A 6% growth target, a $209 billion defence budget, a vision for 2035, and other takeaways from China's National People's Congress

Today's issue of The India China Newsletter will look at some of the main takeaways from today's opening day of the National People's Congress (NPC) in Beijing:

- The 6% growth target for the economy in 2021 and what it means
- The defence budget crossing the $200 billion landmark for the first time
- The draft outline of the Five Year Plan (2021-2025) and the 2035 objectives, and the push on self-reliance and tech
- The changes set to be announced for Hong Kong

Premier Li Keqiang presented the draft Work Report, as he always does, at the opening of the NPC. The work report looks back on the past year and sets the broad policy agenda for the coming year. The main news takeaways are the 6% GDP growth target and 11 million urban jobs target. In addition to the drafts of the Work Report, the National Development and Reform Commission's (NDRC) national plan for economic and social development and the central and local budget reports - which is where the defence budget is revealed - were presented today. The NPC will approve them this week.

I am making available here the three complete reports in English. You can download all three from this link. I would recommend going through the entire Government Work Report in particular at your leisure. If you get past the 'officialese', it's the best official document you can find to give you a sense of how Beijing is looking at the year's priorities in many areas. (Thanks to Santosh Pai for sending these reports my way and granting me the permission to share them with readers of the newsletter.)

I report for The Hindu on some of the main takeaways from the five year plan and 2035 objectives draft outlines:

The Five-Year Plan (FYP) for 2025 for the first time did not mention annual growth targets, instead announcing an ambitious annual target to increase R&D spending “by more than 7% per year”. The NPC will also approve a plan for “long range objectives through the year 2035”. 

President Xi Jinping said last year the country could double its GDP by 2035, pushing China towards becoming a $30 trillion economy. While there is no official target to do so, that would require 4-5% growth annually.

Both plans have emphasised self-reliance and a focus on high-tech growth. The FYP said China “will take self-reliance in science and technology as strategic underpinning for national development” and “will focus on the development of strategic emerging industries including information technology, biotech and new energy”. 

It said China “will implement a series of forward-looking and strategic major national sci-tech projects in frontier fields of artificial intelligence, quantum information, integrated circuits, life and health, brain science, gene technologies and clinical medicine.”

You can read my full report here.

The Wall Street Journal has a comprehensive report on the growth target and implications:

Chinese leaders said they would target gross domestic product growth of 6% or more this year, a relatively modest goal that nonetheless signals continued optimism after a year in which the coronavirus eviscerated the global economy.

The target, announced Friday in Beijing by Premier Li Keqiang, is comfortably lower than most economists’ expectations that the world’s second-largest economy will grow by 8% or more this year.

Even so, many economists had predicted that Beijing would forgo the numerical target altogether, as it did last year for the first time since 1994, yielding to the uncertainties of the Covid-19 pandemic.

China’s economy recovered relatively quickly from the initial outbreak centered in the Chinese city of Wuhan, and ended up with 2.3% growth for the year. It was the only major world economy to grow in 2020.

With growth momentum now at pre-virus levels, Beijing policy makers have signaled that they plan to gradually withdraw stimulus measures and focus instead on reining in debt and heading off an emerging bubble in the real-estate market.

Mr. Li said in the annual report on Friday that the government would seek to cut the fiscal-deficit target to 3.2% of China’s projected GDP this year, compared with a target of more than 3.6% in 2020.

Beijing also plans to reduce the amount of debt that local governments are permitted to raise, allowing localities to issue 3.65 trillion yuan, the equivalent of $580 billion, in local government special-purpose bonds in 2021, from the 3.75 trillion yuan earmarked last year. The bond proceeds primarily fund infrastructure projects.

Mr. Li said China aims to keep consumer price inflation at around 3% in 2021, compared with last year’s 3.5% target and its actual increase of 2.5%.

The government also said it plans to create 11 million new jobs this year, up from the 2020 target of 9 million. It also aimed to cap the urban surveyed jobless rate at 5.5% in 2021, compared with a ceiling of 6% in 2020.

Bloomberg on China going big on self-reliance and R&D, something this newsletter talked about in Wednesday’s issue:

China pledged to boost spending and drive research into cutting-edge chips and artificial intelligence in its latest five-year targets, laying out a technological blueprint to vie for global influence with the U.S.

Chinese Premier Li Keqiang singled out key areas in which to achieve “major breakthroughs in core technologies,” including high-end semiconductors, operating systems, computer processors and cloud computing -- areas in which American firms now hold sway. Beijing will also aim to get 56% of the country on faster fifth-generation or 5G networks. Nationwide R&D spending will increase by more than 7% annually, which “is expected to account for a higher percentage of GDP” than during the previous five years, he added.

