China’s five-year plan provides a direction for its economy until 2025. The program largely follows Made in China 2025’s theme, which aims to make China the global manufacturing powerhouse. The focus on domestic consumption and the strengthening of domestic brands will transform China’s textiles and apparel prospects.
China’s five-year plan provides a direction for its economy until 2025. The program largely follows Made in China 2025 and aims to make China a manufacturing powerhouse in the world. The focus on domestic consumption and the strengthening of domestic brands will be major highlights. This will transform China’s prospects in textiles and apparel.
History repeats. The world we live in is full of cycles, whether they be economic, cultural, or civilizational. The rise and fall of nations, states, fashions, tastes, and fads are all symbols of a world that is changing but still has familiar patterns. The current world economic order hasn’t always existed and is likely to change drastically in the next decade or even sooner. Perhaps it’s a coincidence that the US lost its economic advantage to China almost exactly 100 years after gaining economic dominance in the 1910s. China’s GDP had already surpassed the United States in nominal terms by 2016, but not necessarily in Purchasing Power Parity. China’s Five Year Plan (FYP), released recently, made this intention clear. It has less specific growth targets but more concrete goals, which mirror the previous FYP but place greater emphasis on market reforms and industrial modernization .1
China’s 14th five-year plans (FYP) provide a better understanding of its long and medium-term positioning. The program closely follows Made in China 2025, which was released in 2015. It focuses on digitization and revamping China’s manufacturing in order to produce high-value-added products. The government maintained continuity between the current FYP and the previous FYP to strengthen its focus on further integrating China into the global economic system. The Chinese government, for the first time, has not defined a growth target for the next five years. This is likely due to the uncertainty surrounding the global economy and China’s failure to meet its previous growth target.
China’s 14th five-year plans (FYP) provide a better understanding of its long and medium-term positioning. The program closely follows Made in China 2025, which was released in 2015. It focuses on digitization and revamping China’s manufacturing in order to produce high-value-added products. The government maintained continuity between the previous FYP and the current FYP to strengthen its focus on further integrating China into the global economic system. The Chinese government, for the first time, has not defined a growth target for the next five years. This is likely due to the uncertainty surrounding the global economy and China’s failure to meet its previous growth target.
The FYP plan had dramatic effects on global supply chains, as we noted in our article about Made in China 2025. China’s exports have increased dramatically in recent years, while those of textiles and other products with a lower value added (and more labor intensive) have only seen moderate growth. China’s race towards a highly innovative, modern manufacturing sector is partly reflected in its total stock of industrial robotics. China’s share of the global industrial robot stock, which totaled 2.7 million units in 2019, was 28.8%. The country had the most stores, with 783,000 units. China’s development plan is characterized by its increased focus on investment along the Belt and Road Initiative and a dual approach that mixes the relocation of industries and the use of technology in low-value-added sectors.
The 14th FYP: Important Aspects
1) Dual circulation strategy
The 14th FYP, despite the US’s criticism of China’s Made in China 2025 Plan, retains many aspects. This time, a major theme is “dual-circulation,” which focuses more on the “domestic” circulation of consumption than on the “external” circulation. China will continue to focus on boosting domestic demand and less on external markets as they have become more uncertain. Private consumption, and especially household consumption
China’s consumption has been subdued for many years and is one of the lowest in the world. Exports helped China’s economy recover from the shock caused by the pandemic more than domestic demand. Infrastructural spending is driving the current need for infrastructure. If a simultaneous push in household consumption did not back up this demand, it could lead to more overcapacity and, again, a greater reliance on industrial growth based on exports.
Figure 1: Household consumption expenditure (percentage of GDP).
2) Reducing regional disparities
The disparity between regions in China’s development has been a key feature until now, especially when it comes to labor mobility, access to both financial and human resources, and overall progress. Factors such as the cost of capital and labor, the availability of skilled labor, the proximity of coastal areas, and manufacturing activity determine how different provinces will grow in China. The vast disparities in debt levels between provinces and regions of China have been a major problem. Debt levels and differences will likely increase due to the pandemic. The FYP projects a long-term target (2035) of improving China’s GDP per capita to levels attained by developed economies.
Reforms of state-owned enterprises
State-owned enterprises play a major role in the Chinese economy. The SOEs provide public goods and are viewed as relatively large.
Lower operational efficiency compared to the private sector. Chinese SOEs are second only to the US in terms of revenue and assets in the world. They are also a huge part of the Chinese economy. 3 The profitability of Chinese SOEs, however, is lower than that of private corporations. 4 profit margins for SOEs were 3.5 percent compared to 7.0 percent for private companies in the Fortune Global 500. The SOEs are also the biggest corporate debt holders in China. This makes them more dependent on government assistance. In continuation of the previous plan, the 14th FYP aims to reform SOEs in order to make them more effective.
4) Reduce carbon footprint
The plan highlights China’s urgent need to become a leader on the world stage in terms of new energy and reduce its carbon footprint. According to a 2019 report by Rhodium Group, China’s emissions exceeded all other developed countries combined. China contributed almost 27.0% of the total global net GHG emissions. China’s five emissions were about a quarter that of developed countries in the 1990s, and they have tripled since then. FYP includes ambitious plans to reduce fossil fuel dependence, including new energy, vehicles powered by new energy sources, environmentally friendly and green products, hydrogen and energy storage, and other areas. The current FYP is more focused on “promoting clean, efficient coal use” than it is on eliminating it. China will use emission reduction technology to reduce sulfur pollution and particulate matter in its coal-fired plants.
Continued efforts to develop domestic clothing brands
China is continuing its efforts to develop domestic brands for clothing and textiles in this FYP. Since the 12th FYP, the focus on building Chinese brands has increased. Many brands are now household names in the Chinese clothing and apparel sector. Recent consumer preferences have shifted towards more domestic brands due to increased tensions between Western companies and Chinese authorities over the use of Xinjiang Cotton. A recent study by Nielsen found that 68 percent of Chinese consumers prefer homegrown brands because of rising nationalist sentiment. Chinese clothing and apparel manufacturers have been primarily OEMs of Western brands until very recently. Now, brands like Li-Ning Anta Urban Revivo and others are experiencing an increase in demand. This is in line with China’s desire to increase domestic demand and the decision of Western countries to reduce their reliance on Chinese markets. In its latest strategy, the EU revealed its priority to reduce its dependence on China in several strategic sectors. (China provided 52 percent for such imports into the EU).
Conclusion
China’s FYP, released in recent months, continues to push for a manufacturing sector that is more innovative and modernized and relies heavily on domestic demand. Exports are a secondary concern. The plan continues to push for greener energy and cleaner transport modes while also focusing on more equitable regional growth and closing the urban-rural gap. The plan envisions a more confident Chinese economy, preparing itself to reach the level of developed economies by 2035. Some of the changes can be seen clearly on all fronts. In the electric battery market, for example, one Chinese manufacturer, Catl, has a market share of 32,9%, while BYD, the second largest Chinese company, has a share of 6%. China’s
As previously highlighted, the demand for robotics remains high. Other changes may take time. China’s drive towards an equitable society depends largely on the introduction of methods to redistribute its wealth. The tax on wealth and inheritance has been discussed for a long time but is now being discussed more formally as part of the policy. It may take some time before this policy actually makes an impact if it follows through with its intentions.
