Valdai Club

China’s economic development plans are ambitious. According to some experts, the Chinese economy will overtake the US economy within the next 5-7 years, writes Anastasia Stepanova, Deputy Head of the Business Tourism Development Center, Russian-Chinese Chamber for Machinery, Technologies and Innovations.

The phenomenon of China’s economic growth

The economy of the PRC has been constantly growing over the past 30 years. China ranks second in the world in terms of nominal GDP, behind only the United States. Since the early 2000s, China’s gross domestic product has increased 12-fold. In terms of nominal GDP, China has surpassed Italy (2000), France (2002), Great Britain (2006), Germany (2007) and Japan (2010).

In terms of purchasing power parity (PPP) GDP, China came out on top back in 2014. Also, China is leading in terms of industrial production. Chinese companies such as Alibaba and Tencent are among the TOP 10 companies in the world in terms of capitalisation; their market value is already approaching $ 1 trillion each. Other companies such as Baidu, Xiaomi, Huawei, Lenovo and many others are also actively developing. In general, there is a significant increase in the capitalisation of Chinese companies, especially in the field of telecommunications, e-commerce, pharmaceuticals, etc.

The coronavirus pandemic has made adjustments to the economic growth indicators of every country. In recent years, the growth rate of the Chinese economy has exceeded 6% per year. However, since 2017, there has been a slowdown in GDP, caused not only by external factors, but also by internal ones — a significant investment in the development of the domestic market, as well as in infrastructure, transport and roads; the payback period of such projects is long-term. The volume of housing construction has also increased significantly. In 2017, the country’s GDP growth was 6.8%, in 2018 it was 6.6%, and in 2019 it was 6%. However, according to Reuters, citing data from the State Statistical Office of the PRC, China’s GDP growth in 2020 was the lowest in the last 45 years. In 2020, China’s GDP grew by 2.3%, its lowest growth rate since 1976. However, already in the fourth quarter of 2020, China managed to restore its economic indicators, and the country became the leader in economic growth during the period of the pandemic.

China’s economic development plans are ambitious. According to the Centre for Economic and Business Research (CEBR) in the UK, China’s economy will be able to overtake the US economy by 2028. At the same time, the period of the pandemic and the way various countries dealt with it in the economic sphere contributed to the more rapid growth of China. China is a densely populated country. In terms of territory, China ranks third in the world, with 9,598,962 sq. km. In terms of population, China confidently ranks first in the world. According to the National Bureau of Statistics of China, China’s population stood at 1,443,497,378 as of November 1, 2020, 5.38% higher than in 2010. In this regard, the development of the domestic market, growth of income from consumption, the development of platforms and ecosystems are an important factor in the growth of the Chinese economy.

14th Five-Year Plan and Social and Economic Development of China

On 1 October 2019, China celebrated the 70th anniversary of the founding of the People’s Republic of China (PRC). We should emphasise that the USSR was the first state to recognise the PRC, on 2 October 1949. An 80-minute military parade was held in Beijing. China is investing heavily in the military sphere, as well as in the development of space exploration. The Chinese army is also the largest in the world.

Recently, relations between Russia and China have reached a new peak. On July 16, 2021, the two countries celebrated the 20th anniversary of the Treaty of Good-Neighborliness and Friendly Cooperation. Exports between the two countries exceeded USD 100 billion in 2018, and there are plans to increase this figure to USD 200 billion by 2024. Perhaps, given the pandemic, the timing will be slightly shifted.

The increase in mutual exports will help Russia and China to further strengthen not only political, but also economic cooperation. For both countries, the expansion of settlements in national currencies plays an important role in this process.

On July 5, 2021 China celebrated the 100th anniversary of the founding of the Communist Party of China ( CPC).

In China, great attention is paid to achieving the Chinese dream of the revival of the Chinese nation, which consists of three stages. The first stage is wenbao (absence of hunger and poverty), the second stage is xiaokang, the construction of a “middle income” society, and the third stage is datong, the ideal society of “great harmony”.

The task of building a “xiaokang” society was put forward at the 16th Congress of the CPC in the report of the President of the People’s Republic of China Jiang Zemin in 2012, as the main task for the next 20 years. At the 19th Plenum of 2020, it was noted that the 14th five-year plan is the first five-year plan when the task of building the xiaokang society has been achieved.

The foundations of China’s socio-economic development are laid down in the country’s five-year plans. They contain targets for economic growth, guidelines for economic reforms and industrial modernisation. In 1953, the first five-year plan (1953-1957) was formed, and focused on the transition from an agricultural economy to the development of advanced industrial production; special emphasis was placed on the development of heavy industry. In total, 13 five-year plans were implemented.

