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Welcome to this month’s issue of our China and global development round-up. Much has happened in the past two months, so this edition is packed. We’ll cover the content of the fifth plenary session, the dual circulation strategy and China’s pledge on carbon neutrality.

The fifth plenary session of the Communist Party of China’s 19th Central Committee

With the pledge to achieve carbon neutrality by 2060, the signing of the Regional Comprehensive Economic Partnership, and the fifth plenary session of the Communist Party of China’s 19th Central Committee, the last two months in China have been eventful. I would like to focus a bit more on the plenary, where the final communique outlined the main themes that will be part of China’s 14th five-year plan.

China’s five-year plans are an essential part of the country’s policy processes and have been running almost without interruption since launching in 1953. Tsinghua University’s Yang Weimin writes about the planning process as a policy tool for resource allocation. The article (in Chinese) discusses how the plans allow the Chinese government to achieve its economic goals by phasing them out, assessing progress and course-correcting when necessary. It also describes how the government uses the plans for spatial as well as economic planning, to propose how each area of the country contributes to economic development.

Then comes the content of the communique. The final version of the next five-year plan will be approved in early 2021, but the communique tends to indicate where the plan will go. The Centre for International and Strategic Studies in the United States hosted a great panel discussion, with experts debating the main topics of the communique. The first panel emphasised that in response to an increasingly uncertain external environment, the theme of security (economic, political, technological, energy and food security) will be a prominent one.

I will discuss economic security and other aspects below, but first I want to focus on innovation. We often hear about the huge science and technology improvements made by China, but the country still has some way to go in terms of becoming a global centre for scientific production. In this blunt assessment of China’s innovation sector, Peking University’s Zheng Shilin states that China has a problem with the quality of innovation (in Chinese). Basic research and innovation systems are lagging behind those of the richest countries. The solution, he suggests, is to invest in scientific production quality (rather than quantity) in basic research and in developing intellectual property rights.

What is ‘dual circulation’?

These days, one of the most prominent concepts discussed in economic and policy circles is that of ‘dual circulation’. With no official definition or explanation yet and the concept of it constantly evolving, what exactly dual circulation clearly entails remains unclear to many.

So, what is dual circulation? It entails two ‘circuits’ on which the Chinese economy operates: the domestic and the international one. In a blog for the SOAS China Institute, George Magnus explains it well. First, he emphasises that this is not a new concept, as there are echoes of rebalancing from the Hu Jintao and Wen Jiabao era. Second, he argues that this ‘rebalancing’ towards a stronger internal market may be unfeasible, as higher domestic consumption would raise workers’ wages. This would in turn compromise China’s external competitiveness, or the ‘international circulation’.

Initial discussions seem to suggest that the dual circulation strategy will place emphasis on the domestic circuit, rather than the international one, but there is no agreement on this. Some indicate that the dual circulation concept entails a domestic focus, while some argue that the international side will remain important. For now, most studies are focussed on US-China trade relations. And indeed, the ‘dual circulation’ seems to be designed to respond to challenges deriving from the US-China trade war, rather than to China’s engagement with low- and middle-income countries.

For the readers of this blog, the most important question is what this may mean for development. What does dual circulation mean for developing countries engaging in trade and investment relations with China? If the Chinese economy is to turn ‘inward’, emphasising the domestic side, this may mean that the commercial flows dry up. For now, this seems unlikely.

China’s pledge to carbon neutrality

Back in September at the 75th session of the United Nations General Assembly (UNGA 75), President Xi Jinping declared that China will aim to have CO2 emissions peak before 2030 and achieve carbon neutrality before 2060. My colleagues at ODI have written their thoughts on this pledge, discussing the environmental, political and economic implications of the target.

How is China to achieve this? Tsinghua University experts proposed a roadmap in a new report, discussed by China Dialogue. The roadmap entails stricter targets on energy saving and emissions reductions for the 14th five-year plan, a more ambitious Nationally Determined Contribution for 2030, and even faster decarbonisation from 2030 onwards. But as professor He Jiankun, the project leader for this report, explains, “the economy and the energy sector are hugely complicated systems […] so a transition will take time”.

Discussing economic implications, this piece by Carbon Brief estimates that this pledge could raise China’s GDP by as much as 5% later this decade. This is because of the investment in renewables required to achieve the pledge and lower fossil fuel import bills. It is interesting to think about this pledge as something that can push China’s GDP growth, as some sort of industrial policy following a mission-oriented approach like that described by economist Mariana Mazzucato. In this sense, the pledge not only achieves environmental goals, it also promotes innovation and stimulates the economy.

What does this pledge mean for low- and middle-income countries? Will China aim to decarbonise its global footprint, or will it outsource its emissions to other countries? This is an interesting question to which I am yet to see a definitive answer.

Bonus: our China-Africa event

In November, the South African Institute of International Affairs hosted an event on Chinese Investment and Africa’s economic transformation, where we discussed ODI’s report on this topic, together with a wide range of China-Africa issues. The video of the event is available here.

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