China-US rivalry is main challenge to Asian giant’s development, NDRC says

Matt Ho
·9-min read

China’s rivalry with the United States will be the “biggest external uncertainty” that restrains its medium- and long-term development but “time is on China’s side”, the country’s top economic planning agency said in its assessment ahead of this week’s key meeting in Beijing to chart the future course of the world’s second-largest economy.

“China will have to seek development in an ever more unstable and uncertain world,” it said.

The assessment, completed in August and written by department chiefs and research heads, is part of the National Development and Reform Commission’s (NDRC) official planning compendium released late last month.

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The compendium provides the detailed thinking of how Beijing sees China’s increasing confrontation with the US and its impact on the Chinese economy, as well as the country’s rejuvenation.

Party elites will close their annual plenary meeting in Beijing on Thursday and are expected to approve the outline of the 14th Five-Year Plan and the country’s long-term development goals, through 2035. Both documents are expected to be released soon.

The Covid-19 pandemic is expected to affect the global economy for “a considerable time”, exacerbating the already rising protectionism and shortening of global production chains, potentially weakening China’s status as the world’s factory, the NDRC assessment said.

Despite Washington rolling out its full-scale strategic competition with Beijing, which analysts expect to continue irrespective of the outcome of the presidential election next week, the NDRC assessment presents a cautiously upbeat picture of China’s rise. It suggests leaders are convinced that the trend of the post-pandemic ascent of East Asia and the relative decline of the West are clear, globalisation will not fundamentally reverse, and China could still be able to enjoy a largely peaceful international environment for its development.

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New game-changing technologies and the vast potential of China’s market have also added to Beijing’s confidence in spite of the turbulent times, it says.

That confidence was underlined in remarks by Liu He, Chinese President Xi Jinping’s top economic adviser, who said Chinese businesses and technological communities had geared up to improve their innovation capacity and were working on core technologies their foreign rivals have a stranglehold on.

“Now, the bad things are turning into good ones,” he said at a financial forum in Beijing last week.

Also last week, as Chinese tech giant Huawei launched its new 5G handset, its chief executive Richard Yu Chengdong said the tech giant was coping with the “very difficult situations” after Washington banned the sale of advanced chips and other technological supplies, including the chips used in the new phone.

But Tan Jian, a protective packaging supplier for chip makers in Suzhou, in the eastern province of Jiangsu, said the situation was reversing.

“Things improved unexpectedly quickly,” Tan said. “Nine months ago I was so upset about the suspended factory operation due to the coronavirus outbreaks and sluggish demand. Nowadays I’m only worried whether we can deliver the goods on time as orders keep pouring in.”

Tan said Washington’s sanctions on Chinese tech giants like Huawei had forced them to look for chip suppliers domestically, bringing opportunities for his clients.

“The technology rivalry from the US gives China the impetus to become a leader in technological innovation. Thanks to China’s vast market, big talent pool and supportive policies, I think the sector is set to prosper,” he said.

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The top challenge

The NDRC assessment said that while there was room for China and the US to manage their differences and cooperate in areas like sustainable global growth, counterterrorism and climate change, the wedge between them looked set to widen.

“As China inches towards the US in terms of comprehensive national power, the US will be growing ever more uncomfortable, and is apparently targeting us in areas of international trade rules, high technology and geopolitical security,” it said.

“A great power contest will become the biggest uncertainty factor restraining China’s medium- and long-term development,” it said.

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The report said the US’s technological suppression could “seriously hit China’s course of upgrading its economic structure” and posed an economic security threat, but the suppression could also spur China’s efforts to become more self-reliant in crucial technologies.

The shifted focus of military competition – from quantity and scale to quality and hi-tech – is also likely to exacerbate tensions between the US and China. Territorial disputes are complicated by unnamed “outside great power(s)”, while “ethnic secession and subversive enemy forces” continue to pose a threat to China’s sovereignty.

Was Covid-19 a catalyst for change?

The impact of the coronavirus pandemic accelerated many “unprecedented changes”, creating risks and opportunities for China in the next five years, the NDRC said.

The outbreak fuelled the rebalancing of global major powers, prompting fiercer contest among them in technologies, markets and resources, which would put China in a more complex international environment in the future.

The NDRC said the pandemic has raised concerns about supply chain security around the world, and accelerated their diversification and localisation. That trend would weaken China’s role as the world’s factory but also strengthen regional economic circulation, it said.

