Hi and welcome to Ones and Twos FP's economics podcast. Every week we take a couple data points, use them to try to explain the world. I'm Cameron Nabati, FP's deputy editor with you in Berlin, Germany. Joining me as always is FP's economics columnist and Columbia University professor Adam Tooze in New York. Hi Adam.
So in the second half of the show, we're going to be talking about St. Patrick's Day and the economics around that holiday. But first a data point and that is 4.5 as in 4.5% or 4.5 to 5% that range which is the growth target that China's 15th 5-year plan which was released last week. That's the target that it sets for the coming year for the Chinese economy. That happens to be the slowest growth target that China has set since its era of reform. And yeah, these five-year plans are big events. They have been ever since the Communist Party has been leading China. And you know, this version that just came out will be the blueprint for governing the world's largest economy until 2030. Yeah. And then the question becomes, what story is this plan telling exactly? One way of finding out is through an exercise of close reading. What's changed from the last iteration to the current one? What's remained the same? We'll try to do that in a little bit. But first, Adam, I wanted to ask about the 5-year plan as a concept itself. I mean these have their roots in Soviet centralized economic planning if I understand correctly and I'm curious how those origins inform the plans in today's China which is a market-based country obviously so you know broadly speaking what conceptually differentiates this approach to policymaking, these 5-year plans, from how the west approaches economic policymaking? Is this really a matter of scope that the five-year plan represents or centralization or the time horizons it sets? What is the kind of relevant comparison there?
Yeah, I have to say this idea came to me in the second week of the ongoing war in Iran when there was just this jarring juxtaposition between the chaos of policymaking in the west and the due sessions in Beijing which are the formal political meetings in China annually that approve the 5-year plan and that jarring distinction sort of brought home to me the extraordinarily weird world we live in in which the CCP's long-range economic planning is a kind of point of order whereas Washington has become a source of chaos. They do indeed historically go back to the Soviet example. There's a lot of talk about planning in the interwar period. The Nazis had four-year plans. But the original one was Stalin's 1928 5-year plan and Maoist China adopted the planning model in 1953. It was quite contentious in the Mao period. There was a lot of kind of warring around the Soviet examples, one of the big contentious issues in the political struggles in the regime in the 1960s. But we're now in the 15th planning period. But I think it's worth saying that language here is important and the translation of the Chinese is a little deceptive because the first modern five-year plan really came in 2006 because what the English translation doesn't capture is that the Chinese changed the characters that they used to describe this thing with the 11th plan in 2006. So the original Soviet Maoist era plans were jihua and this has changed to guihua since 2006. And the difference is that jihua has, you know, these are two character combinations but jihua in conjunction say with tongji or jisuan is numerical statistical calculate. Whereas guihua as a single character could mean compass or rule and fagui is law or ordinance. So in a sense in 2006 this thing that we carry on calling the five-year plan has shifted from being really a kind of numerical matrix, you know, that kind of image jihua kind of vision of planning to being something that is more akin to kind of guard rails. It's, you know, if you, the analogy globally is the thing we've talked about is like sustainable development goals and it's similarly comprehensive. So they have a plan for growth. They have a plan which is adjusted year by year. We'll talk about that for urbanization for industrial development in key technologies but also for urbanization for life expectancy. So this is, you know, the CCP and the Chinese government's plan to improve the life expectancy of Chinese people. And then there are deliverables that feed into that. You end up with that like with the United Nations sustainable development goals with this huge compass and matrix of, you know, 100 plus indicators and sub-indicators. And in the Chinese case increasingly they've resorted to organizing this around major projects. So there will be for instance in the current plan there's a whole new set of what they call energy bases that are going to be built notably around the combination of wind solar and hydro no longer in isolation from each other but joined together. So that's a part of the five-year plan. So it's somewhere between like the omnibus legislation that say the inflation reduction act was in the United States where you had a bunch of different things all globed together from support for infrastructure to tax credits to rural development schemes to what the Germans would call a coalition agreement where you have two parties that join together to form a government over a period of four years till the next election and they agree to do the following to a giant like administrative exercise is where every single aspect of Chinese government more or less bids and wrangles with each other for inclusion in this and once they've announced the general plan there will now be like countless numerous dozens and dozens and dozens of sub plans that address particular areas for, you know, particular areas of engineering development or particular areas of environmental clean up that they want to do. So it's a sort of rolling exercise in pulling the party and state apparatus together around a really comprehensive set of objectives for Chinese economy and society.
