Anjani Trivedi, MDT/Bloomberg
China’s state planners are notorious as purveyors of billions of yuan of budgetary spending, intimidating industrial policy and soaring technology goals. The Five-Year Plan — Beijing’s periodic, Soviet-style economic blueprint — often sends shivers through the country’s rivals. But the latest one is a lot more down to earth.
In the 14th Five-Year Plan, several of Beijing’s economic development and innovation targets have been set for just one year ahead. That is much more sensible: Tracking progress in the short-term and amending ambitions along the way is far more effective than realizing half-a-decade later that goals weren’t met but large sums of money spent.
For example, planners are adopting a new measure for year-by-year progress: The digital economy’s share of gross domestic product. This metric effectively represents technological upgrades in manufacturing, higher levels of automation, efficient production processes and new-generation infrastructure to support the use of 5G networks in the industrial sector. The digital economy reached 35.8 trillion yuan ($5.5 trillion) in 2019, or 36.2% of GDP. The growth rate was three times higher than the traditional manufacturing economy, according to data from the China Academy of Information and Communications Technology and a state media report. However, it remains far lower than other advanced economies.
By incorporating this measure, Beijing is trying to shore up China’s position as the factory floor of the more technologically advanced world, ensuring that value added from manufacturing, which has fallen sharply as a share of its GDP over the past 10 years, remains as relevant to growth as it was two decades ago. While China may not end up making the semiconductor chips of the future anytime soon, it will likely be setting up 5G network base stations for telecommunications that will help the country remain a critical part of the global industrial supply chain.
State media recently elaborated on the importance of the digital economy that goes beyond just the internet and business-to-consumer ecosystem: “Building millions of 5G stations would dramatically boost information exchange, facilitate technological advances and lead to explosive growth of whole industries, rather than supporting growth of a handful of firms.” A far cry from things like a previous five-year plan’s goal of 20% annualized growth in the semiconductor industry. That has gone unmet.
Beijing has other humbler programs in mind. For the first time, R&D spending is increasing for basic science — the nuts and bolts of groundbreaking ideas. That kind of research requires years of investment — unlike corporate-style R&D — and is almost completely dependent on government funding. The authorities now want the share of spending in this area as a portion of the total to be above 8% of the research budget, according to Goldman Sachs Group Inc. China spends just over 80% toward development research tied to specific commercial products and processes and around 11% on applied research. In the U.S. and elsewhere, basic research accounts for as much as 20%.
The five-year plan set forth in 2015 unveiled targets that would raise total research and development spending to 2.5% of GDP. Yet by 2020, China had fallen short of its goal, coming in at 2.4%. The U.S. notched around 3%. Countries like Israel and South Korea are at the top, spending around 4%. Previous plans also fell short of their goal.
The more subdued chest-pounding of the latest quinquennial agenda has another effect: Calming the fears of the rest of the world. China’s Made in 2025 plan and Thousand Talents Program created far too many trust issues — from paranoia over the reach of Beijing’s progress in AI to questions of espionage by Chinese academics sent abroad. China can do without lugging around that kind of baggage five years at a time. Anjani Trivedi, MDT/Bloomberg
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