Zhang Yansheng, chief research fellow at the China Centre for International Economic Exchanges (CCIEE), said the 14th Five-Year Plan could mark “the most complicated and uncertain world” faced by Beijing since 1949.

He Lifeng is chairman of the National Development and Reform Commission. Photo: Simon Song
He Lifeng is chairman of the National Development and Reform Commission. Photo: Simon Song

The coronavirus pandemic looked likely to cast a deep shadow over the new five-year plan period, he said.

“The current assessment about the pandemic is that it will be a prolonged war,” Zhang said. “A priority task in drafting the 14th Five-Year Plan is how to defuse and turn the crisis into opportunity.

“Globalisation, global production and supply chains, and global trade and investments, all three are contracting and make the world a very different place,” he said.

“Conflicts and turbulences like what happened in 1920s and 30s are more likely to emerge.”

External opportunities

In a speech earlier this month, Xi said the world was “on the cusp of unprecedented changes in a century”, and had entered “a period of turmoil and transformation”.

The NDRC said the global health crisis was likely to lead to a rebalancing of the global economy as emerging markets and developing countries played bigger roles, and the World Bank and International Monetary Fund have forecast that leading nations will be harder hit by the pandemic and slower to recover from it.

The shortening of global production chains would lead to a more important role of regional trade partners in the Asia-Pacific region, it said.

“The existing global division of production will be overhauled and the traditional global economic model of ‘East Asia produce – US and Europe consume – rest of the world supply resources’ is likely to be reshaped,” the NDRC report said.

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In the first three-quarters of 2020, the Association of Southeast Asian Nations (Asean) unseated the European Union as China’s biggest trading partner, after overtaking the US to move into second place the year before.

“Regional economic circulation will be strengthened and regional trade and investment agreements will play a more prominent role,” the NDRC assessment said, citing deals such as the Regional Comprehensive Economic Partnership – of which China is a member – and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which it is keen to join.

China would seek to increase trade with its neighbours and free-trade agreement partners, and agree more deals with its partners in the Belt and Road Initiative.

Zhang, of the CCIEE, said China, together with Asean, Japan and South Korea, were among the first countries to contain Covid-19 outbreaks, while other major production centres around the world were still mire in the pandemic.

“No doubt orders would be diverted to us, even global trade and investments contract,” he said, adding that the key questions faced by East Asian countries would be whether they could seize the opportunity and work out how to collaborate in generating demand, promoting trade, fostering technological innovations, and easing the flow of capital and people among them.

The looming technological revolution also presented an opportunity for the country to join the ranks of advanced economies – if Beijing could seize it, the NDRC said, “otherwise it would become our challenge”.

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Yan Deli, a senior researcher at the Tencent Research Institute, said in a note last week that China had some digital economy champions that had performed well in the domestic market. Their expansion in the global marketplace had been clouded by geopolitics and resistance to globalisation, posing growing uncertainties to their development, he said.

The NDRC assessment said if China could not effectively improve its innovation capability and develop critical technologies by itself, its economic restructuring and upgrade “could suffer a serious setback”.

But China could benefit from its R&D system, vast market and ample applications for adopting disruptive technologies, it said.

“Time and trend are on China’s side in the great powers contest,” it said, adding that China would seek to consolidate its strategic position as a global power and shape the external environment in its favour.

The NDRC painted a rosy outlook for China. Photo: AP
The NDRC painted a rosy outlook for China. Photo: AP

Shaping the world

Convinced that the existing global governance system has increasingly out of pace with the “unprecedented changes in a century”, the NDRC said China had the conditions and capability to shape a favourable external environment.

Regional blocs could be a major force for reforming global governance despite concerns about fragmenting global institutions, it said.

“[China] will push to build a new regional governance system at an appropriate time, and gradually develop a strong support to global governance,” the planning guide read, adding Beijing would “actively contribute Chinese solutions” in multilateral platforms in regard of economic growth, structural reform, technological innovation, industrial coordination, public health and climate change.

“The centre of global economic growth has accelerated its shift from developed economies to emerging markets … and emerging economies and developing countries are counting increasingly on China on major issues,” the assessment said.

“There are growing expectations on us to better play ‘China’s role’ in unleashing and leading a new round of globalisation.”

Additional reporting by Jane Cai

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