Arnaud Bertrand@RnaudBertrand
It's exceptionally rare for former Chinese officials to reveal the inner workings of the system, all the more so when it involves detailing the mechanics of China's famous 5-year plans.
Dong Yu, interviewed by the SCMP (link: scmp.com/economy/policy…) helped draft China's 11th, 12th, and 13th five-year plans and he's now VP of the China Institute for Development Planning at Tsinghua University. In other words, the guy knows China's planning process in and out, both in theory and in practice.
I'll let you read the interview in full for yourself, but here were the parts that stood out for me:
1) What I hadn't realized, but which makes complete sense when you think about it, is the extent to which 5-year plans are not as much a mere forecasting exercise or even an economic blueprint but first and foremost a mass behavioral/psychological exercise.
Dong Yu makes 3 points around this:
- He emphasizes that "planning targets are not the same as forecasts. A target is not only based on technical calculations, but also takes into account how it shapes expectations." In other words the targets have a psychological dimension that's critical in determining actual outcomes, they have a self-fulfilling dimension.
- He says that "today, we have placed expectations in a position of unprecedented importance, and much of our work now revolves around shaping these expectations." Which basically means that to him planning is fundamentally about managing collective psychology.
- Lastly he argues that "the more uncertain the future feels, the more vital planning becomes... It is precisely in such moments that planning can provide much-needed stability and direction." In other words, the mere existence of a plan helps create psychological stability that enables economic activity.
2) The elaboration of the plan is more bottom-up than top-down.
This may come as a surprise to many people still under the impression that everything in China is decided in Beijing (or even solely by Xi Jinping himself 😅) - especially when it comes to the country's 5-year plans which are largely seen as a top-down exercise - but as Dong Yu reveals the process is surprisingly bottom-up.
For one thing the national plan is based on the targets set by China's provinces, which are often defined by the provinces themselves beforehand in the process.
The proactiveness of local governments is what Dong Yu highlights as "one of China's key strengths": he says that they "conduct extensive analyses and forecasts on industrial development" in their jurisdictions, and that this "widespread engagement and effort from top to bottom" is essential to the planning process.
3) The 5-year plan is not only about planning, but is part of a "full process, from formulation to implementation" which is intrinsically linked to China's political system, specifically its capacity to deliver "consistency and stability in carrying out long-term plans."
Dong Yu says that means replicating the 5-year plan process is very difficult for other countries: "Other countries are trying to learn from this model, but so far they mostly copy the form of the plans or isolated policies. The full process, from formulation to implementation, is unique and not easy to replicate."
4) He says that there is one key overarching objective behind all 5-year plan chapters: they are all fundamentally organized around improving people's living standards ("household income") rather than pure technocratic objectives around industrial targets or infrastructure.
There are of course many various ways to go about this and his personal philosophy is that "we shouldn't only focus on slicing the pie; we must also think about how to make a bigger pie. Only when the pie grows larger does dividing it become easier."
5) The are many other interesting tidbits in the article but I'll end on what Dong Yu says about both "involution" (cutthroat zero-sum competition) and "overcapacity", which are two hot topics today.
On involution, a problem Xi Jinping recently highlighted as a one of the key issues to solve for China (x.com/RnaudBertrand/…), Dong Yu says that it is a difficult balance to strike because "part of what we call involution is market-driven competition, and we do not need to see it as entirely negative."
As he puts it the goal isn't to eliminate competition but to ensure "the sound development of the ecosystem by preventing excessive competition from eroding the growth prospects of smaller enterprises." To him the real issue with involution is when the cutthroat competition "undermines small and medium-sized businesses, especially in sectors that are related to people's livelihoods."
On "overcapacity", it looks like Dong Yu doesn't quite believe in the narrative - which is largely driven by the West. As he puts it: "This 'overcapacity' is largely a mischaracterisation when viewed in the context of global supply and demand."
Using electric vehicles as an example, he argues that "Chinese products have already far surpassed their competitors in both quality and value for money, yet their current sales volume and market share remain below what they should achieve due to various external barriers." He asks rhetorically: "Are other companies or governments really suggesting that people should just accept higher prices and lower-quality goods?"
His basic point: overcapacity is a Western narrative to protect inferior, more expensive products from legitimate market competition.
That's it, please go read the entire interview (scmp.com/economy/policy…): again it's very rare to hear a former Chinese official speak so openly about the inner workings of the system; we should have more of this!
