The full scope of the plan may not be known for months, but a statement released on Thursday said China wants to focus on economic autonomy and technological independence. Doing so will help insulate the country from US efforts to limit their access to critical technologies.
“[We will] “Cultivate a strong domestic market and establish a new growth paradigm,”; the statement said. “Domestic consumption will be a strategic focus.”
The statement did not set any specific goals. But messages from Beijing are being watched closely right now.
“Economic globalization is now facing headwinds,” said Han Wenxiu, a senior finance official with the Central Committee of the Communist Party of China. The pandemic, coupled with increased protectionism, has undermined international economic cooperation, Han added.
The need for renovation at home has been emphasized by Wang Zhigang, Minister of Science and Technology of China.
“Technology self-sufficiency is a strategic pillar for the nation’s development,” Wang said. “We have to drive independent innovation and do our own job well. That’s because critical technologies cannot be purchased or required. [from others]. “
Easier said than done
China’s desire to achieve economic self-sufficiency is not new. Many of the country’s Five-Year Plans prioritize sustainable growth and the expansion of the domestic industry. And an ambitious recent 10-year plan – “Made in China 2025” – was created to push China’s manufacturing sector into more technologically advanced areas.
But achieving economic independence is easier said than done.
Julian Evans-Pritchard, senior China economist at Capital Economics, wrote in a study last weekend: “There is no guarantee that efforts to promote self-sufficiency in specific sectors will succeed.
For the advanced sectors, the loss of independence from foreign countries is even more difficult. China relies heavily on other countries for the chipsets it needs to build the next generation of technology. The country imported chips worth more than $ 300 billion last year, about $ 64 billion more than it spent on crude.
“Made in China 2025” aims to help China ease that dependence and include the target of 40% of the chips produced domestically by 2020. That ratio is expected to rise to 70% by 2025.
Chaoping Zhu, global market strategist at JP Morgan Asset Management, said: “Given the huge gap between China and the US in the semiconductor industry, China will have to invest enormous amounts in a long time to catch up material progress ”. In Shanghai.
He wrote in a report on Friday that there are still doubts as to whether China can achieve autonomy in many areas, with chips topping that list.
According to Evans-Pritchard, self-sufficiency economy is not always good for economic development. He notes that firms are most productive when they can freely choose between domestic or imported inputs without political interference.
“Pursuing self-sufficiency (literally) is a textbook way to reduce productivity,” he wrote.
Beijing could be tied up
However, China may have no other choice when pursuing further economic independence.
“Faced with the risks of extending restrictions, developing domestic capacity and reducing dependence on foreign technology is becoming increasingly important for China,” Zhu wrote. from JP Morgan.
Evans-Pritchard argues that China still needs to find a way to solve its biggest problems, including over-reliance on infrastructure-focused investment as a means of protecting growth, and old population.
“Without faster progress in tackling structural problems, we think growth could slow to just 2 percent by 2030,” he said.