Why China's 5-year economic plan is of utmost importance and what to expect from it

On Monday the Central Committee of the Chinese Communist Party began its annual four-day meeting partly to decide upon the country's next economic "five-year plan". This time it may become the decision-making event for the Chinese history.

Reforms

The term "five-year plan" is undoubtedly a remnant of the Soviet era, however, it is still applicable to China as its economy is highly centralized where priorities are determined by the state. During the boom years of the country's past, the plan could be concentrated upon point economic targets, such as copper production. However, this year there is a special global backdrop of nervousness related to the country's slowdown aggravated by the summer stock market turmoil, devaluation of the yuan and capital outflow. All eyes will be on the reforms which may spur consumption-based economy, rather than the one driven by investment.

Even those upbeat about the Chinese economy, admit the necessity of reforms, such as overhauling the huge, inefficient state-owned enterprise sector.

It may happen that the meaning of policy statements are not vivid at once and become clear only after several years. Financial Times journalist Charles Clover reminds us that the impact of 1978 reforms announced by Paramount Leader Deng Xiaoping were not appreciated immediately.

It is also possible that if the reforms to be announced this week may be insignificant, or even harmful. Many watchers say the SOE reforms announced so far are directed to tighten the state’s grip on certain sectors and allow state businesses to tap the private sector for more funding, without loosening any control.

What the local media says

Official media highlighted that an essential issue for the party is how to keep living standards rising. The People’s Daily, the party herald, wrote on Monday that the key target for the next five years was for China to evade the “middle-income trap” — when a low-wage economy loses its international competitive strength but cannot make the jump to a high wages economy.

Another field that may drag attention is the environment. The People’s Daily enumerated the top 10 priorities for the five-year plan on its social media feed, mainly old refrains such as “maintain economic growth” and “accelerate modern agriculture”. But the one new addition this year was number eight: “Promote ecological civilisation”.

Historically, Central Committee meetings have been the stage of scheming. Xi Jingping’s anti-corruption campaign has led to tens of thousands of policy-makers being arrested or disciplined, but China observers are still hesitating on whether it signals a struggle within the party itself.

China Central Television, the official channel, reminded citizens over the weekend that “inner party personnel changes are par for the course, not an important part of the proceedings”.

However, as the Financial Times reminds, such meetings are used to signal significant shifts in the elite, and more elite heads may roll this week.