The first five-year plans traced a planned approach to economic development; it contained specific quotas and production rates — grain, steel, etc. In the 1980s, China moved to form a socialist market economy, with Chinese touches. In this regard, the importance of central planning has been downgraded.

Since the 2010s, more and more attention has been paid to technological development by the Chinese authorities. The main task of the 12th five-year plan (2011-2015) was the development of science, education, and high technology. For the first time, close attention was paid to the environment. In the 13th five-year period (2016-2020), the main emphasis was placed on stimulating the development of innovations.

From October 26 to October 29, 2020, the Fifth Plenum of the 19th CPC Central Committee was held in Beijing. The plenum was chaired by the Politburo of the Central Committee. The Plenum discussed China’s 14th Five-Year National Socio-Economic Development Plan (FYP) (2021-2025) and long-term goals for 2035. Xi Jinping, General Secretary of the CPC Central Committee, outlined the main directions of China’s development in the coming years. Xi Jinping’s ideas about socialism with Chinese aspects in the new era are rapidly developing in modern China.

First of all, the task is to achieve the socialist modernisation of China by 2035. It includes the development and strengthening of China’s economic and technological potential, as well as the development of new industrialisation. Much attention was paid to the modernisation of the Chinese management system, as well as to the issues of green development and ecology, the concept that “green mountains and emerald waters are priceless treasures.” An important aspect is the deepening of reforms and openness, including in the field of competition, reform in the system of property rights and market-oriented distribution. The development of agriculture and rural areas has also received close attention. It is also planned to create a modern fiscal, tax and financial system, including the development of research and development in the field of digital currencies.

Strengthening China’s strategic scientific and technological power, education and culture, developing the nation as a scientific and technological power, increasing the innovation factor in the economy, including the key technologies, as well as increasing the efficiency of innovation chains are on the agenda. Research centres are actively being developed, support is being provided to Beijing, Shanghai and the Greater Bay Area, Guangdong-Hong Kong-Macau, in the creation of an international centre for scientific and technological innovation. In China, there are many not only national, but also international technology parks, for example, the China-Singapore Industrial Park in the city of Suzhou. In this regard, the development of projects in the field of fundamental science and applied research between Russia and China has great potential. However, the further improvement of legislation in the field of intellectual property, trademarks and other areas of intellectual law in China will allow for the development of such projects more efficiently, including the development of joint technology parks. For example, a large project has already been implemented in neighbouring Belarus — a joint technopark with China, called “Great Stone”.

Despite the positive dynamics of growth, there are some difficulties. On July 26-27, 2021, shares of Chinese companies listed in the United States experienced their strongest decline since 2008. The Nasdaq Golden Dragon China Index fell 15% (in general from the peak in February — by 45%), and the assets of Chinese companies, including IT-companies, lost about $ 800 billion. The Shanghai Stock Exchange Index fell by 8.5%. The market value of Tencent, Alibaba and many others has dropped. Also in China itself, regulatory proceedings are ongoing against Alibaba and Didi Global (the Chinese equivalent of Uber). Currently, there is a certain decline in the volume of industrial production as a whole.

The drop in indices had a particular impact on the educational services sector in China. The securities of the Chinese educational platform TAL Education, New Oriental Education & Technology Group, China Beststudy Education Group, Koolearn Technology, Scholar Education Group actually depreciated, losing 40-87% of the market value in two days. It is not known whether the shareholders will be able to return their funds in the future on the growth of securities, since the Chinese authorities may prohibit companies in this sector from making IPO, and there are fears of investors that these companies will become non-profit. The sharp drop in the Chinese stock market affected not only Chinese but also foreign shareholders, including Russian shareholders, who also actively invested in China’s rapidly growing and lucrative education sector. One of the reasons, the Chinese authorities say, is that with the growth of paid educational platforms, children from wealthy families are given greater priority, since they can use these platforms, while less well-off children often cannot, which will make it difficult for them to enter good universities. Nevertheless, the Chinese stock market remains promising for both Chinese citizens and foreign investors.

In the new five-year plan, great emphasis will be placed on developing the domestic market, expanding domestic demand and deepening structural reforms on the supply side. Digital platforms such as B2B, B2C, C2C, G2C, G2B and G2G are actively developing both in the domestic and international markets. The advancement of artificial intelligence (AI) technologies will further develop the platform economy in China and around the world.

