A fool’s guide to China’s 14th 5-Year Plan

For the first time ever, no explicit GDP growth target was stated, only that it should be kept “within a reasonable interval”. This couples with the government’s low 2021 expectations that seem to be driven by the instability and uncertainty caused by the pandemic.

However, there is possible additional drivers as this flexible target means that China will be able to prioritize other economic goals such as improving the sustainability and quality of said growth, without failing to meet benchmarks.      

In its 14^th 5-year plan, China continues to aggressively expand its progress in research and technology. The term is repeated 180 times throughout the document, including technological innovation, financial innovation, policy innovation and institutional innovation, touching on all sectors of the economy and public services.

As discussed in some of our previous articles, the government has a clear vision to restructure the economy to focus on more sustainable sectors (EV, battery production, etc.) and the goals set out here follow in those steps. Hence, we believe that companies in these sectors will be largest beneficiaries of government subsidies. In similar lockstep, although there will be a large emphasis on technology innovation, “softer” tech sectors such as Edtech and e-commerce could continue to see the slash each has already experienced.

In this section, nothing of surprise or of note, as the government continue to target improving quality of life and education for the general populous. This is highlighted by goals to continue to improve access to healthcare, education among workforce, and the average wealth of each household.

Reduction in energy consumption per unit of GDP % – 13.5%

Reduction of CO2 emissions per unit – 18%

China continues to aim to become carbon neutral by 2060. Should GDP grow at 5%, carbon emissions are estimated to rise by 1% per year, a pace too high to stabilise emissions between 2020 and 2030 for a 1.5°C scenario. This section of the plan attempts to front-load actions to realise China’s climate change and Paris Agreement commitments. In addition to continuing R&D for cleaner and more efficient power generation, the government looks to use policy to target fossil fuels. This would include:

• Imposing harsher restrictions on greenhouse gases
• Eliminating fossil fuel subsidies
• Limiting the number of emissions permits
• Imposing a carbon tax

No doubt, firms hugely dependent on fossil fuels will suffer, while renewable energy companies will continue to receive government support.

Comprehensive grain production capacity: > 650m tons

Comprehensive energy production capacity: > 4.6b tons of coal equivalent

Interestingly, in contrast to the previous 13^th 5-Year Plan, there has been an additional Security/Safety chapters added to the 14^th plan. This is not particularly surprising, as trade slows whether due to COVID-19 or increasingly souring international relations, these may force China to become more self sufficient than ever. This section of the plan covers food, energy, and finance security as sectors with extra emphasis. Key projects listed include expanding food storage facilities as well as developing power emergency response systems.