpunch against the 2008 Wall Street provoked global financial crisis.

So he will be the go-to man for all economic policies, and how fast they should advance. But top Chinese economists stress that everything related to hardcore politics and governance of SOEs will be handled by CCP bigwigs, if not Xi himself.

Gotta micromanage it all

It all comes back to that still whopping 6.5 percent annual GDP growth. According to the China Finance 40 Forum, Beijing should be guided by a "range control" framework, with the upper limit for GDP growth defined by inflation and a lower limit defined by unemployment.

On top of it, Beijing still has to micromanage at least three crucial variables; the country’s excessive industrial capacity; “corrections” affecting the property market; and very high corporate debt.

At the moment though, it’s all about the Chinese dream. Premier Li Keqiang said Beijing’s target is no less than to double GDP per capita by 2020 compared to 2010, thus creating an “all-around prosperous society”. With an extra boost the target may be set around 7 per cent in 2016 and 2017 to “boost confidence”.

So this being China under the CCP, where everything is planned, here we have Beijing’s to-do list – as well as a wealth of mechanisms to make sure the people in charge of doing it won’t mess up. They will do it. Watch out, barbarians; 2020 is just around the corner.