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China aims to reach 'new level' of prosperity by 2035

Party plenum talks of shifting international power balance

Chinese President Xi Jinping seen delivering a speech at Beijing's Great Hall of the People on Oct. 23.    © AP

SHANGHAI/BEIJING -- The Chinese Communist Party's Central Committee on Thursday adopted an economic plan for 2021 to 2025, along with an ambiguous target of becoming a global technology leader by 2035.

A communique released that evening via state media outlet Xinhua said China's top policy-setting body proposed a "new" development pattern that will rely on the domestic market to stimulate growth. Beijing calls this its "dual circulation strategy."

"The well-being of the people will reach a new level," with personal income growth in step with economic growth, the document said. 

"By 2035, China's economic, scientific and overall national strength will rise sharply," the communique said, with per capita GDP reaching "the level of moderately developed countries."

China's per capita gross domestic product reached $10,261 in 2019, according to the World Bank. Catching up with moderately developed countries likely means $30,000, roughly matching the likes of Italy and Spain.

The statement came at the end of a four-day plenary session involving some 200 members of the party's Central Committee, presided over by President Xi Jinping. It offered no hints at potential personnel changes among China's leadership. The five-year economic plan is expected to be officially passed by the legislature, the National People's Congress, next year.

The underlying current that connects the proposals is the understanding that a shift of power is taking place on the international stage. 

"Today's world is experiencing a great change not seen in a hundred years," the communique noted. "The balance of international power is been profoundly adjusted." 

It acknowledged the new challenges and new opportunities the situation offers and called on China to be prepared. 

The committee said it intends to enhance reforms to attract foreign investments and strengthen China's own supply chain, stressing the country needs to accelerate innovation to achieve self-reliance in fields including defense.

Hit by trade friction with the U.S. and the coronavirus pandemic, the government aims to build on its "Made in China 2025" strategy of becoming a high-end producer by accelerating technological innovation. At the same time, it hopes to become less susceptible to changes in external demand.

In sectors such as electric vehicles and production of rare-earth metals where China has an upper hand, the planned acceleration fits into the government's ambition of achieving self-sufficiency and dominance. It will also reinforce the rivalry with the U.S., which regards China's technological advancement as a threat.

Tesla China-made Model 3 vehicles are seen during a delivery event at its factory in Shanghai on Jan. 7.   © Reuters

On Tuesday, the first shipment of 7,000 Tesla sedans assembled with local parts left port in Shanghai, bound for countries such as France and Germany.

"Exporting made-in-China Model 3 sedans to Europe is a milestone," Tom Zhu, president of Tesla China, was quoted as saying by state news agency Xinhua. It proves to the world China's speed and quality, he added.

Tesla, which produced over 85,000 vehicles in the first nine months of this year, is a poster child for China's reform narrative. The U.S. automaker was given 100% foreign ownership and fast-track approvals, enabling it to produce cars just a year after construction began early last year.

Government officials said the next step will be to target scientific frontiers on a global scale. "In the following five years ... we will further implement the strategy of innovation-driven development," Wang Zhigang, the minister of science and technology, told reporters on Oct. 21.

In 2015, China launched its "Made-in-China 2025" blueprint to capitalize on its vast domestic market and supply chain, and move from being a cheap, low-end producer to becoming a leader in high-tech manufacturing.

"The focus on emerging technology is largely complementary to many elements of 'Made in China 2025', which effectively aims to establish China as a manufacturing superpower," Max Zenglein, chief economist at Mercator Institute for China Studies in Germany, told Nikkei Asia.

China expects to see a breakthrough in the next five to 10 years in sectors such as 5G, integrated circuit chips, smart devices and autonomous vehicles, Zhongtai Securities wrote in a research note on Monday.

In addition, the Shangdong-based brokerage said renewable energy will also be featured in the five-year plan, as the government aims to reduce carbon emissions to achieve net-zero carbon emissions by 2060.

China maintained its 14th spot in the Global Innovation Index 2020, compiled by the World Intellectual Property Organization, trailing Asian peers including Singapore and South Korea but above Japan.

Spending on research and development in the past five years grew to 2.21 trillion yuan ($329 billion), from 1.42 trillion yuan.

By 2025, China's technology ecosystem will have matured and be on a par with Silicon Valley in terms of dynamism, innovation and competitiveness as the focus shifts from the consumer internet to the industrial internet, U.S. think tank Paulson Institute said in a Monday report.

"China will largely succeed in deploying highly capable "new infrastructure" -- cloud computing, 5G networks, smart cities, and surveillance networks, among others -- to facilitate this transition to the industrial internet," the report said.

Currently, China stands out in at least two areas: electric vehicles and production of rare-earth metals, which are seen as a threat to the U.S. because losing capacity in advanced manufacturing could have repercussions for job creation and the military-industrial complex, Securing America's Future Energy, a Washington-based nonprofit that advocates for a clean energy transition from the perspective of national security, said in a September report.

China accounted for 47% of the total 7.2 million electric vehicles on the world's roads in 2019, according to the International Energy Agency. The country is now pushing for wider adoption of hydrogen fuel-cell vehicles by releasing a fresh set of policy incentives in September, after relative success with battery-powered vehicles.

Instead of subsidizing purchases, as it does under the current promotion plan, the government will reward selected cities that meet various targets related to the application of fuel-cell technology.

"With this shift in support strategy, authorities aim to wean automakers off heavy reliance on government subsidies without sacrificing technological advancement," risk advisory Eurasia Group said in a Sept. 25 report.

The state-backed Chinese Academy of Engineering made some policy proposals for rare earths in an October report. It backed the expansion of applications for the minerals and called for government support for China to become a "rare earth super power" by 2035.

China controls over 60% of the global market for rare earths -- metals that are vital for the production of smartphones and other electronic devices.

By 2035, "China should achieve ... over 95% self-sufficiency in optical functional crystals and ultrapure rare earths used in defense technology," the report said.

Even so, the road ahead may not be smooth. Huawei Technologies and Semiconductor International Manufacturing Corp. are being challenged by U.S. export controls.

"Expanding restrictions on semiconductor manufacturing equipment will mean that China remains vulnerable to future interruptions to its supply chain for advanced chips," said the Paulson Institute.

China may also face an uphill battle in areas of basic research, according to Mercato's Zenglein.

However, recognition should be given to the mobilization of the academic and corporate sectors to achieve a national infrastructure for innovation, he said.

"In combination with elements of national pride, the dynamics this unleashes should not be underestimated," said Zenglein.

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