November 12 2020 China’s 14 Five-Year Plan A First Look th The Communist Party of China CPC ’s 19th Central Committee—a body of China’s 376 top Party officials— held its 5th Plenum in late October 2020 to deliberate on China’s 14th Five-Year Plan FYP for 2021-2025 and economic goals out to 2035 China’s annual Central Economic Work Conference is to review the plans in December before they are unveiled at the annual session of China’s legislature in March 2021 Initial details suggest that Chinese leaders plan to expand the state’s role in the economy and advance national economic security interests use market restrictions and its One Belt One Road global networks to foster Chinese-controlled supply chains and sharpen the use of antitrust intellectual property IP and standards tools to advance industrial policies To develop capabilities prioritized in its plans China is repositioning to obtain foreign technology through partnerships in open technology and basic research and to establish research and development R D centers overseas and talent programs for foreign experts to work in China Plans for new market openings are limited to zones and focus on areas where China seeks foreign expertise emerging technologies and education and capital financial services Dual Circulation and Secure Supply Chains China faces widening and deepening trade tensions foreign pressures on businesses to move some production out of China foreign government restrictions on technology transfer to China global scrutiny of Chinese overseas commercial activity and international skepticism about China’s commitment to market opening and global trade rules Chinese President Xi Jinping is reviving a “dual circulation” economic policy that his predecessor used during the 2009 financial crisis and the “supply side” reforms that Xi used in 2015 to upgrade industry and launch Made in China 2025 MIC 2025 industrial policies Dual circulation refers to leveraging the dual forces of domestic and global demand by developing domestic capacity while pursuing openings in global markets The policy aims to boost both domestic supply and demand in response to what Chinese leaders describe as a complex unstable and uncertain global environment The approach is not a simple turn inward but rather seeks to transfer and localize foreign capabilities in China and maintain access to global markets wherever possible—including for key inputs technology and exports—to develop China’s capabilities Dual circulation appears to have intensified China’s nonreciprocal approach to trade whereby its market has become increasingly restrictive while Chinese firms expand overseas In 2009 when global industry contracted China subsidized production in 13 sectors funding domestic purchases of these products and exporting excess capacity a precursor to China’s One Belt One Road initiative Details to date about national regional and industry plans emphasize ensuring China’s national economic security— including national economic industrial and technology development goals and economic competitiveness—and “properly handling the relationship between openness and independence ” Chinese leaders seek to secure China’s supply chains and boost self-sufficiency in agriculture energy technology and industry In a speech to the Party’s Central Economic and Financial Working Group in April 2020 President Xi called for building “independent controllable secure and reliable supply chains to ensure industrial and national security with access to at least one alternative source for important products ” President Xi said China should “use existing global dependencies on China as a counterweight to pressures to shift manufacturing out of China” and “use the pull of China’s market to attract global resources and deepen global dependence on China ” Xi also called for developing and leveraging control of “core technologies”—in sectors such as high speed rail telecommunications and power equipment and new energy—and localizing technology and critical production in China including through import substitution One Belt One Road is often cited as a network to facilitate secure trade and gain initial global footholds in MIC2025 sectors To counter offshoring pressures Hainan Province is reviving incentives for manufacturing that processes imported inputs for re-export e g duty free import of raw materials components and equipment and air and shipping logistics China is also looking to other priorities Agriculture The government is drafting a food security plan making provincial governors responsible for grain security measures increasing domestic capabilities and diversifying sources for agricultural imports China plans to introduce new strains with higher yields a potential nod to biotech now that China owns Syngenta and boost production of high quality grains and soy Diversification is affecting China’s shortfalls in meeting purchase targets set by the January 2020 U S -China trade agreement Technology China is focused on developing the digital economy and cryptocurrency and digital trade rules that it aims to push globally China’s stimulus committed $1 4 trillion over five years for digital infrastructure including 5G smart cities and Internet of Things applications for manufacturing U S business has expressed concerns that i these sectors are already restricted and ii procurement in areas such as cloud computing could favor Chinese firms and require technology disclosure and data localization Finance China is developing a central bank digital currency to try to influence global finance and ecommerce and to diversify from U S dollar financing The Chinese city Shenzhen and Hainan Province are to pilot cross-border cryptocurrency trade and cash pooling of foreign exchange and China’s currency the renminbi The zones are also promoting financial services investment the securitization https crsreports congress gov China’s 14th Five-Year Plan A First Look and trading of data energy IP and real estate assets and cross-border financing for Chinese technology firms Environmental Technologies China’s pledge to peak CO2 emissions by 2030 relies on MIC 2025 goals in power and new energy technologies and materials such as batteries Plans call for half of vehicles to be electric or fuel-cell powered and the other half hybrid by 2035 China’s environmental and technology goals are mutually reinforcing 14th FYP environmental