China released its latest five-year plan last week—a blueprint for governing the world’s largest economy until 2030. The plan projects about 4.5 percent GDP growth in the coming year. It also tells a broader story about the present state of the Chinese economy. The country clearly sees new opportunities in the years ahead, but also new headwinds that need to be managed.
What has remained the same in this latest five-year plan compared to previous ones? What has changed? And do these plans actually work?
Those are just a few of the questions that came up in my recent conversation with FP economics columnist Adam Tooze on the podcast we co-host, Ones and Tooze. What follows is an excerpt, edited for length and clarity. For the full conversation, look for Ones and Tooze wherever you get your podcasts. And check out Adam’s Substack newsletter.
Cameron Abadi: China’s five-year plans have their roots in Soviet centralized economic planning. How do those origins inform the plans in today’s China, which is a market-based country, obviously. What conceptually differentiates this approach to policymaking from how the West approaches economic policy?
Adam Tooze: They do indeed historically go back to the Soviet example. There’s a lot of talk about planning in the interwar period. The Nazis had four-year plans, but the original one was [Joseph] Stalin’s 1928 five-year plan. And Maoist China adopted the planning model in 1953. It was quite contentious in the Mao period. There’s a lot of warring around the Soviet examples, one of the big contentious issues in the political struggles in the regime in the 1960s.
The analogy globally is the sustainable development goals. And it’s similarly comprehensive. So they have a plan for growth, they have a plan which is adjusted year by year for urbanization, for industrial development in key technologies, but also for life expectancy. So this is the CCP [Chinese Communist Party] and the Chinese government’s plan to improve the life expectancy of Chinese people. And then there are deliverables that feed into that, and you end up with the United Nations’ sustainable development goals with this huge cumbersome matrix of 100-plus indicators and sub-indicators. And in the Chinese case, increasingly they’ve resorted to organizing this around major projects. So, for instance, in the current plan, there’s a whole new set of what they call energy bases that are going to be built notably around the combination of wind, solar, and hydro, no longer in isolation from each other, but joined together.
So it’s somewhere between like the omnibus legislation that, say, the Inflation Reduction Act was in the United States, where you had a bunch of different things all clumped together, from support for infrastructure to tax credits to rural development schemes, to what the Germans would call a coalition agreement, where you have two parties that join together to form a government over a period of four years till the next election, and they agree to do the following, to a giant administrative exercise, where every single aspect of Chinese government more or less bids and wrangles with each other for inclusion in this. So it’s a sort of rolling exercise in pulling the party and state apparatus together around a really comprehensive set of objectives for Chinese economy and society.
CA: What policy goals have remained continuous with previous five-year plans? It seems like there are several big themes that are consistent, in terms of China approaching technology with a kind of goal of self-reliance, an approach to industrial policy that remains in terms of placing big bets on specific sectors of the economy, although maybe there are shifts there in terms of which sectors of the economy to place those bets on.
AT: Innovation is a key element. So it was 2003 through 2006, the plan from that time that developed China’s approach to industrial policy and technology. In retrospect, it’s clear that that was quite a turning point. And the current plan continues the emphasis on growing R&D expenditure at 7 percent, which is faster than the GDP target. So implicitly raising R&D’s share of GDP progressively over time and aiming for tech sectors.
The second line of continuity is the link between development and security. So China is insistent that it is a developing economy. Hence also the relevance of the kind of overlay between sustainable development thinking and Chinese national economic policy.
And then green transition. You just can’t underestimate this. So dual carbon is what the Chinese call it, this dual control, which is getting to a peak sooner rather than later. They already have peaked, but they’re saying before 2030, and then net zero by 2060. And then full greenhouse, that would be full greenhouse stability, greenhouse gas neutrality. That’s a huge organizing idea of this entire apparatus, because it’s such a vast challenge. Decarbonizing the Chinese economy is a multigenerational, gigantic enterprise. And they know it, and they’re working on practically every dimension of it now, including things like hydrogen.
CA: So what exactly has changed in this five-year plan compared to previous ones?
