Our Take on China’s 5-year Plan

The Gist

The current China 5-year plan sets its focus on elements of its society that the government, along with just about everybody else in the world, knew that it needed to improve.  The discrepancy in wealth creates significant fear in the Party as they’ve witnessed time and time again in their history that when the poor people get angry, they have a tendency to overthrow their government.  With likely more than 250 million migrant workers still living in subsistent ways, this is a genuine concern.

The elephant in the room in regards to Chinese politics is, of course, the environment, with power consumption closely related.   It is a taxing burden, both in terms of power and the environment, to be the manufacturer of the world.  On top of that, it doesn’t help to have 1.6 billion people eating, pooping, showering, and generally creating waste on your soil.  As much as the world has environmental problems in general, China’s are compounded exponentially, and the global community misses no opportunity to wag their fingers at the situation.

The final focus is on developing more consumerism.  China recognizes a significant opportunity to increase it’s GDP and become less reliant on the rest of the world.  The Chinese citizens are pretty much the ultimate anti-consumers.  You can see this article from Vox (http://voxeu.org/index.php?q=node/6028) stating that they save over 50% of their GDP!  What a truly astounding number.  Since the financial crisis, China has tried to promote domestic consumption to sustain growth, but they haven’t had much luck fighting the thrifty nature of their citizens.  The new plan represents a stronger focus in this direction.


The 5-year plan serves two purposes.  One is the actual stated intended purpose which is to organize the country and government in a singular direction.  The other is for strategic PR purposes to show their citizens and the world community that they are moving a direction that is acceptable to improve those relationships.  The things that actually get done will be those that can both improve their relationships with their citizens and the world community and are acceptable to their elite class of factory owners and government officials (often the same people wearing two different hats).  I like sports, so let’s tackle each issue the way a sports writer might give speculative grades for the upcoming season:

1) Environment:    A

The health of the environment is a significant concern for all parties involved.  Already poor air and water conditions contribute to an estimated loss of over 10% of the GDP per year.  Given the abilities of their state-run government to act very quickly creating infrastructure and implementing new policies, I expect the Chinese to push hard for meaningful improvements in this area in the next five years.  It may not be nearly fast enough for the world’s needs, but with the Chinese top level officials mostly comprised of engineers, these improvements will be light years ahead of the US lawyer/politicians in our very slow moving democracy.

2) Wealth Distribution:    B-

This is a much more difficult situation.  Unlike the environment where everybody wins, creating a fairer system of wealth distribution will require the rich to willingly give some of their wealth (through policy decisions) to the lower class (and hopefully begin to create a significant middle class).  If there is one thing that history has taught us, it’s that this kind of philanthropy doesn’t happen very often on a large scale.  Though some changes will be necessary as Twitter and Facebook and other social media expose the truth and Chinese immigrant workers become more frustrated by their situation, I expect these changes to be hard fought and encounter resistance at the implementation level where local officials and centers of wealth can pull strings to get around laws and use their influence to keep the money where they want it (ie. in their pockets).

3) Domestic Consumption:    B+

Domestic consumption and wealth distribution are somewhat intricately tied together.  A large reason for the savings rate of the Chinese is that they don’t have faith in the stability of their government or the future.  They are afraid to spend today what they might need to tomorrow.  The better the government does at allaying these fears by creating a truly sustainable society, the more easily the Chinese consumer will part with their money.  As I expect their focused efforts to create a more sustainable society to pay off at least in some ways, I expect the general citizen to loosen up their wallets a bit.  This will also be fueled by continued economic growth and thus more disposable income, new Chinese companies and technologies creating products that the Chinese consumers want, and the government PR campaigns persuading people to just go out there and shop already!

4)  The focus on the three key sectors (hydro and nuclear power, information technology, and power grid technology):    A-

Hydro and nuclear power and power grid technology, forget about it, it’s as good as done.  When the Chinese can throw labor and policies at something that will improve their bottom line, it’s going to happen in a flash.  In one year alone they built more subway lines in Shanghai than existed in London (which touted the most linear feet in subway lines in the world at the time).  Expect the same to happen with these infrastructure improvements.  Information technology is a different animal though.  While they know they need to improve dramatically in this area, there is a significant hurdle which is that unless you are only going to provide your services to Chinese speaking customers, you need to have a pretty good understanding of English.  While Chinese are very good at IT kind of thinking, finding (or training) a Chinese IT person that can code well and speak English well is a completely different animal.  There are lots of options open to Chinese nationals that can truly speak English well, so IT is going to have its work cut out for it in this area.  If they are just developing IT for domestic use, then it won’t achieve their goal of transforming any significant part of their workforce from the current heavy industry sectors into the desired eco-friendly service providing sectors.

Have some thoughts on the matter?  Let us know in our comments section!


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