China is moving quickly to cut its dependence on the West for crucial components like computer chips, an issue that became more urgent after a global shortage of semiconductors worsened during the pandemic. Beijing is also making big bets on emerging technologies from hydrogen vehicles to biotech while looking to ensure its own chipmakers can compete with the likes of Intel Corp. and Taiwan Semiconductor Manufacturing Co. That encompasses a new emphasis on silicon design software and so-called third-generation chipmaking -- two areas critical to Beijing’s drive to achieve technology self-sufficiency.

“Innovation remains at the heart of China’s modernization drive,” Li said in an address to the National People’s Congress in Beijing on Friday. “We will strengthen our science and technology to provide strategic support for China’s development.”

At stake is nothing less than the future of the world’s No. 2 economy. Beijing is moving swiftly while the Biden administration escalates a battle against what it called “techno-autocracies.” That could extend or even expand blacklistings that banned key transactions with corporations from Huawei Technologies Co. to ByteDance Ltd. and Tencent Holdings Ltd.

To a country that imports $300 billion of chips annually, a worsening global shortage drives home the risk of relying on potentially hostile suppliers for the building blocks of everything from AI to next-generation networks and autonomous vehicles. Friday’s report formalized China’s ambitions to develop its own software for semiconductor design...

On a related note, the Wall Street Journal reports how the U.S. came to the somewhat controversial conclusion that Xiaomi, a largely consumer electronics firm, had ties to the Chinese military:

U.S. officials blacklisted Chinese smartphone giant Xiaomi Corp. as a company with military ties partly due to an award given to the company’s founder for his service to the state, the U.S. Department of Defense said in a legal filing.

Lei Jun, the chief executive officer and founder of Xiaomi, received the award of “Outstanding Builder of Socialism with Chinese Characteristics” in 2019 from the Ministry of Industry and Information Technology. Xiaomi touts the award—given to 100 Chinese executives that year—on Mr. Lei’s biography page on the company’s website and in its annual report.

The award—coupled with Xiaomi’s ambitious investment plans in advanced technologies such as 5G and artificial intelligence—was enough for the Defense Department in January to add Xiaomi to a list of companies that support China’s military, according to the filing. The designation prohibits Americans from investing in the company, the world’s third-largest smartphone seller.

Xiaomi’s designation caught many analysts by surprise given its main focus on consumer electronics. In addition to smartphones, the company makes internet-connected gadgets like air purifiers, scooters, body-weight scales and fitness bands. Unlike Huawei, its main Chinese rival in handsets, it doesn’t sell communications infrastructure or other equipment typically viewed as sensitive.

COMMENT: The Xiaomi listing made lots of news in India. Xiaomi is, as this report says, quite a different company from Huawei. This revelation is underwhelming and hardly a smoking gun - an award? Seriously?

I reported for The Hindu today on China’s defence budget crossing $200 billion for the first time (well, officially), how it compares with India’s recently announced budget, and where the money is likely to be spent reflecting the PLA’s evolving and changed priorities. You can read the report here.

For more on the PLA’s budget, this is a very useful 2019 paper from SIPRI on how it’s accounted and why they came up with their own assessment of China’s military spending.

Two interesting tidbits from the draft outlines of the Five Year Plan and the 2035 objectives:

- China's Tibet Autonomous Region will be supported to build an important passageway opening to South Asia, according to the draft outline of the 14th Five-Year Plan (2021-2025) for national economic and social development and the long-range objectives through the year 2035, which was unveiled Friday.

- China will construct a "Polar Silk Road" and actively participate in the development of Arctic and Antarctic regions, it said in its new 2021-2025 "five-year plan" published on Friday. The plan said China would "participate in pragmatic cooperation in the North Pole" and "raise its ability to participate in the protection and utilisation of the South Pole".

And finally…. big changes are set to be announced for Hong Kong. From the South China Morning Post:

Hong Kong’s Legislative Council could have up to 90 lawmakers, up from the current 70, and the Election Committee that selects the city’s chief executive may add another 300 voters to become a 1,500-member outfit, as part of a drastic overhaul to the electoral system, the Post has learned.

On the proposed expansion of Legco, sources said the additional members would be chosen from the Election Committee, which is expected to hold its voting only in December.

As such members can only join Legco after December, sources said the postponement of Legco elections was all but certain. Two sources said the polls, delayed from last year to this September because of the Covid-19 pandemic, would be deferred to September 2022.

The reason for the delay was that the changes would require local legislative amendments Beijing was not confident could be done before July when the current Legco term ends, other sources indicated.

That’s it for this issue. The newsletter will be back next week with more on developments from the NPC, which runs until next Thursday (March 11).

Have a great weekend, and see you on Tuesday!