AT: I think it’s partly a question of the attitude with which you approach five-year plans. The outcome, more often than not, because of course it’s one party that’s going to rule for the foreseeable future, is actually continuity. And if there was any really big change, that would be truly dramatic. So what we’re looking for is changes in a constantly evolving pattern.
If we get into it, the real details, you can take the demand-side rebalancing, which is every macroeconomist’s ask from China for more than 15 years now—that seems to have risen up within the priority chain. There’s two different elements of that. One is boosting consumption, and the other one is a kind of unified national market, which is trying to overcome various types of restrictions within the circulation of the Chinese economy. And it’s a little bit like Canada we’ve spoken about as well, or Europe, where they’re always talking about completing the common market. China is in the process of doing that as well. The 14th plan already emphasized domestic circulation, because they had this dual-circuit model of the economy where there’s a foreign sector and a domestic sector. The 15th version of the plan actually stresses the domestic-consumption side as the principal growth engine. But since this has been a conversation that’s been going on for 15 years, the question really is always going to be: How serious are they?
One really striking thing in the shift between the 14th and 15th five-year plan is with regard to demography. So the 14th plan was full of commitments about numbers of years of schooling, nurseries for 3-year-olds [and under]. The 15th plan is focusing on an increasingly aging population. It literally sets 80 as the target for national life expectancy and is essentially already indicating, if you like, a shift within Chinese policy toward recognizing the challenges and also potentially the opportunities of an aging society.
CA: Should we conclude this is a kind of more pessimistic document than its predecessors, with an acknowledgment of reduced growth expectations?
AT: What they would insist on is it’s realistic. So interestingly, the growth element of the plan is not a predetermined fixed rate. They would insist that it is data-driven, a little bit like the Fed in the current moment. So the target for this coming year is 4.5 percent to 5 percent. They don’t say we’re going to grow at X percent for the next five years. This is part and parcel of the new normal, which goes all the way back to the early 2010s, the adjustment away from the hypergrowth of the 2000s. What isn’t squarely addressed in any discussions of the five-year plan that I’ve seen is the truly acute risks, which are the ongoing housing crisis adjustment, the risk of deflation that’s associated with that, and then the theme of involution, which is touched on at various points.
But this is not a crisis program. So this isn’t a program that starts from the premise that the Chinese economy is in real trouble. It maps out lines of development. And so there is a disconnect, to an extent, between discourse around the five-year plan and conventional macroeconomic, short-run macroeconomic commentary on China that one also has to acknowledge, I think. They’re operating in different registers. And when you talk to senior Chinese officials, they are fully aware of that.
So there’s a degree of kind of opacity, which in Western responses to the five-year plan, I think—I wouldn’t say it undermines the credibility, but it leaves one wondering what the function of this document is in light of the fact that we can track monthly price indices, which suggests the Chinese economy is in borderline deflationary territory and the housing markets in key areas are not properly stabilized. And on the other hand, the export boom is staggering. We’re on track now for a $1.2 trillion surplus. So, there’s a sort of a degree of disconnect which makes this document both interesting and sort of hard to locate against the backdrop of our own thinking about economic policy.
CA: Do these plans work? Have they accurately represented what China really ends up doing?
AT: Well, I think another way of putting it might be like, this is how China works. This is how the regime works, right? It works by way of these mechanisms. And people will say kind of loosely, China ended absolute poverty, raised hundreds of millions of people out of poverty. The document that said they were going to do that was the five-year plan of the second half of the 2010s, the 13th. And it specifically said that all rural residents living below the poverty line will be lifted out of the poverty.
There are crucial historical moments which are expressed through the five-year plan. We’re going to shift to a more market-based model, we’re going to prioritize technological development, we’re going to end rural poverty. And actions follow. In the case of the rural poverty relief program, there literally was a kind of chase on to find the last Chinese rural community that qualified as poor. And you would get gold stars if you were the official to fix that village. So 3 million Chinese officials swarm out into the countryside to identify everywhere that’s still poor and to provide transport access, build a road, provide electricity, make sure the kids are all going to school regularly. It’s that kind of intensity.