Okay, that's useful. Yeah, this is a plan not in the sense of a kind of command economy plan. Doesn't tell you what you're going to do in each individual bit. That will be the old jihua system. Guihua is more like okay these are our objectives. Yeah. From that it follows that and they increasingly now do them in 10-year leaps. So it's called a five-year plan but the targets are actually on a 10-year time horizon. 2035 is a highly significant moment in terms of like the modernization objectives of the regime. And so each plan chains backwards from a 10-year time horizon. So the next one is already inserted into so for instance their decarbonization targets peak by 30 neutrality by 60 imply a series of steps to get there and if you make decisions in this plan that are relatively modest you obviously have more to do later. Yeah, it's that it does seem relevant that the premise here is that it's still useful to and possible to plan over time in this way and that there is a kind of apparatus that can, you know, respond to those signals and carry them out and that may itself be telling or different than elsewhere in the world. But to look at this specific document and compare it to previous iterations as I was mentioning, I guess it would be useful perhaps to start with what has remained the same versus the recent plans that have been released. I mean seems like there are a number of things that are consistent here. You know in terms of China approaching technology with a kind of goal of self-reliance an approach to industrial policy that remains in terms of placing big bets on specific sectors of the economy although maybe there are shifts there in terms of which sectors of the economy to place those bets on. So yeah, what would you say is consistent here in this particular plan?
Well, I think you're right like innovation is a key element. I mean to be honest, it goes back to the beginning of the modern era of guihua of modern planning. So it was the period 2003 through 2006 that plan that developed China's approach to industrial policy and technology. In retrospect, it's clear that that was quite a turning point and the current plan continues the 14th plan with its emphasis on growing R&D expenditure at 7% which is faster than the GDP target. are implicitly raising R&D's share of GDP progressively over time and aiming for tech sectors, scitec they call it, they have a whole kind of language of technology that they the very highest level of politics will talk about very fluently so I've heard the Chinese prime minister two times talking about at great length about the details of the scitec revolution that they're planning so the share of the digital economy is supposed to rise to 12.5% of GDP from its current share of 10%. All of these are shifts in balance within the moving economy. The second line of continuity is the link between development and security. So, China is insistent that it is a developing economy, right? Hence also the relevance of the kind of inter overlay between sustainable development thinking and Chinese national economic policy. But now and really since the 14th plan, this has been quite explicit. There's an overlay between national security and development. Again, you could say that actually goes all the way back to 2003 or even far deeper than that. In some senses, the plan is best thought of as the sort of technocratic quintessence of the CCP's project for national reconstruction and modernization of China. Right? That's the deep continuity. So, it's always variations on a theme. Development and security tightly linked together is a new theme. And then green transition. You just can't underestimate this. I was talking yesterday to a UN person who apparently there was a big gathering at the UN after the usual nonsense with the Americans. And it was like big heads of government kind of meeting. And apparently she said it was really striking because they moved the table out the way. They sat around in a circle. They just kind of looked at each other and said around climate, are you still in? are we still doing this? And they went round the circle and they got to the Chinese and the Chinese just looked at everyone and said like why are we even asking like of course like it wasn't like a kind of maybe we are maybe we aren't. It's like yeah I mean totally. So that is another key continuity. So dual carbon is what the Chinese call it this dual control which is getting to a peak sooner rather than later. they already have peaked, but they're saying before 2030 and then net zero by 60. And then full greenhouse gas neutrality that is a huge organizing idea of this entire apparatus because it's such a vast challenge like decarbonizing the Chinese economy is a multigenerational gigantic enterprise and they know it and they're working on practically every dimension of it now including things like hydrogen. So yeah, there's deep, it's not very exciting at that level because it's these sort of slow grinding of permutations of similar concepts and it does have a kind of peakology dimension where you have to kind of catch the nuances of small shifts in language.
Yeah, I guess that brings up the question of what exactly has changed then and it seems to me like there are a few relevant shifts and some of them are basically within these categories although like the overall goal has remained the same maybe there are sort of shifts and emphasis you you know you talk about climate policy the goal perhaps is the same but it did seem like there was a shift in terms of less of an emphasis on emissions reductions I I don't know how significant you would consider that to be. And then when it comes to technology policy, maybe there's a shift there that I could tell from, you know, an emphasis on development of these technologies whether it's solar power or renewable energy technologies to their diffusion and their implementation. And then there's sort of the topic of household welfare which from what I could tell in the past would be mentioned in these documents as a kind of purely social concern and now is being treated more in the proper technocratic macroeconomic aspect of these plans. So what would you put your finger on in terms of what the most relevant differences are in this specific document?
