First assessment of China's 15th Five-Year Plan

0:00Welcome to the Sound of Economics, the podcast series by Brugo, the Brussels-based economic think tank. I am Yu-Yun-Jian, host of our monthly podcast, Zhong Hua Mundus, that brings you recent updates about China's economy. As usual, and with my co-host, our senior fellow, Alicia Garcia-Harrero, hi Alicia, welcome back on the show, hi Yu-Yun-Jian. I were also glad to have with us today, Bird Hoffman, and now a resident senior fellow at the East Asian Institute of National University of Singapore. Nice to meet you, Bird, welcome to the Sound of Economics, thanks for having me. Thank you for joining us. China's five-year plans are the country's primary economic and social policy blueprints, documents that set targets, priorities, and strategic direction for the world's second-largest economy. While the first was introduced in 1953, the 15th five-year plan covering 2026-2030 was

1:06formally approved at the National People's Congress in March 2026, so we are recording this podcast on 13th of March one day after the National People's Congress just concluded. It arrives at a particularly consequential moment, this blueprint. China is navigating deflationary pressure, a lingering property crisis, demographic decline, and the intensifying technology standoff with the United States. Against that backdrop, the 15th plan is being closely watched as a signal of how Beijing intends to grow its way through or around those structural challenges. Today we're going to dive into what's actually in it, what's realistic, and what it tells us about China's economic trajectory for the rest of the decade. So let's first take a look at the Grand Economic Strategy. The goal of doubling the Chinese economy between 2020 and 2035 is still on the table. But is that realistic, given current deflationary pressures, the debt crisis, and also trade

2:12tensions with the US? Well, if you look at the real growth numbers, the 5% growth that they sold last year in the projected four and a half to 5% this year, the 5.2% growth over the past five years, they're on track to hit that target more or less. Whether it is sustainable or whether you would get another, say, 4.3% growth on average between 20 now and 2035, that of course remains to be seen, it depends on a lot of factors. And this pluses a minuses. If I read the plan, I see a very strong part on the supply side, on industrial policy, on technology, and I see a much weaker record on the demand side, particularly consumption demand, but also other aspects of demand, such as government spending and even investment,

3:14which would mean that China would have to continue to rely on external demand for some time. And the rebalancing is not emphasized in the document, frankly. I don't see the full solutions for that at this point. Which you still grow with, say, 4% to 5% while having to rely on external demand, it's pretty hard to imagine for two reasons. One China is now very big, and the reliance on exports actually almost forces the deflation you see the export prices going down quite rapidly as well. But second, the rising trade tensions that we have seen of the past five years, they might just aggravate in the coming five years if external demand is going to be a major factor. So those are sort of the thoughts I have, and I can't give you a hard answer, but some factors look favorable, especially the supply side, demand side looks less favorable.

4:20Thanks very much for that, Alicia. Do you have anything to add to you? Yeah, I quite agree with birds, comments on what we actually called defying gravity. China cannot defy gravity. And in a way, this is an acceptance that growth should come down. Let's not forget that China keeps on saying, we do not care too much anymore, it's all about high quality growth. So in a way, the reduction in the target is not a big deal, if you ask me, that's not where I would focus. But the problem is that that 4.5 or eventually even same number of 5% if things go well, and they seem to be going well, if you look at export data and it even seems to me when I talk to companies in China that Iran is not even an issue compared to the rest of the world. It's very interesting. So that positive prospect all comes from exports is all about exports.

