From China, a plan for the future

Commentary: With its 14th five-year plan, China sets its next strategic objectives. A forward-looking project that can also regard Italy

People wearing face masks attend a ceremony in Beijing on October 1. Photo: REUTERS/Carlos Garcia Rawlins

On October 26, the fifth plenary session of the 19th Central Committee of the Communist Party of China opened in Beijing, with the ambitious goal of defining - after months of preparation and four days of debate behind closed doors - the strategic policy lines of the 14th five-year plan of the country, which - unlike the rest of the world - went practically unscathed by the Covid-19 pandemic.

The plan - designed to cover the 2021-2025 five-year period - has the meaningful title of "Vision 2035", aimed at underlining its potential medium-term impact on China's economy and its international relations. The US economic agency Bloomberg called the plan a "Warning Shot", a "five-year warning shot to the United States".

In fact, as Chinese President Xi Jinping pointed out, "Vision 2035" aims at making China a "moderately prosperous country" and redefining its economic (and hence geopolitical) relations on a global level.

Before examining the broad policy lines of the 14th Five-Year Plan, as announced by the Chinese media in recent months, it should be stressed that the Chinese leadership of the third millennium is profoundly different from the Maoist one. In the days of the "Great Helmsman", five-year plans were dictated by the most integralist ideology and often did irreparable damage to China's economy and society. 

In 1958, the second five-year plan, defined by Mao Zedong as "The Great Leap Forward", tried to transform the Chinese economic and production system from rural into industrial with an attempt at a huge forced reconversion that wanted to turn farmers into workers and cultivated fields into manufacturing industries by decree.

The attempt failed miserably and the famine that followed due to the abandonment of the rural areas caused over 20 million deaths.

Post-Maoist China learned from previous mistakes and it shifted from rigid and obtuse ideological beliefs to scientific pragmatism, with the result that today China is on the way to gaining the leadership of the world economy.

The last five-year plan, i.e. the 13th one for the 2016-2020 period, aimed at "replacing unbalanced, uncoordinated and unsustainable growth" with innovative, coordinated and environmentally-sensitive measures for inclusive growth capable of establishing a new "moderately prosperous society from all viewpoints" (which remains the same objective as the new plan). 

The basic goal was to make GDP grow by up to 6.5% per year, an objective that has almost been achieved despite the Covid-19 epidemic, thanks to the results reached in the first three years, a period in which the growth of Western economies - ranging from the United States to Germany - recorded levels three times lower than China’s. Once overcome the pandemic crisis last March, in the third quarter of 2020 China’s GDP reached 4.9% compared to the previous year and all economists, not only the Chinese ones, are convinced that it is destined to grow further by the end of the year.

A concrete goal achieved was to reduce carbon dioxide emissions by 12%. According to the Chinese leadership, this augurs well for achieving zero emissions by 2030, thanks to the total abandonment of the use of fossil fuels in energy production.

In China the "green shift" - so dreamt of by the European institutions - has been started concretely while results have been significant also in the fight against poverty: the 56 million "absolute poor" (people with an annual income of 335 dollars) surveyed in 2015 rose to 5.5 million in 2019. In the same period, the housing crisis was tackled with the building of 10 million social housing units that replaced thousands of slums.

It is on the basis of these results that President Xi Jinping has dictated the guidelines of the new five-year plan on which, in these days, the discussion of the Party's Central Committee is focused.

The central focus of the 14th Plan is "dual circulation", a strategy that aims at making both domestic demand and foreign investment in consumer goods and technology grow, with a "dual" and coordinated approach of great potential impact on the living conditions of the Chinese population and China’ international relations.

Morgan Stanley's economists estimate that China's GDP will grow by 5.5% per year until 2025, a conservative estimate which, however, is considered sufficient to significantly increase people's income and domestic demand, to attract significant foreign investment and increase China’s ability to invest abroad, both in financial markets and in industrial and technological markets.

According to Liu Peiqian, a Chinese economist working in Singapore (interviewed by Bloomberg), "in view of 2025, China's policy is becoming increasingly focused on long-term goals, while investors can expect more continuity and certainty from China’s economic policy over the next 15 years".

The Economist's financial analyst Yue Sue, interviewed by CNBC, said that "she expects the five-year plan to focus strongly on supporting technology and energy security based on diversification of energy sources, rather than relying on increased oil imports, while food security will be looked at carefully in view of possible tensions in relations with food exporting countries (first and foremost, the United States).

The decisions taken at the end of the four days of discussions on the 14th Five-Year Plan will only be made public in March next year, but economists are certain that, all things considered and given President Xi Jinping firm and authoritarian leadership, all what anticipated so far by the State media will be implemented to the letter. 

Whatever the final decisions may be, it is certain that the "warning shot" to the United States, about which the Financial Times has talked, will influence - probably in a further negative way - US-China relations in the coming years.

In fact, despite the huge differences existing in domestic policy between Donald Trump and Joe Biden, both candidates in the next US presidential elections are quite in agreement with specific reference to relations with China, as they are both oriented to continue the policy of ongoing confrontation-clash between the two countries.

For this reason, it is easy to predict that whoever wins the race for the White House, Sino-American relations on the political and economic levels are not bound to improve in the short and medium-term.

Considering the undeniable success of the previous one, the 14th five-year plan will mark a further step forward for the Chinese economy and, if it does not produce positive effects on relations with the United States, it will produce positive effects both on the domestic front and on the global arena.

China has emerged in good condition from the coronavirus epidemic, whose effects, instead, are being felt heavily in Western societies and economies. However, faced with the guidelines dictated by the new Chinese five-year plan, this reality opens up an extraordinary "window of opportunity" for the European and Italian production sector. The "dual circulation" envisaged by the plan opens up huge opportunities for European and Italian companies that want to take advantage of the opportunities offered by China's economic growth and its increasing financial resources.

Working in effective synergy with Chinese partners is not difficult if you have good professionals, skillful technicians and workers, as well as innovative ideas based on sound scientific foundations.

I can give the example of a reality I know personally: TRAFOMEC, an Italian company established in 1981 by a brave group of engineers, which over the years has become a leader in the production of current transformers and alternators, for industrial and domestic use, as well as in the manufacturing of electrical panels for trains and ships and in technology linked to the development of alternative energies.

After building its production plants in Italy and Poland and setting up joint ventures in India, Poland and China, Trafomec merged with its Chinese subsidiary Indu-Tek in 2016, thus creating a production reality with a dual centre of gravity: in Europe (Italy and Poland) and in China - a reality that has been further enriched thanks to the collaboration recently started with Eldor Corporation, a leading multinational company in the automotive sector and partner of the world's leading car manufacturers, present in Italy and China. 

I have given this example to demonstrate the huge growth potential for Italian companies that will develop forms of collaboration with similar Chinese companies or that will decide, thanks to the opportunities offered also by the 14th five-year plan, to enter the huge Chinese market. Trafomec has grown and will grow also thanks to this challenge that - possibly with the intelligent support of the Italian government and the European authorities - can be taken up also by other Italian and European companies, thus contributing - thanks to the opening of a "new Silk Road" - to the economic recovery of our country, debilitated by the pandemic, in an optimistic vision of the future taking into account an historical fact: after the plague of 1300, Renaissance blossomed in Italy.

 

Professor Valori is President of the International World Group