China will remain open to the world, but future development will be based on domestic consumption

With the reform of the Chinese economy in the 1970s and the introduction of principles based on private initiative and the free market, the centralized planning model was maintained. In China, national planning takes place in five-year phases. The current five-year cycle (China's 13th one) will end in December 2020, and the 14th will begin in January next year.

This year, China already had the conditions to adjust the concept of economic development. For the past thirty years, China's concept of development has been based on deep integration into the international division of labor system, when the main engine of economic growth has been accelerated export development. This has allowed China to overcome lagging behind in economic and technological aspects in thirty years, becoming the world's largest producer of industrial products and second in the world in terms of spending on science and research. In 2019, China's share of world GDP was 16%, and in addition China accounted for a third of total world GDP growth in terms of one-year global GDP growth. In addition, 60% of China's total GDP in 2019 was provided by domestic consumption. At the same time, the well-being of the Chinese people has improved significantly over the past thirty years. In 2019, China's GDP per capita exceeded $ 10,000, but life expectancy in China is now 77.3 years (Infographic here).

However, even before 2020, a number of negative trends began to emerge that could have a significant impact on China's future development. The US-led trade conflict with China had a negative impact on China's overall export development. The conflict created significant barriers to the export of Chinese high-tech products and services to the West. In 2020, new challenges for China's development were posed by the constraints imposed in the fight against the Covid-19 pandemic, both in China and worldwide. Consequently, 2020 was the best time to make adjustments to development priorities. In addition, this year the Chinese leadership had to adopt a plan for the next five years and set out development guidelines for the next fifteen years.

During the discussion of the 14th Five-Year Plan draft, this summer, citizens sent more than one million different comments, suggestions and proposals. The feedback and suggestions received from the population were thematically grouped and evaluated. Of all the proposals submitted to improve the project, more than five hundred were recognized as valuable and were incorporated into the final version of the 14th Five-Year Plan. Chinese President Xi Jinping called this form of citizen involvement in the adoption of the country's most important issues "a vivid example of the CPC's intraparty democracy and China's socialist democracy".

Following discussions, on 4 November this year, the Central Committee of the Chinese Communist Party approved the final version of the 14th Five-Year Plan (2021-2025) and adopted China's Development Guidelines until 2035.

In the 14th Five-Year Plan China's transition to high-quality development is planned. To minimize the impact of external risks on China's development, “Xi also stressed efforts to remain committed to the new development philosophy, focus on deepening the supply-side structural reform, transform the development model to deliver real benefits to all the people.”

Over the next five years, China will base its development mainly on growth in domestic consumption. Xi Jinping: “In recent years, along with the changes in the global political and economic environment, the upsurge in deglobalization and the unilateralism and protectionism acts by certain country, the traditional global circulation has been notably weakened, Xi said, urging efforts to root China's development inside the country and rely more on the domestic market to achieve economic growth.”

Xi called for sticking to expanding domestic demand as a strategic underpinning and fostering a positive cycle of the national economy. He also called for a supply system more compatible with the domestic demand.

Xi Jinping: "Promoting a large-scale and smooth domestic economic circulation will help better attract global resources, meet domestic needs, elevate industrial and technological development and foster new advantages in global economic cooperation and competition."

However, the shift in emphasis in the development concept does not mean that China is going to distance itself from the rest of the world, on the contrary. “China's door will not be closed and will only open wider. We will continue to drive the comprehensive deepening of reform with high-level opening-up, creating more space and opportunities and offering more "Chinese dividends" for the development of other countries and the global economic growth.”

With this plan, “It is "completely possible" for China to meet the current standards for high-income countries by the end of the 14th Five-Year Plan period and to double the total economic volume or per capita income by 2035, he said.”

It is necessary to further emphasize promoting common prosperity for everyone as China embarks on a journey to fully build a modern socialist country, Xi said.

This will achieve China's goal of creating a moderately prosperous (xiaokang) society.

China's forthcoming roadmap for change has been adopted and will be implemented from the beginning of next year. The scale of China's economy is so large that at some point China had to move from export-led to domestic demand and consumption. Now is the time. As the welfare of the population increased, the share of labor costs in Chinese products increased. Therefore, the transformation of Chinese exports from labor-intensive goods to science- and technology-intensive products has been going on for some time.

The changes that have begun in China will affect all countries in the world, including the EU and Latvia. The process has already begun. EU imports of labor-intensive products are already gradually shifting from China to the so-called cheap labor countries where technological development lags far behind China - to India, Pakistan, Bangladesh, Indonesia, etc. China, meanwhile, is growing its exports of high-tech products and services every year. At present, the growth of China's IT sector exports to the West is being stifled by political means, by banning US, UK and EU companies from cooperating with China's largest IT companies and denying China access to Western IT companies' technologies and patents.

China's new development concept envisages that part of the products of high-tech companies, which Western companies will refuse to buy due to protectionism, will be directed to domestic consumption. This means that Western bans will not stop the pace of innovation in China's leading technology companies. Consequently, EU countries must appreciate China's response to Western protectionism and consider that the cooperation that benefits both sides is more productive than confrontation, which can no longer even be to the detriment of the other side.