Yeah, it's maybe also a question of like attitude with which you approach five-year plans. I think they require a rather different setup than western politics because there's quite a lot of tension waiting for them to happen and then the outcome more often than not because of course it's one party that's going to rule for the foreseeable future is actually continuity and if there was any really big change that would be truly dramatic. So what we're looking for is like a sort of constantly evolving pattern. And so yes, if we get into it the real details like the demand side rebalancing which is every macroeconomist's ask from China for more than well 15 years now almost essentially seems to have risen up within the priority chain. There's two different elements of that. one is boosting consumption and the other one is a kind of unified national market which is trying to overcome various types of restrictions within the circulation of the Chinese economy and that it's a little bit like Canada we've spoken about as well or Europe where they're always talking about completing the common market China has is in the process of doing that as well the 14th plan already emphasized domestic circulation because they had this dual circuit model of the economy where there's a foreign sector and a domestic sector. The 15th version of the plan actually stresses the domestic consumption side as the principal growth engine. But since this has been a conversation that's been going on for 15 years, the question really is always going to be how serious they are? Another shift and again it's these tiny shifts that people will focus on. In the 14th plan, there was an emphasis on science and technology for self-reliance and key breakthroughs. In the 15th year plan, new quality productive forces and frontier technologies are literally just headline. Right? So, and they're focusing on AI, 6G, nuclear fusion. In the green area we are talking fractional adjustments in the objectives which can only the significance of which so for instance the 14th plan called for a 18% reduction in carbon intensity. The 15th year plan calls for a 17% reduction in carbon intensity. You know does that what does that indicate? Does that indicate that these are trivial adjustments or does that mean that these numbers really really matter and so a very small adjustment really makes a big deal? You know, is this just window dressing or is this more like European fiscal politics where we're endlessly talking about 2 and a half% or 3% of GDP in terms of the fiscal arrangements. One really striking thing is a shift between the 14th and 15th plan with regard to demography. So the 14th year plan was full of commitments about numbers of years of schooling, nurseries for under three year olds. The 15th plan is focusing on an increasingly aging population. It literally sets 80 as the target for national life expectancy and is essentially already indicating if you like a shift within Chinese policy towards recognizing the challenges and also potentially the opportunities of an aging society. So it's these kind of adjustments that we have to talk about. Again, you might kind of to draw a western analogy, you know, in western in American fiscal politics, we talk about non-discretionary and discretionary elements of the budget, right? And the non-discretionary elements are so-called entitlements. Well, imagine all of society to some extent is incorporated within a sort of CCP organized set of commitments. Then the balance between the discretionary and the non-discretionary elements is kind of vague and comprehensive and the plan is indicating a sort of slight adjustment in the trend of the movements of those different components. It is when you think about it like a very very different political style. That raises the question for me of in giving this a close reading what the kind of attitude of these policy makers is that are overseeing the Chinese economy and namely whether they are more pessimistic than they used to be or more optimistic say when it comes to the outlook for the country as a whole and that requires I suppose reading between the lines of the document in terms of the constraints that the country is under or the global context it finds itself in. I mean it seems to me like the very premise of these plans is in some sense optimistic like the goal of modernizing is itself something that is an indication of belief in the country's future. But on the other hand, yeah, you're pointing to some of the demographic challenges that the country may have and I mentioned at the very outset the kind of reduction in growth expectations. So is it possible to say this is a kind of more pessimistic document than its predecessors?
I mean what they would insist on is it's realistic. So interestingly the growth element of the plan is not a predetermined fixed rate. they would insist that it is data-driven a little bit like the Fed in the current moment. So the target for this coming year is 4.5 to 5%. It is not as it were a pre they don't say we're going to grow at x% for the next 5 years. This is part and parcel of the new normal which goes all the way back to the early 2010s, like the adjustment away from the hyper growth of the 2000s. What isn't squarely addressed in any discussions of the 5-year plan that I've seen is the truly acute risks which are the ongoing housing crisis adjustment the risk of deflation that's associated with that and then the theme of involution which is touched on at various points. But this is not a crisis program. So this isn't a program that starts from the premise that the Chinese economy is in real trouble. It maps out lines of development. And so there is a disconnect to an extent between discourse around the 5-year plan and conventional macroeconomic short-run macroeconomic commentary on China. That one also has to acknowledge. I think it's not then they're operating in different registers and when you talk to senior Chinese officials they they're fully aware of that. So there's a degree of kind of opacity and which which which which in western responses to the 5-year plan I think kind of doesn't it won't say undermines the credibility but it leaves one wondering what the function of this document is in light of the fact that we can track monthly price indices which suggests the Chinese economy is in borderline deflationary territory and the housing markets in key areas are not properly stabilized. And on the other hand, the export boom is staggering, right? We look we're on track now for a $1.2 trillion surplus. So there's a sort of a degree of disconnect which makes again this document both interesting and sort of hard to locate against the backdrop of our own thinking about economic policy.
Yeah, that's interesting. I mean, it makes it seem almost like a category error in the sense the document can't maybe acknowledge some of these issues or reckon with them. I mean, that's not the purpose of it in that sense. That's why these close readings, I guess, are ultimately necessary. But maybe to end the conversation, we could even take a step back though and the question that comes to mind is generally whether these plans work. If they do, how how are they sort of carried out? And historically, have they accurately represented what China really ends up doing?