5:22It's all about manufacturing capacity, moving up the ladder, but when you start looking at the rest, that's where you understand the acceleration. And that includes very weak wages, weak consumption. And most importantly, and this is frankly quite new, even fixed asset investment in manufacturing is plummeting. So even exporting a lot, even exporting to the moon, you still cannot, you can no longer accumulate more capacity because what is there after the moon? I mean, we're not yet in the moon, but it's a way to say that in a way, the world is too small for China to grow out of the world. And I think that is a reality that the plan does not fully capture. In other words, yes, this is all good, but how are you going to continue to increase market share? If that's the only way for you to grow. And I think that is for me, the flow more than the lower growth or anything else, that

6:23there is no new model, basically, there's no new model in this plan, not that maybe we should have expected any because it's working, but will it continue to work? That's a big question mark. Do you think this plan address more short-term economic problems or is it more long-term decision document? I add very quickly, the mantra is the long-term, it's continuing to upgrade and becoming self-reliant and everything else that we all know. There's a few things here and there on consumption and so on, but they are very small in my view for what is needed. So in a way, it is long-term oriented, but again, without a change. So the question is, is that long-term plan feasible in the long-term? That's what we really at least, I don't know, maybe, but knows or has a different view. No, I do not know, but look, I'm always the optimist and if I look at the plan, I see

7:29a number of points of light on the demand side, they're not very explicit, they're not very clear, they're not, if you say yes, this is the great plan to increase consumption to create this common prosperity that everybody is looking for, to shore up the fiscal side of the economy, which is very necessary, but sprinkle throughout the document. You see elements of a stronger social safety and a better insurance, a gradual increase of the share of labor in NGDP and a reallocation of state-owned enterprise profits towards pension funds. There's the promise, and that's been, therefore, a while, the promise of major structural reforms on the fiscal side, higher share for local government solving that, that problems, and that could potentially be major. We don't know. The document doesn't spell out how big all of this is, but there is a world thinkable

8:31in which these will turn out to be very major plans, and they might indeed boost at the demand side as well. On the investment side, and Alicia, I appreciate very much your observation, because right now companies may not have that much of an incentive to invest. That's not so bad by itself, because other reason, why despite high growth China's productivity numbers have been so weak is because there's been an over-investment, an over-investment if you want, has been built into the system, particularly on the state side, but to some extent, on the private side as well. The reason for that is that everybody was looking for local employment, local taxes, and therefore continue to stimulate their own companies, the companies in that region, and that led to a lot of inefficiency, big wasteful investments. Second, a big missing, of course, in the investment is property, both on the company side as well

9:33as on the household side. We all knew that that was an excessive investment in property that's gone, and we don't want that back. So, the concept of that is that you can actually expect a lot less investment, and that with that you can still grow, but with less investments and the same savings rate, you get larger current accounts of this, that's a macroeconomic identity we've been referring to a lot. Now, so to solve that, you do need to have that higher consumption share, both household consumption as well as government consumption, because government consumption is not trivial in China, not trivial around the world, so better healthcare, better education, better government services, and even, if you want on the investment side, better quality infrastructure, all of them are still necessary in China, so the potential is still there to look at the major increase in domestic demand, despite relatively weak investment.

10:36What it has been realized remains to be seen. In the next part of our podcast, I want to shift our attention into the technology sector, and so the 15 plan makes a clear shift in how Beijing frames technology, not just as a strategic or security priority, but as the primary engine of future economic growth, with AI semiconductors and also green tech positioned as the industries that will carry China through its current structural headwinds. So Lisa, given US export controls, how does China plan to actually deliver on these goals on semiconductors, on AI, on biotech these big bets? Well, I have to say that we've done some research yet to be published, so I can't really prove what I'm going to say, but so hopefully soon, on the impact of US export controls

11:44on critical technologies, so basically key patterns in AI quantum and semiconductors and linking them to the US export controls and the entities for China, so putting all of that together, that explosive cocktail, I would call it, what you get is that the companies that are targeted the most in the entity list, compared to other way innovative companies in China, not in the entities list, the first two better. So actually, the US is only creating more venues for amazing innovation in critical technologies because I would even say they're subsidizing the signaling, I would put it this way. They're helping the Chinese government identify which other companies that the US really worries about, and probably those companies are young, being innovative, maybe they also get a little bit of additional support, put it this way.

