The Chinese planning season is in full swing. Ahead of the formal release of the 15th five-year plan (running from 2026 to 2030) next March, early signs coming out of the just-completed fourth plenum of the Communist Party suggest that it will be more of the same: a focus on continuing China’s extraordinary industrial and technological ascendancy, driven by what President Xi Jinping has called “new productive forces”.
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That would be a mistake in the following sense: China’s techno-industrial prowess is so well established that it is unnecessary to dwell on the obvious. The planning exercise should instead aim to tackle the country’s most daunting challenge: a long-awaited consumer-led rebalancing. To that end, the 15th five-year plan should set an explicit target of boosting household consumption as a share of gross domestic product (GDP) from its latest reading of nearly 40 per cent to 50 per cent by 2035.
By now, the debate over rebalancing has dragged on for decades. It was raised in 2007 by former premier Wen Jiabao as the second of his now-famous “four uns” – unstable, unbalanced, uncoordinated and unsustainable. That, he argued, jeopardised the seemingly strong Chinese economy. Of course, “unbalanced” is only an elliptical reference to the Chinese consumer. But in the context of all four “uns”, it raises what has since become the most important structural issue for the Chinese economy: the need to find new sources of growth.
While Chinese authorities have been especially adept at addressing the first “un” (instability), as demonstrated during the global financial crisis of 2008-2009 and the Covid-19 pandemic, the fourth “un” is where the rubber meets the road for the political promise of Xi’s Chinese dream.
If its economic growth is unsustainable, China will fall short of its aspirational goal of becoming a “great modern socialist country” by mid-century. According to my calculations, that will require China’s real per capita GDP growth to reach 5.75 per cent per year over the 2030-2049 period.
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Achieving this won’t be easy, because many of China’s most powerful growth engines are tapped out. The beleaguered property sector is likely to remain under downward pressure for years to come. China’s seemingly resilient export sector will almost surely be buffeted by rising protectionism. Even all-powerful fixed-asset investment, which currently accounts for around 40 per cent of Chinese GDP, is reaching its limit.
