Two of the largest political events in China have begun. The Chinese People’s Political Consultative Conference, which kicked off last Thursday, is scheduled until March 13th, and the National People’s Congress will last from March 5th through 15th. These two annual meetings, which have traditionally directed China’s political and economic policies, are gaining special attention this year, because the first phase of China’s 13th five-year plan starts this year. Today we have Director Cho Yong-chan of the U.S.-China Industrial Economic Research Center to tell us more about the economic significance of these two events.

The world is paying special attention to China, because this is the year when the 13th round of the country’s five-year economic plan is set to start. It’s also because China is likely to present a stimulus package in order to speed along reform or to ease the China shock. Those economic forecasters or investment banks that have pessimistic views about the Chinese economy claim that it would take at least 3 to 5 years to address the issue of redundant production facilities in the manufacturing sector. They also see China falling into the mid-level-country trap, much like the ones that plagued Latin America in the 80s and Asia in the 90s, due to its shrinking labor force and non-performing loans. Chinese President Xi Jinping said at an internal meeting, that the next five years would see a series of financial bombs going off all over China. He has realized that unless China overcomes this risk, the country would experience serious threats to national security and its growth would come to a standstill. Korean companies that are heavily dependent on the Chinese market need to watch how these two meetings shape China’s economic policy for the next five years and address the yuan currency problems. As for individual investors who have their money in the Chinese stock market, they can pretty much figure out which Chinese companies would benefit most from a new set of growth strategies proposed at the meetings.


The world financial market was rocked by the plunging Chinese stock market earlier this year. Making the shock even worse was China’s growth rate of 6.9% in 2015, the first time the country’s growth fell below 7% in 25 years, exacerbating the concern that the Chinese economy would make a hard landing. So it’s not surprising that the whole world is focused on the Chinese government’s five-year economic plan.

The Chinese Communist Party’s newspaper, People’s Daily, listed 8 points to watch at this year’s events. At the top of the list was the 13th five-year economic development plan, how the Chinese would maintain its medium-to-high growth and raise the quality and level of people’s lives. In fact, key agendas for the National People’s Congress include an economic stimulus plan and measures to fix the Chinese economy’s structural flaws, such as a corrupt supply sector, high costs, mounting real estate inventories, and potential financial risks. The first quarter for 2016 is almost over, so the Chinese government will most likely resort to a greater fiscal expenditure, rather than downward adjustment of interest rates to pump-prime the economy. As a matter of fact, Beijing had already predicted, at an economic meeting late last year that fiscal measures would play more vital roles in this year’s economy. Consequently, China’s fiscal deficit vis-a-vis GDP would expand to the 4% level this year from around 3%.

At the opening of the National People’s Congress last Saturday, Chinese Premier Li Keqiang announced this year’s growth rate, the proportion of fiscal deficit compared to the country’s gross domestic product, and the amount of increase in its defense budget. These three indicators are reliable measures of Beijing’s fiscal operation and the Chinese government, which admits to have entered the 6%-growth era, is likely to implement more aggressive fiscal policies. In addition, the five-year economic plan that starts this year aims to double the 2010 GDP and per capita income figures by 2020 by pursuing five developmental ideas that would make China “a moderately prosperous society” where all people enjoy a relatively comfortable life.

The five developmental ideas are innovation, cooperation, going green, openness, and sharing. The key elements in innovation include business startups, big data, building a manufacturing powerhouse, nurturing the service sector, and downsizing or delegating government authorities. Cooperation means working together to cultivate new industries, informatize, urbanize, and modernize. Green development refers to saving resources and protecting the environment as a basic government policy. Open development would encourage global joint ventures in the coastal areas or participation in competitive projects. China’s plan to pave the new Silk Road on land and sea for the 21st century would be central to this open development idea. Meanwhile sharing development represents the idea of sharing the fruits of growth. The Chinese government would increase fiscal spending in order to expand public services and launch anti-poverty programs for 70 million indigent rural residents.


China had already proposed these five key ideas last year. But in this year’s two major political and economic meetings, the Chinese leadership would forge a more detailed plan about collaborating with foreign partners and playing a more instrumental part in the global economy. If China sticks to this development plan, a whole new market would be created, which would prove to be good news for Korean businesses as well.

China is likely to toughen its social oversight measures to overcome such risks as excessive production facilities, credit defaults, and currency wars. The country’s fiscal policy would aim for consumption-driven growth and nurture new growth industries. It’s very possible that Beijing would relax financial regulations and open up the financial and capital markets earlier than planned. All this means new opportunities for Korea. Beijing has abolished its one-child policy, which translates to 5 or 6 million new babies every year and a consumer market that grows by almost 15 billion U.S. dollars annually. As for tourism, the Chinese government estimates that the number of local tourists will reach 6.5 billion by 2020, and 170 million more foreign tourists are expected within the same timeframe.

When the 13th five-year economic plan comes to an end in 2020, China’s efforts to improve its social security system and environmental protection measures will bring changes to a variety of fields, such as IT integration, healthcare, tourism, and eco-friendly programs. This will also provide opportunities for Korean businesses to demonstrate their competitiveness. But such changes will also encourage fiercer competition.

China has declared that it will become a manufacturing powerhouse like Germany, Japan, and the United States by 2025. However, the strategic industries that China has chosen to promote toward that goal overlap with most of Korea’s future growth engines. Korea will have to compete intensely with China in such fields as information technology, aerospace equipment, marine engineering facilities, alternative energy vehicles, and new materials. For Korea to overcome its export slump, the country has to strive for technological innovations in intermediate goods, system semiconductors, and batteries for smart cars. Korea also has to export more of its services. But such endeavors take a long time to achieve and Korean businesses must make the right decisions and act promptly during that time span to come out on top.

China considers the next five years as a crucial period during which the foundation for a moderately prosperous society can be built. But the same goes for Korea as well. The future of the Korean economy hinges on how quickly and effectively Korea can take advantage of China’s industrial growth plan.