1. One plan to rule them all
As you already know, we spent our weekend working our way through the 14th Five-Year Plan (FYP) (see yesterday’s Tip Sheet).
- And boy do we have even MORE exciting news for you.
This FYP has the most detailed section on implementation we’ve ever seen.
Simply put, it’s a plan of plans.
- It mandates local, regional, and sectoral planning documents execute the national FYP’s goals.
- It pushes harder than ever for on-time completion of binding targets.
- It ties local officials’ implementation efforts to their performance evaluation system.
And get this: Mid-term and final assessments will be reviewed by the Politburo Standing Committee as well as the National People’s Congress Standing Committee (NPCSC).
Some context: Previously, just the NPCSC reviewed these assessments. Involving the Politburo really ups the ante.
There’s also a law on FYPs in the works.
- Making the FYP more authoritative is just the latest way Xi is exerting more control over what local policymakers are up to.
Get smart: Nothing frustrates Beijing bureaucrats more than local officials failing to implement the center’s carefully crafted policies. This should help to ameliorate that issue somewhat.
Get smarter: There is a cost to directing everything from Beijing. China’s a big place where one-size-fits-all solutions don’t often work. If local officials have less flexibility, it could lead to worse governance outcomes.
2. Letting go of fantasies on RD spending
What’s the 14th Five-Year Plan’s (FYP) target for national RD spending, you ask?
- 7% annual growth
That’s disappointing: China’s RD spending grew by an average of 11.8% annually over the past five years.
So what’s with the low number?
- China has been consistently missing its RD spending targets for the last four FYPs (see February 26 Tip Sheet).
- Policymakers are (finally) being realistic.
The lower RD spending target is bad news for businesses.
- Corporate profits are a major source of RD.
- The lower target means Beijing isn’t very optimistic about company profitability over the next five years.
It’s not all bad news for companies.
- The 14th FYP called for increasing tax breaks for RD spending as well as for tech startups and advanced technology companies.
Policymakers will push state-owned enterprises (SOEs) to play a more active role in RD by:
- Setting up a new KPI system that incentivizes SOEs to increase RD spending
- Requiring central SOEs’ RD spending to outpace the national average
Get smart: SOEs will invest more in RD, but that RD will not be as productive as private sector RD.
Our take: We’re surprised here. Xi Jinping talks about the need for more innovation all the time. We thought there would be a more ambitious target for RD spending.
3. When climate ambition meets energy security
The 14th Five-Year Plan (FYP) has big plans to address climate change.
By 2025, it aims to:
- Reduce energy consumption intensity by 13.5% – down from the 13th FYP target of 15% reduction
- Reduce carbon emission intensity by 18% – the same as the 13th FYP reduction target
To achieve a lower carbon footprint, the 14th FYP calls for:
- Non-fossil energy consumption to account for approximately 20% of total energy consumption by 2025 – a target moved up by five years from a 2016 energy modernization plan
Some context: The 13th FYP intended to raise the share of non-fossil energy consumption to 15% by 2020, but overachieved by hitting 15.3% in 2019.
The 14th FYP plans to achieve this by:
- “Expanding the scale of wind and solar power”
- “Controlling the development pace of coal-fired electricity”
Not so fast: Policymakers still see coal as providing the basis for China’s energy supply and security (see Friday’s Tip Sheet).
- In 2020, coal accounted for 56.8% of China’s total energy consumption – down slightly from 57.7% in 2019.
Get smart: Policymakers need to balance the competing priorities of reshaping China’s energy mix to achieve climate-related goals with maintaining energy security.
- That’s easier said than done.
4. Mr. Anti-monopoly
When it comes to big tech, the 14th Five-Year Plan (FYP) made one thing clear:
- China’s anti-monopoly drive will intensify.
The document approaches antitrust issues from two key angles:
- Unfair competition: Preserving an ‘orderly’ market environment requires clamping down on anti-competitive practices.
- Income inequality: Preventing a widening income gap necessitates challenging the unfettered accumulation of wealth by big tech.
Hmmm: Framing the anti-monopoly campaign as an income equality issue is something we haven’t seen before. Seems a bit of a stretch to try and tie the two together.
Get smart: The question now is how to bring tech platforms to heel domestically without kneecapping their ability to remain competitive on the global stage.
Get smarter: Big tech is the obvious target, but the 14th FYP makes it clear that the antitrust campaign isn’t just about tech platforms.
- We will see a broadening of this push in years to come.
5. NPC ups its game
On Monday, National People’s Congress (NPC) Chairman Li Zhanshu delivered the NPC Work Report at a meeting of China’s top legislator.
Ensuring the rule of law will be the NPC’s top priority in 2021 (China Daily):
- “Ensuring greater observance of the Constitution and enhancing constitutionality reviews to safeguard the Constitution’s sanctity and authority is a key task for the NPC Standing Committee this year.”
The NPC’s legislative agenda this year is no joke:
- “In our annual legislative plan, we’ve made preliminary arrangements for the deliberation of 45 legislative items, with close to 20 additional items in reserve,” he said.”
Some context: In comparison, in 2020 the NPC planned to draft or amend 25 laws – itself a record-breaking year (see May 26, 2020 Tip Sheet).
Li said focus this year will be on a few key areas, including:
- National security
- Scientific and technological innovation
- Public health and people’s livelihoods
- Biosafety and biosecurity
- Ecological conservation
- Risk management
- Foreign affairs
Get smart: The super-sized legislative agenda is no coincidence. The rebalancing of power toward legislatures and away from administrative bodies has been ongoing for a few years.
Get smarter: It’s easy to dismiss China’s legislatures as mere rubber stamps, but their influence is steadily growing.