China’s Five Year Plan sees manufacturing shake-up

Posted on 16 Mar 2016 by Michael Cruickshank

The latest Chinese Five-Year Plan has today been ratified by China’s parliament, the National People's Congress (NPC).

The new plan sees the country set a new GDP growth target of 6.5% per year through to 2020, and envisages significant changes to the country’s manufacturing sector.

All up, 2,778 members making up 97.2%of the total number of lawmakers voted in favour of the Five-Year Plan during the closing meeting of the annual session of the NPC.

Primarily the China’s Five Year Plan will see the country move away from a manufacturing-intensive, export-focused economic model and towards one which highlights the service sector and domestic consumption.

In order to do this, the country is implementing a number of painful economic reforms to its state-run and state-supported enterprises.

Among the largest of these changes is the closure of a large number of so-called ‘zombie factories’.

These factories, mainly in the steel and coal production sectors, have long stopped any kind of meaningful production due to declining commodity prices and slowing of Chinese growth. Nonetheless until now they have kept their workers on payroll and continued to finance debt through generous state-support.

The Chinese government believes the closure of such zombie factories will result in around 1.8m people losing their jobs.

“We are determined to push ahead with reforms, it will revitalize economic development. We have to address real problems in sluggish coal and steel sectors,” said Li Keqiang in a press conference following the passing of the Five Year Plan.

To help ease the social upheaval such heavy job losses could entail, the Chinese government last month announced 100bn Yuan ($15.3bn) to aid these workers in retraining and relocating to find new work.

Centenary Goal

As part of the new Five-Year Plan, China has focused on what it calls a ‘centenary goal’ for 2020.

This goal entails a moderately prosperous society where per capita GDP and personal income is double 2010 levels, in time for the 100th anniversary of the founding of the Chinese Communist Party in 2021.

“The next five years will mark the home stretch to the 2020 target, and there is every reason to believe that we can deliver on those targets since our economic fundamentals are still sound,” said Liu Xiya, an NPC deputy.