12:44So you know, frankly, I don't think China's problem are these export controls, a let alone the fact that they are easy, they are being used for a number of reasons, some of which is, you know, critical companies wanted to make money, others is that maybe, you know, that's not the last model, I don't know, realities, I don't think that's the problem. I think China's problem in innovation is not so much whether they cannot achieve it, it's whether they believe that's the only thing on earth. And what I mean is that China may actually forget other relevant problems because of this extreme laser focus on innovation, not so much the innovation itself is a problem in my view. So in other words, being too pushing yourself too much on that, while again, maybe not focusing on, I think, but say it all on, you know, social issues, how important it is to increase your share of consumption, having maybe a more, you know, like improving your income

13:46distribution, you name it, yeah, I think that these are things that seem to be not as relevant because the whole thing is self reliance becoming the technology age, you know, and so on. But again, if you're good enough already, you know, what should that be? When an only objective or the maybe I wouldn't say one and only, but the most important objective, for me, that's the problem, ironically, not so much the fact that China cannot do it. So a number of years ago, whenever still working with the World Bank, we wrote something that we call the 3D model of growth. And growth you get from discovery of new things, i.e. technological innovation, the diffusion of existing technology, and then the removal of distortions. So that's the third, the removal of distortions and inefficiencies. There's a three ways to grow. Now China,

14:47I think in the plan, does very well on the discovery side. I mean, they're shifting towards, you know, more investment, the basic, basic research. They've set up a much better system over the last five year plan, much better system to allocate those resources. And they do very well on the dissemination, the diffusion of technology. And I thought it was striking. If you look at the AI models, there's two AI plans around the world. The one is from the US, the other one is from China, the AI plus model of China is all about application. And the consequence of that is also that they have chosen for an open source AI ecosystem, basically. So that everybody can download the basically download the AI and make your own applied AI and run with that. Very contrast to the US, which puts a lot of emphasis on strategic competition with China and AI. But B, their model is proprietary company based that everybody has to pay for. Now, very different, very different

15:49approaches to AI, but very different, more general to technology. In this plan, the innovation is in the model and industrial system. As a means to transfer all these new knowledge into useful stuff and basically better manufacturing. And the second is the unified market. I mean, it's been around for a couple of years, but it's the first time that in the plan, this unified market is being mentioned as a strategic advantage for China, sort of the making use of that, get you very quickly to scale, get you very quickly to cost efficiencies of new technologies. So they clearly see that as an asset into technological competition. Now, with that, and I do think that China is being hurt by some of the restrictions. I come from the Netherlands originally, and they have something called ASL. I think five years ago, nobody knew what it was. Now, maybe everybody knows what it was, but basically the extreme ultraviolet printing of the chips, which

16:52the most sophisticated system they can't access, the most sophisticated tools for making chip technology access. But that's one part of technology. President Trump has loosened up some of the technology restrictions already. Some of the Nvidia chips that are doing a pretty good job can now be accessed. And who knows? Maybe in his visit to China, he'll open up more. It seems to be very keen on having a deal, and this is very much an ask for in the Chinese. So I'm a bit that's optimistic for then Alicia. I think the restrictions still bite, but it may not be the end all of technological competition. That is really in the applications, if you want, in the diffusion of technologies and making the technologies work for industry and services. And I think China is at least in its thinking and also in this plan is ahead, is ahead of them. If I may just to clarify, I was not saying that the restrictions do not bite. What I'm saying is

17:54that they accelerate China's innovation. You see what I mean? Like we don't prove that they bite or they don't. What we look is at China's innovation. Once they are sanctioned through the entities or the products where there is restrictions, they are more capable of emulating them, especially the company sanctions. In other words, you accelerate their innovation, right? Because they put more resources. So it's like a signal in effect. That doesn't mean they don't bite, though. They do, probably. Are there other elements in the plan that you would like to highlight? For me, the key point is not changing model, more of the same thing. And on top of that, not much fiscal space, even if anything happens, we are very close to that now with Iran. Because the budget deficit remains at 4%, some of the expenditure within the budget,

