Senior Chinese officials speak at a press conference of the Central Committee of the Chinese People's Congress after the Communist Party of China concluded its fourth plenum.
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BEIJING – China's top leaders pledged Thursday to boost domestic consumption over the next five years, along with widely expected plans to boost self-reliance in advanced technologies such as quantum computing and hydrogen energy.
This emerges from a state media report on the highly publicized meeting of the “Fourth Plenum” to set five-year development goals. China also confirmed on Thursday that Vice Premier He Lifeng, who attended the plenary session, will visit Malaysia from Friday to Monday for US trade talks – as anticipation grows for a possible meeting between the US and Chinese presidents at the end of the month.
Despite widespread calls to boost China's international influence and “protect the multilateral trading system,” the reading did not mention key countries by name as the meeting focuses primarily on domestic development.
According to a CNBC translation of the Chinese, China needs to “strongly boost consumption,” according to the reading from the meeting. The leaders explained the need for consumption, calling for it to be aligned with “effective investment” and to “stick to the strategic point of expanding domestic demand.”
“New demand will create new supply, and new supply will create new demand,” the report said. The leaders also called for effective implementation of measures to support businesses and “special measures” to boost consumption.
The tone shows that China's policymakers are taking a closer look at the relationship between economic supply and demand than in previous years, said Zong Liang, a former chief researcher at the Bank of China.
This change – not made lightly in China's ideologically driven government – is still not a green light for cash lending. Even though retail sales have been subdued since the pandemic, Beijing has refrained from giving money directly to consumers, in contrast to US stimulus packages in the wake of Covid-19.
The news “signals a continued emphasis on investment – this time as a means of stimulating consumption – rather than a bold, direct push to expand consumption itself,” Yue Su, chief China economist at the Economist Intelligence Unit in Beijing, said in a note.
“We can therefore expect investments to be more focused on consumption-related sectors and activities, such as improved urban planning, public services and aged care,” she said. Su noted that China has relied heavily on investment to drive growth over the past decade, raising concerns about overinvestment.
China has tried to boost consumption over the past two years through subsidies on home appliances and certain other consumer goods. The country has also encouraged local governments to hold sporting events and other entertainment events to boost spending.
Since the announcement did not call for a “vigorous increase in income,” Dan Wang, China director of Eurasia Group, is more cautious about Beijing's consumption plans.
“It’s just a dream goal,” she said. “I don’t see any financial commitment in this.”
The reading reiterated the growth target of around 5% for 2025 and other previously shared targets for 2027 and 2035.
All of this implies annual growth of 4.6% until 2035, Wang said, noting that this will be “very costly.” It expects Beijing will ultimately focus its resources on high-tech and emerging industries, with little improvement on the demand side as deflationary pressures continue.
For example, China's previous policy goals of becoming a global leader in electric cars were criticized for encouraging companies to flock to subsidized industries, leading to a race to the bottom that then squeezed industries in other countries.
A “significant leap forward” in technology
Beijing has taken measures this year to curb excessive competition. But the country also accelerated its technological development in response to U.S. restrictions on China's access to advanced technology.
China's top politicians called for improving technological self-reliance on Thursday. “We will strive to make a significant leap forward over the next five years [China’s] economic strength, scientific and technological strength, national defense strength, comprehensive national power and international influence by 2035,” the announcement said.
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It also called for developing a “strong agricultural nation” and “accelerating the construction of a strong manufacturing nation,” while stressing the need to maintain an “adequate” share of manufacturing in the country.
This language on manufacturing “suggests that the focus will remain largely on industrials,” said Louis Kuijs, chief APAC economist at S&P Global Ratings. Overall, “the results suggest a continued push for self-reliance in science and technology and a strong China in what is seen as an increasingly challenging world.”
“It remains to be seen how much emphasis will be placed on expanding the role of consumption over the next five years compared to other goals,” Kuijs said.
The only mention of the ongoing real estate decline in the meeting's readout called for “high-quality development” of real estate. Beijing also noted that it would work on previously published plans to reduce carbon emissions.
GNI and GDP
During a press conference Friday morning at the Fourth Plenum, China's Commerce Minister Wang Wentao said the U.S. and China can still find ways to work together and resolve their differences.
Wang said Beijing will track gross national income – the sum of all income of all residents at home and abroad – and gross domestic product. He didn't elaborate.
Zheng Shanjie, director of the National Development and Reform Commission of the Economic Planning Authority, said the residential consumption rate will “increase significantly” in the next five years.
“Whether an explicit official target for consumption as a share of GDP will be set remains to be seen; if so, it would be a positive surprise for the market,” Ning Zhang, senior China economist at UBS Investment Bank, said in a note on Friday.
A more comprehensive reading is expected in the coming days. China typically only releases detailed five-year goals at its parliamentary session in March.