In order to manage a country of nearly 1.4 billion people under a single government body, both thoughtful planning and smooth execution are essential. The Communist Party of China (CPC) sets the country’s agenda through what is known as the “Five-Year Plan (FYP).”
This system has been in place since the plan of 1953-1957, when China first restored a functional economic base. FYPs were adopted after Mao Zedong, former leader of the Chinese Communist Party, was inspired by a trip to the Soviet Union, which also made use of the Five-Year model to plan initiatives for national development.
Legislature
The national legislature of the People’s Republic of China (PRC) is known as the National People’s Congress (NPC), and conducts annual sessions in spring. Although the FYP serves as China’s broader agenda, the NPC is officially meant to iron out the country’s plans for the near future, a 12-month time frame.
Even though all 3,000 delegates representing each area within the expansive country are present, there is little debate. These delegates are mainly officials and party delegates, and deliberately choose not to speak up against CPC leadership on most occasions.
The most important decisions, including the FYP, are decided upon months in advance by the Politburo Standing Committee, which is the highest branch of the CPC; it is currently led by President and General Secretary Xi Jinping. It is important to note that both the president of the PRC, as well as the Premier of the State Council (the second most powerful person in China), are elected by the NPC.
The Thirteenth Five-Year Plan
China is currently in its Thirteenth Five-Year Plan, which spans from 2016-2020. It was announced during the fifth plenum of the 18th CPC, and officially released after the 2016 NPC last March. The fifth plenum is the fifth of seven major meetings held by the Central Committee of the CPC, and is made up of the party’s top leaders. It is held in the third year of the CPC’s five-year term, and is usually the meeting during which the FYP is reviewed.
The Thirteenth Five-Year Plan marks the first under Mr. Xi’s tenure, and contains a multitude of proposals in various sectors.
The plan targets a “medium-high” gross domestic product (GDP) growth of 6.5% per year that aims to double GDP and per capita income by 2020 compared to values in 2010. However, this growth target will likely see further reductions as the economy continues to stabilize. Something to note is that a “low” growth target for China is still quite high in context with the rest of the world (also read: Here’s How Trade Drives China’s Economy).
The Thirteenth Five-Year Plan also sees the yuan join the International Monetary Fund’s (IMF) reserve currency list, and increase yuan convertibility by 2020 (also read: How the Yuan Reflects China’s Currency Policy). Additionally, the country hopes to increase its foreign investments through both federal and provincial governments. China will increase transparency requirements for these investments, along with increasing international cooperation concerning macroeconomic policy.
China wants to increase military reform, aiming to establish a military system with “Chinese characteristics”; these changes include less highly-ranked generals and a concentration of branch functions. It also aims to expand the cyber economy through increased network speeds and lower fees.
There many social changes in the Thirteenth Five-Year Plan. Notably, China is expecting to lift an additional 70 million people out of poverty (also read: The Meteoric Rise of China’s Middle Class). It also wants to extend coverage of its social insurance system to all legal residents, as well as universal enrollment in retirement and critical illness healthcare plans. Insurance rates will also be lowered, while the retirement age will progressively be raised.
The country hopes to enhance its social and mental health services. While this may not seem like a big deal, the decision signals a key change in a society where mental health issues had otherwise been largely ignored up until now. These changes, along with increased salaries for skilled workers, reflect substantive quality of life improvements.
Other goals of the plan include increased autonomy within universities and research institutes and the end of the one-child policy (now the two-child policy). China expects a 5% increase in urbanization, with 60% overall, in addition to a 40% reduction in emissions per unit of GDP; the country also hopes to increase the use of non-fossil energy to 15% overall.
China expects to implement a tighter policy concerning the protection of farmers’ land, as well as a strict water management system and a national groundwater monitoring system, goals that suggest China now has the capacity to make more thoughtful structural changes.
Looking Ahead
The Thirteenth Five-Year Plan is a reflection of a focused China that hopes to retain its status as a key player in the world for the years to come. And according to a 2015 PricewaterhouseCoopers study, China could have a $36.1 trillion economy by 2030 and a $61 trillion economy by 2050.
This would place the United States in second and third place in those respective time periods, falling behind India in 2050. While the report is speculative, current trends reflect a fair possibility of those estimations coming to fruition. Realistic, responsible five-year plans will lead China to a brighter tomorrow, but the foresight needed to create such policies is vital.
China hasn’t seen a recession in over a generation, so while that may not be an immediate concern, it is nearly impossible for the country to keep growing at the rate it has to date. Excess volume in the manufacturing, industrial, steel, and shipbuilding industries will likely continue; however, we may see the nation shift toward high-tech production under the “Made in China 2025” initiative. This aims to focus more on innovation and quality than quantity. In other words, China will concentrate more on modern, growing industries.
For a look at more investment opportunities in China, check out this special edition of the Zacks Friday Finish Line, where hosts Ryan McQueeney and Maddy Johnson are joined by Brendan Ahern, the Chief Investment Officer of KraneShares. KraneShares is a leading provider of China-focused ETFs and Chinese investment education.
3 Stocks to Ride a 588% Revenue Explosion
At Zacks, we're mostly focused on short-term profit cycles, but the hottest of all technology mega-trends is starting to take hold...
