It has long been no secret that it has been growing lately enmity between the US and China… However, China is serious about finally gaining dominance in the international arena. And China’s new five-year development plan could provoke significant economic stress for the entire world, which will recover from the devastating impact of the coronavirus pandemic reports Bloomberg.
The world should watch closely as Beijing prepares to unveil the country’s new five-year development strategy focused on the high-tech industry.
Between trillions of dollars in tax incentives, “easy money” and China’s widely accelerated credit cycle, the world’s industrial giants have found a tailwind. Statistics this week showed that orders for equipment and machinery in Japan, the country’s leading exporter of goods, increased by almost 50% compared to August.
However, investors should be careful. Beijing’s industrial policies, which are set by five-year plans, usually result in a state of shock to the functioning of targeted industries, both inside and outside China.
For example, you can see an interesting pattern: the growth of the capacity of certain industries in China leads to a deterioration in the performance of these industrial sectors in the United States.
In the past, this pattern has affected the furniture and toy industries. In general, Washington did not suffer irreparable harm from this. But now China is increasingly focusing on sectors in which both countries want to take the lead, such as 5G and another industry of the future, the so-called “green technologies”.
And this is a real warning shot for whoever becomes the new president of the United States after the upcoming elections.
The tension is understandable. When Beijing lays out its five-year industrial development plan and lists the industries that the country will most actively target, the implementation of this plan results in the average number of companies in targeted industries in China growing by 30%. Whereas in the United States, employment in these areas falls by 5%, and the number of companies – by 7%.
The Chinese government will meet this month to review and approve the country’s development programs, which will be unveiled at the National People’s Congress next year. It is expected that the new strategy will primarily include domestic demand to stimulate economic growth, and will also be complemented by foreign investment and technology.
So what happens if China moves up the technological food chain? Many experts agree that the growth of various industrial sectors in China is having a rather negative impact on working-class Americans through trade.
China’s new five-year plan is a warning to businesses around the world.
Research also shows that Chinese intellectual property competition “has a strong and powerful negative impact” on long-term sales growth and research and development spending by US firms.
Beginning in the 1950s, China issued five-year plans, following the strategy of the USSR.
The accompanying subsidies provided direction for the movement of the economy and business. For decades, these plans have contributed to the development of agriculture and industry.
By this time, the high-tech industry did not figure prominently in China’s five-year plans. In China’s Twelfth Plan, which was in effect from 2011 to 2015, the growth strategy changed as the pace of development slowed compared to years after joining the WTO.
The current plan recalls “innovation” more than 200 times and insists on “Made in China 2025” – a policy that has become the biggest problem in China’s trade disputes with the United States.
China is now trying to dominate high-tech manufacturing, data warehousing, and cyberspace. In addition, it is these industries that are most important for other influential countries.
Challenges for China to implement its own industrial policy are growing as international political winds pick up and the global economy grapples with the fallout from the coronavirus pandemic.
Investments are forced to become more targeted, the “fiscal treasury” is under pressure. The economic recovery in various countries after COVID-19 has been uneven, and negative attitudes towards China are growing in the world.
But even with all these obstacles, China has a goal of realizing its audacious ambitions. Beijing is improving new infrastructure and orienting the industry towards 5G technology and the latest green environmental technologies.
The development of the 5G network remains the main goal. Reforming state-owned enterprises is the next priority. Meanwhile, the Workers’ Department of the United Front of the Central Committee of the Chinese Communist Party, which reports directly to the central party officials, is now focused on bringing private enterprises to closer cooperation with the state.
The future plan will not be the same as the previous one: Beijing knows that it needs to move up and out of the dark economic reality. This should be a concern for competitors targeting the same industrial and economic space, the publication concludes.