19:00like R&D, like the defense is growing at 7, so it's eating up on the budget if you want, because GDP is again 4.5 to 5, so it's a bigger share. So even if anything happens, there's not much room to stimulate the economy. And because something is happening, and yes, China is very resilient, and they have a lot of strategic reserves and everything you want. But at the end of the day, if there is a sudden collapse in external demand, because this work gets out of control, the US gets hit because of stackflation, you can think of many, maybe Europe, so you can think of ways in which external demand could be much weaker. And then, China will have to do something, and I think when it may, because it can just go beyond the plan, but it is getting harder. The macro targets for 2026 in the work report point to the fact that this five-year plan doesn't have as much room, fiscal or monetary to support it. This is I think

20:07what, you know, how to put those things together. If something happens, it's much harder than before to bypass it, especially if external demand is hit, because that's how China is growing. I mean, look, you know, the fine surprises, because we, of course, already had the guidance for the 15-5-year plan last October. The party gives guidance to the government, so we already saw all of the headlines that were already there. But in the more detail, I mean, I was quite taken by the detail that was displayed in the plan about technology. So the new quality productive forces is one of them. It's now quite an extensive list on what these new quality productive forces are, quite an extensive list of the basic technologies that need improvement, quite a bit of the new emerging technologies that need improvement. So if our company, I would definitely read all of that and get a translator and see whether I'm in the way of Chinese competition or not. Second, what I noted was the emphasis, for the first time, it was actually

21:14in the burn, technological self-reliance. It's not mirrored as a concept, but it was for the first time it was in a plan. So now it is really, I mean, people said, oh, they're made in China 2025, which was issued in 2016, 10 years ago. That was really technological self-reliance. But at that point, that was actually not the case. It was progress, but not self-reliance. Now, after 10 years of strategic competition from the United States and China being on the receiving end of those of those technological restrictions, now technological self-reliance has become an official target if you want in the plan. The third new element is that the energy intensity has now been replaced by carbon peaking as one of the key indicators. And that's a very positive one, of course. Maybe China has already peaked in carbon and the jury is still out, but basically over the past year, carbon emissions, according to estimates, have been flat. The commitment, of course, is

22:19peaked by 2030 and net zero by 2060. But introducing that target into the five-year plan and even into the main indicator table, I see as a very positive, very positive development. Less positive is that reform and opening up. It's still there, and it's quite a bit of wording on the new open, the high-quality opening up, but it doesn't get as much emphasis before. Reform and opening up, this is not mentioned that much, and also less surprisingly, the ecological civilization, rural revitalization, and common prosperity itself, in terms of word count and emphasis it is down from the 14th, five-year plan. So we really are looking much more at this technology, technological self-sufficiency, modern industrial system is being really the big punch in this document. Going to my last question for the podcast today, how would this impact the European economy,

23:30who wants to start? That's really Alicia's thing. I'll try. Bert keeps on saying I've lived in Asia for too long, me too. We have a different approach to that, but true, I am in Brussels maybe too often to forget that this has a big impact on Europe, so I will take this one. Look, I think let's put it with some, in a way, dramatic words, is this five-year plan making this China shock that it will talk about in Europe more permanent? Maybe that's the way I want to do it, or does this China plan for the next five years offer opportunities? Other than China will move up the ladder, but fine, in the industrial sector, maybe we have very little to do, or what about other sectors? Maybe China is opening to huge tourism or financial services, or who knows what could offer medical issues, or the list is increasingly short, and that is worrisome. Anyway,