policies could bolster China’s efforts to upgrade manufacturing and require foreign technology transfer to meet new standards “Indigenous” Innovation and Basic Research Chinese leaders arguably are emphasizing technology independence and indigenous innovation—long-standing themes in China’s industrial policies—while prioritizing China’s ability to continue to access foreign technology and global markets The 5th Plenum Communique reinforces innovation as the core driver of China’s development a direction set in 2006 with China’s Medium and Long Term Plan for Science and Technology MLP and the 13th FYP These plans called for developing indigenous capabilities decreasing dependence on foreign technology and advancing emerging technologies This process of “indigenous” innovation involves the introduction absorption and adaptation of foreign technology that is rebranded as indigenous Chinese capabilities The Party’s emphasis on developing domestic innovation capabilities has underpinned aspects of China’s industrial policies of concern to the U S Congress such as forced technology transfer industrial subsidies state-financed acquisitions of foreign firms in strategic sectors cyber intrusions and other forms of IP theft The Chinese city Shenzhen is piloting 14th FYP innovation priorities that include a focus on foreign partnerships and overseas centers for basic research China’s talent plan incentives include visas and permits to facilitate frequent cross-border travel work and permanent residence of foreign experts in China Reforms seek to commercialize research transfer government patent rights to innovators and revitalize national labs China is looking to securitize IP and develop digital IP rights to foster the trade of intellectual property China is targeting foreign collaboration in basic research open technology and overseas research centers to try to skirt export controls and leverage areas that remain open for U S cooperation These ties are allowing China to develop capabilities in priority areas such as semiconductor design Many countries’ export controls focus on applied research and technology transfer across national borders China’s new semiconductor policies encourage foreign academic and industry collaboration and Chinese corporate R D centers overseas In June 2020 Chinese firms Huawei and San’an Optoelectronics announced a $1 2 billion R D center in the United Kingdom to develop semiconductor chips Many top Chinese technology firms—including Alibaba Baidu and Tencent—have U S R D centers State Control and Financing In September 2020 the CPC Central Committee called for strengthening Party control of the private sector to “build a backbone of private economic actors that are reliable and useful at critical moments ” President Xi has called state firms an important pillar for the Party to govern and rejuvenate China saying they must be stronger better and bigger State funding continues to underpin priority sectors The funding is challenging to track through a complex web of onshore and offshore corporate and financial vehicles including government guidance funds local government insurance and asset management companies venture capital and private equity corporate bonds and stock listings Standards Antitrust and IP Tools China is midstream in advancing priorities set in the 2006 MLP and the 13th FYP New plans will likely continue to advance sectors and projects prioritized in these plans and MIC 2025—including aerospace artificial intelligence biotechnology information technology semiconductors quantum computing robotics advanced machinery and rail deep sea technologies and new materials China will likely introduce new projects and areas of emphasis as well as policies to advance its next stage of development in these areas including commercialization standardization financing and export promotion New plans emphasize standards development and antitrust and IPR enforcement to advance industrial policies These tools were used during China’s 12th and 13th FYPs to require foreign technology and IP licensing joint ventures and divestitures to Chinese state firms In 2018 China consolidated market competition IP and standards authorities in a powerful new regulator—the State Administration for Market Regulation SAMR —that is poised to play a key role in implementing the 14th FYP Since then China’s Academy of Engineering and SAMR have been developing China Standards 2035 a plan to set standards in ways that advance Chinese industrial goals and create interoperable civilian and military standards raising questions about the dual use nature of Chinese overseas infrastructure China’s standards setting may focus on new technologies where China may have greater influence in the absence of existing rules Issues for Congress In response to China’s plans to further lean on state-led development Congress might  address China’s complex structuring of government industrial    subsidies that make it difficult to determine the state’s role and subsidization under global rules respond to China’s unconventional use of antitrust IP and standards tools including potentially sharpening U S authorities and strengthening the U S role in global technical bodies to counter China’s policies constrain China’s access to U S open source technology and basic research and tighten export control gaps and use trade policy to facilitate supply chain security and trade and technology collaboration among allies and partners Karen M Sutter Specialist in Asian Trade and Finance Michael D Sutherland Analyst in International Trade and Finance IF11684 https crsreports congress gov China’s 14th Five-Year Plan A First Look Disclaimer This document was prepared by the Congressional Research Service CRS CRS serves as nonpartisan shared staff to congressional committees and Members of Congress It operates solely at the behest of and under the direction of Congress Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role CRS Reports as a work of the United States Government are not subject to copyright protection in the United States Any CRS Report may be reproduced and distributed in its entirety without permission from CRS However as a CRS Report may include copyrighted images or material from a third party you may need to obtain the permission of the copyright holder if you wish to copy or 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