BEIJING (Reuters) -China’s Communist Party elite vowed on Thursday to build a modern industrial system and make more efforts to achieve technological self-reliance, moves it sees as key to bolstering its position in its intensifying rivalry with the United States.
As expected, the Party’s Central Committee also promised more efforts to expand domestic demand and improve people’s livelihoods – long-standing goals that in recent years have been little more than an afterthought as China prioritised manufacturing and investment – without giving many details.
In addition to mapping out economic and other policy goals for the next five years, Party leaders during the four-day closed door meeting, known as a plenum, also replaced 11 members – the highest personnel turnover since 2017 amid an ongoing military corruption purge.
China’s forceful industrial policies have built sophisticated domestic supply chains and brought it to global dominance in many sectors. They have given Beijing confidence in its trade war with the U.S., whose President Donald Trump is threatening triple-digit tariffs.
MANUFACTURING SEEN RETAINING CENTRAL ROLE
The full five-year plan will only be released at a parliamentary meeting in March, but the post-plenum outline from state news agency Xinhua hinted at policy continuity, which concerns economists who have been calling for a shift towards a growth model that relies more on household demand.
Building “a modern industrial system with advanced manufacturing as the backbone” and accelerating “high-level scientific and technological self-reliance” were listed ahead of the development of “a strong domestic market,” the communique showed.
Capital Economics analyst Julian Evans-Pritchard said the readout sent the message that manufacturing remains central to ambitions of national strength and security and that Beijing only pays “lip-service” to the idea of boosting consumption.
“There is still an unresolved tension between the leadership’s purported desire to boost consumption and its goal of shoring up the size of its manufacturing sector,” he said.
“The leadership will have to choose one or the other. Today’s communique leaves little doubt over which way they are leaning.”
China’s economic growth slowed to its weakest pace in a year in the third quarter as fragile domestic demand left it heavily reliant on its exporting factories despite U.S. tariffs, stoking concerns about deepening structural imbalances.
DEBT RISES TO HIGH LEVELS
Beijing has also achieved a near-monopoly in rare earths production, indispensable to global defence and semiconductor industries, and has major leverage in expected trade talks between Trump and Chinese President Xi Jinping this month.
But its policies have also led to rampant overcapacity, and fuelled deflationary pressures.
Low wages, feeble social welfare benefits and limited worker confidence in holding on to their jobs, form key pillars in manufacturers’ export competitiveness. This keeps domestic demand subdued and producers dependent on other countries’ spending power, fanning trade tensions.
The high levels of investment these policies require have pushed China’s overall debt levels to three times the size of its economy.
“The main risk here is the coexistence of high debt and low inflation,” said Dan Wang, China director at Eurasia Group, calling China’s growth model “very fragile.”
Tianchen Xu, senior economist at the Economist Intelligence Unit, said pledges to “invest in people” might mean increases in medical insurance and rural pensions, but added that “they may not have a clear idea on how to do that for now.”
China’s manufacturing prowess has put the West on notice, with Washington and European capitals now aiming to re-industrialise and re-arm amid Russia’s invasion of Ukraine and rising tensions in the South China Sea and the Taiwan strait.
(Reporting by Laurie Chen, Liangping Gao and Ellen Zhang in Beijing and Claire Fu in Singapore; Writing by Ellen Zhang and Marius Zaharia;Editing by Ros Russell, Kim Coghill and Keith Weir)
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