By last year, it was already generating $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for those who make the right trades early. See Zacks' Top 3 Stocks to Ride This Space >>
Image: Bigstock
How China's Five-Year Plans Reflect Its Government Structure
In order to manage a country of nearly 1.4 billion people under a single government body, both thoughtful planning and smooth execution are essential. The Communist Party of China (CPC) sets the country’s agenda through what is known as the “Five-Year Plan (FYP).”
This system has been in place since the plan of 1953-1957, when China first restored a functional economic base. FYPs were adopted after Mao Zedong, former leader of the Chinese Communist Party, was inspired by a trip to the Soviet Union, which also made use of the Five-Year model to plan initiatives for national development.
Legislature
The national legislature of the People’s Republic of China (PRC) is known as the National People’s Congress (NPC), and conducts annual sessions in spring. Although the FYP serves as China’s broader agenda, the NPC is officially meant to iron out the country’s plans for the near future, a 12-month time frame.
Even though all 3,000 delegates representing each area within the expansive country are present, there is little debate. These delegates are mainly officials and party delegates, and deliberately choose not to speak up against CPC leadership on most occasions.
The most important decisions, including the FYP, are decided upon months in advance by the Politburo Standing Committee, which is the highest branch of the CPC; it is currently led by President and General Secretary Xi Jinping. It is important to note that both the president of the PRC, as well as the Premier of the State Council (the second most powerful person in China), are elected by the NPC.
The Thirteenth Five-Year Plan
China is currently in its Thirteenth Five-Year Plan, which spans from 2016-2020. It was announced during the fifth plenum of the 18th CPC, and officially released after the 2016 NPC last March. The fifth plenum is the fifth of seven major meetings held by the Central Committee of the CPC, and is made up of the party’s top leaders. It is held in the third year of the CPC’s five-year term, and is usually the meeting during which the FYP is reviewed.
The Thirteenth Five-Year Plan marks the first under Mr. Xi’s tenure, and contains a multitude of proposals in various sectors.
The plan targets a “medium-high” gross domestic product (GDP) growth of 6.5% per year that aims to double GDP and per capita income by 2020 compared to values in 2010. However, this growth target will likely see further reductions as the economy continues to stabilize. Something to note is that a “low” growth target for China is still quite high in context with the rest of the world (also read: Here’s How Trade Drives China’s Economy).
The Thirteenth Five-Year Plan also sees the yuan join the International Monetary Fund’s (IMF) reserve currency list, and increase yuan convertibility by 2020 (also read: How the Yuan Reflects China’s Currency Policy). Additionally, the country hopes to increase its foreign investments through both federal and provincial governments. China will increase transparency requirements for these investments, along with increasing international cooperation concerning macroeconomic policy.
China wants to increase military reform, aiming to establish a military system with “Chinese characteristics”; these changes include less highly-ranked generals and a concentration of branch functions. It also aims to expand the cyber economy through increased network speeds and lower fees.
There many social changes in the Thirteenth Five-Year Plan. Notably, China is expecting to lift an additional 70 million people out of poverty (also read: The Meteoric Rise of China’s Middle Class). It also wants to extend coverage of its social insurance system to all legal residents, as well as universal enrollment in retirement and critical illness healthcare plans. Insurance rates will also be lowered, while the retirement age will progressively be raised.
The country hopes to enhance its social and mental health services. While this may not seem like a big deal, the decision signals a key change in a society where mental health issues had otherwise been largely ignored up until now. These changes, along with increased salaries for skilled workers, reflect substantive quality of life improvements.
Other goals of the plan include increased autonomy within universities and research institutes and the end of the one-child policy (now the two-child policy). China expects a 5% increase in urbanization, with 60% overall, in addition to a 40% reduction in emissions per unit of GDP; the country also hopes to increase the use of non-fossil energy to 15% overall.
China expects to implement a tighter policy concerning the protection of farmers’ land, as well as a strict water management system and a national groundwater monitoring system, goals that suggest China now has the capacity to make more thoughtful structural changes.
Looking Ahead
The Thirteenth Five-Year Plan is a reflection of a focused China that hopes to retain its status as a key player in the world for the years to come. And according to a 2015 PricewaterhouseCoopers study, China could have a $36.1 trillion economy by 2030 and a $61 trillion economy by 2050.
This would place the United States in second and third place in those respective time periods, falling behind India in 2050. While the report is speculative, current trends reflect a fair possibility of those estimations coming to fruition. Realistic, responsible five-year plans will lead China to a brighter tomorrow, but the foresight needed to create such policies is vital.
China hasn’t seen a recession in over a generation, so while that may not be an immediate concern, it is nearly impossible for the country to keep growing at the rate it has to date. Excess volume in the manufacturing, industrial, steel, and shipbuilding industries will likely continue; however, we may see the nation shift toward high-tech production under the “Made in China 2025” initiative. This aims to focus more on innovation and quality than quantity. In other words, China will concentrate more on modern, growing industries.
For a look at more investment opportunities in China, check out this special edition of the Zacks Friday Finish Line, where hosts Ryan McQueeney and Maddy Johnson are joined by Brendan Ahern, the Chief Investment Officer of KraneShares. KraneShares is a leading provider of China-focused ETFs and Chinese investment education.
3 Stocks to Ride a 588% Revenue Explosion
At Zacks, we're mostly focused on short-term profit cycles, but the hottest of all technology mega-trends is starting to take hold...
By last year, it was already generating $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for those who make the right trades early. See Zacks' Top 3 Stocks to Ride This Space >>