China’s international initiatives

The initiative launched by Chinese President Xi Jinping in late 2013 consists of two concepts — the Silk Road Economic Belt and the 21st Century Maritime Silk Road. Together, they comprise the Belt and Road Initiative (BRI), which is of great importance in the development of Eurasia. This initiative, billed in China as the “Project of the Century”, covers about 78 countries and is aimed at building trade routes between China and the countries of Russia, Central Asia, Europe and the coastal countries of the Indo-Pacific region with a network of roads, railways, oil pipelines, electrical networks , ports and other infrastructure projects. Within the framework of this initiative, Beijing will pursue the development of trade relations, not only with the countries of the Eurasian continent, but also with Africa, Latin America, and other regions.

Within the framework of the Belt and Road Initiative, it is planned to build new land transport corridors in the coming years, such as the China-Mongolia-Russia Economic Corridor (CMREC), New Eurasian Continental Bridge (NELB), China-Central Asia-West Asia Economic Corridor (CCWAEC), China-Indochina Economic Corridor (CICPEC), China-Pakistan Economic Corridor (CPEC) and Bangladesh-China-India-Myanmar Economic Corridor (BCIMEC).

The first two corridors run through Russia.

An important goal of the Belt and Road Initiative is not only to stimulate the development of the western regions of China, but also to significantly strengthen economic ties with neighbouring countries, which will contribute to stability in Eurasia. In this context, the development of Russian-Chinese relations in the Eurasian region has great potential for linking the Belt and Road Initiative (BRI), the Eurasian Economic Union (EAEU) and the Greater Eurasian Partnership (GEP).

In November 2020, the Regional Comprehensive Economic Partnership (RCEP) agreement was signed, which, according to Bloomberg estimates, is the largest trade deal in the world — 15 countries, 2.2 billion people, and a combined GDP of 26.2 trillion dollars. This integration bloc includes the ASEAN countries — Brunei, Myanmar, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam, with a total population of more than 592 million people, as well as the ASEAN partner states under the free trade agreement — Australia, China , Japan, South Korea and New Zealand. The association will further strengthen trade ties between China and the countries of the Asia-Pacific region, consistently reduce tariff and non-tariff barriers, and develop e-commerce.

In this regard, the authors of the Valdai Club report “The Platform World: From Corporations to Regions” suggested that the development of interregional platforms: G2R (government to region), B2R (business to region) and C2R (consumer to region) would contribute to uniting citizens, businesses and government organisations at the interregional level of integration associations.

An important role in the field of sustainable development and the maintenance of multipolarity is played by such regional associations as BRICS+, SCO and other organisations. It is noteworthy that in 2020, at the initiative of Russia, the SCO party platform was created. At the same time, their coordination with the New Development Bank, as well as with the Silk Road Fund, the Asian Infrastructure Investment Bank, the Eurasian Development Bank, the European Bank for Reconstruction and Development, and the International Monetary Fund will be important.

Thus, the implementation of the 14th Five-Year Plan and long-term goals for 2035, including international initiatives, is of great importance for the successful development of China in the 21st century.

Appendix 1

China during the coronavirus pandemic

At present, China, like Russia, supports its vaccine production companies in transferring technology to other developing countries, and in organising joint production with them. This idea was voiced at the APEC summit held in July 2021. Thus, Russian President Vladimir Putin noted that Russia has signed contracts for the release outside the country, including in the APEC countries, of more than 800 million doses of the Sputnik V vaccine per year. Four vaccines have already been registered in Russia — Sputnik V (Gam-COVID-Vac), Epivaccorona, Covivak and Sputnik Light.

China has provided over 600 million doses of COVID-19 vaccines to foreign countries and international organisations around the world to support the global fight against COVID-19, according to Xinhua News Agency. At the same time, two vaccines — Sinopharm and CoronaVac, have already been approved by the WHO. China has sent more than 300 billion masks, 3.7 billion protective suits and 4.8 billion test systems for diagnosing the novel coronavirus to more than 200 countries and regions throughout the world. At an informal meeting of APEC leaders on July 16, 2021, PRC President Xi Jinping announced that China had financed the creation of the Pandemic Response and Economic Recovery sub-foundation. At the Global Health Summit, President Xi stressed that China will provide an additional $ 3 billion in international assistance over the next three years to support the response to the coronavirus pandemic, and in the socio-economic recovery of other developing countries.

However, in addition to positive trends in the field of vaccination, both globally and in the developing countries in particular, it should be noted that issues concerning the mutual recognition of vaccines are becoming more acute. At present, even the APEC countries advocating the development of a dialogue on this issue, do not recognise each other’s vaccines, which noticeably affects the mobility of the population. Also, vaccine-producing and exporting countries often do not allow vaccines from other countries to enter their domestic markets. There are also questions about the registration of vaccines with the WHO. Despite the great success in the production of vaccines against coronavirus, Western countries give greater priority to the issue of their vaccines being registered with the WHO. The development of dialogue and the achievement of an early balance on these issues is extremely important for both states and the world’s population.