24:37the answer is no. So let's not focus on the China shock, because everybody understands that if China is spending seven percent increase, of what is already a much higher R&D to GDP than Europe, then you should worry, because yours is not going to decrease at seven percent. So that is clear, and as Bert said, it's well planned out. Read the sectors and you start shivering. So that is an old brainer. But is there any sector China is kind of, wow, you know, I'm going to open this, it's going to be the mana for you. Ask Starmer. He went to China, you know, with this little paper, I want an agreement on services, and he came back with a, what is it? A feasibility, the potential feasibility study, you know, like no, China is not opening up, and frankly, I'm not saying there's no words of that in the document, but it's very blurry and it's not very promising. And I think if

25:41China needs to offer something, it will offer it, it will offer it to the US. That's why Trump is going to China. This happened already during the phase one deal, December 2019, and I see no reason to believe that that's going to be any different because we don't have the same leverage. And on top of that, and I'm not saying we shouldn't, but I'm just saying we have this industrial accelerator act, which is probably making Beijing quite upset. So why would they give us specific market access to, you know, without leverage and basically making their life harder? I mean, so no, I don't think there's many opportunities for Europe on the, on the opportunity side in this five-year plan, and so be it. I mean, we need to accept it. That would be my take, and I'm sure Bert has more positive things to say about this. Positive take, yeah. Well, first of all, I mean, frankly, Europe should do Europe's thing, and they have a plan, and I call it the draggy plan.

26:41The draggy plan is there, implementing that would get a long way into building on Europe's strength. They must care about the China shock, because manufacturing remains important, as in fact, it's more important now than ever before, because there's a war going on in Ukraine, and Russia might also go further, whereas at the same time Europe cannot no longer rely on sufficient US support in its defense. So they simply must, and China may not like it, but at least they would understand that national security of Europe critically depends on a scale and manufacturing that is currently being threatened by China. So that's one, and that's where magnet very clear, I think, would help in directing some of Europe's resource. Second, I think Europe can learn from the planning process, and yes, it is a very different context,

27:43the governance in Europe is very different from China, of course, but Europe, or the European Commission, or the Brussels, is almost in the same position as China central government. The provinces are doing most of the work, and they need to influence and could go and steer, but not do. So that's a very interesting model that is in the plan, and it's not all states, that's the thing. The current 15th 5-year plan, I think, provides very interesting balance between state and non-state, and it keeps on emphasizing on environment, creating an environment, creating capacity, and I find that interesting. So it's not just the plan will direct, will direct the state companies, and therefore things will happen. No, no, it is quite different. As in fact, it's sort of a renewed recognition of the private sector as being a very important actor in the development of technology. Scale, I think, is the critical

28:46element that is emphasized in the 5-year plan that is missing in Europe, finally. There's been great innovations, enormous innovative hubs throughout Europe. There is wonderful companies being set up, and then they move to the United States to scale, because it's just too hard to scale in Europe, because of different regulations. It's such an obvious one. It's such an obvious next step in the European sphere that this unified market that China has been hammering on and is working hard on is also very important for Europe. So those are the things that I would sort of take as being a European in Asia that I would take from it, but most of the work has to be done in Europe itself. It doesn't rely on China. I think this tremendous opportunities. So the critical technology is that China has defined them now. In the plan, you could say, my goodness, we need to get out of the way, or you could say, well, you can engage with China. You can look at your own strengths in those particular areas, and maybe there's a few good ideas

29:46that you say, well, these new quality productive forces, the future industries, the future technologies, maybe Europe actually has a really good strength in that, and they can be ahead or work together with China on particular things. So I see, I see, yes, there's some threats, but there's also quite some opportunities. I think the way planning is being done, the way it is set up. I think Europe can learn some lessons from China, thanks. Thank you very much for this conversation. I am Yu Yun-jian, and I'm with Alicia Garcia Herrera from Rugo and Bird Hoffman from the East Asian Institute from the National University of Singapore. For listeners, you can find our research on China at Brugo.org, and sign up for Zhonghua Mundis, our monthly China podcast and newsletter with link in the show notes. Until next time, bye bye.