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Breakingviews

Breakingviews - China’s latest five-year plan girds for battle

Chinese President Xi Jinping arrives for the National Day reception on the eve of the 71st anniversary of the founding of the People's Republic of China, following an outbreak of the coronavirus disease (COVID-19), in Beijing, China September 30, 2020. REUTERS/Thomas Peter - RC2X8J9KXLJV

HONG KONG (Reuters Breakingviews) - China’s latest five-year blueprint suggests President Xi Jinping is girding for battle. Despite the recent economic rebound from the pandemic, the tone from the ruling Communist Party’s closed-door meetings was notably less cheerful than in 2015. Although details are scarce for now, Beijing is intensifying preparations for geopolitical and corporate arms races.

Noting “profound adjustment in the international balance of power”, the official communique released from the so-called 5th plenum reflects a darkening mood in Beijing. Washington’s moves against telecommunications equipment maker Huawei and video app TikTok, retaliatory efforts over China’s crackdown in Hong Kong and criticism over its early pandemic response have made their mark. Proposed U.S. export curbs on chipmaker SMIC threaten to curb a nascent but growing domestic semiconductor industry. Concerns have spread internationally about an overdependence on mainland suppliers.

The message from China’s leadership seems to be that things will get worse before they get better. It elevated the status of technological self-reliance to be a “strategic support” for national development as a shield from overseas restrictions on imports. That will translate into greater R&D funding and subsidies, and diversion of funds to high-end manufacturing from property markets. There are early signs the approach is working: new registrations for semiconductor makers have jumped by a third this year, according to local media reports.

A standalone paragraph in the Central Committee’s 6,200-word message related to armed forces also hints at new directions. China will “comprehensively strengthen military training and preparation for war”, it said, reflecting Xi’s hardening stance on Taiwan and the disputed waters in the South China Sea. This year’s defence budget only increased 6.6%, its lowest rate in decades. That looks set to rise now.

These new areas of emphasis coincide with the lack of a GDP growth target, at least for now. More details may be released next spring. From 2011 to 2015, the annual goal was 7% on average while for the ensuing five years it was 6.5%. Instead, China is focusing on quality over quantity, a possible recognition that explicit figures in this realm lead to wasteful investment. That is less affordable now given the tough fights seen ahead.

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