Opening of China's 5th Plenary Session Emphasizing 'Self-Reliance'... "Semiconductor Development Is the Top Priority"

Detailing 'Dual Circulation' Emphasizing Domestic Demand Alongside Exports
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[Image source=AP Yonhap News]

[Asia Economy Beijing=Correspondents Youngshin Cho and Hyunjin Jung] The 5th Plenary Session of the 19th Central Committee of the Communist Party, which will determine China's economic policy direction for the next five years starting from 2021, opened on the 26th. Economic self-reliance, emphasizing domestic demand alongside exports in response to comprehensive pressure from the United States, has been presented as the core keyword of this plenary session. In particular, the development of advanced industries such as semiconductors is expected to be the top agenda item of this meeting.

China's state-run Global Times reported on the 26th that "the '14th Five-Year Economic Development Plan (2021-2025)' will be decided at the 5th Plenary Session."

The keyword of the 14th Five-Year Plan is self-reliance. In anticipation of economic difficulties due to the intensifying US-China conflict, the Chinese government has promoted the 'dual circulation' policy. The Chinese leadership's idea is to lead the economy by adding domestic demand to the basic economic framework of manufacturing and exports. This meeting will focus on concretizing the dual circulation policy.

In the self-reliance agenda, advanced industries such as semiconductors, artificial intelligence (AI), 5G, and big data are expected to be discussed significantly. Major foreign media predicted on the day that "the semiconductor industry will be a priority among the meeting's agenda items."

The Chinese leadership has announced 'Made in China 2025,' aiming to raise the semiconductor self-sufficiency rate to 70% by 2025. Currently, China's semiconductor self-sufficiency rate is only 7-8%. However, with the US imposing sanctions on Chinese advanced companies such as SMIC and Huawei citing security concerns, achieving the self-sufficiency target has become practically difficult. The Global Times reported that the Chinese leadership is seeking ways to reorganize the global value chain by driving manufacturing through technological innovation.

Professor Li Chang'an of the University of International Business and Economics said, "Advanced technologies such as semiconductors will be mentioned at the 5th Plenary Session," and predicted, "Various policy supports including tax incentives and talent cultivation will be included."

As China seeks economic self-reliance, criticism is emerging in the US that former President Donald Trump's economic policy toward China did not achieve its goals. The Wall Street Journal (WSJ) reported on the day that the Trump administration tried to increase manufacturing jobs in the US and reduce the trade deficit through tariffs on China but failed to do so.

Manufacturing jobs in the US peaked with an increase of 289,000 compared to the same period the previous year in July 2018, when the first tariffs on China were imposed, but the job growth gradually decreased, reaching only 22,000 in February just before the outbreak of COVID-19 in the US. The WSJ pointed out that "about 75% of the new manufacturing jobs created after President Trump's inauguration were generated before the first tariffs on China were imposed." This significantly deviates from the expectation of Robert Lighthizer, US Trade Representative (USTR), who predicted that "tariffs would help restore US manufacturing jobs."

Regarding the US trade deficit, it generally declined after the first tariffs on China, but during the same period, the trade deficits with countries like Vietnam and Mexico actually increased. Chad Bown, senior fellow at the Peterson Institute for International Economics (PIIE), analyzed, "(The Trump administration's tariffs) are the largest since the Smoot-Hawley Tariff Act," and added, "It will take years for the economic effects to materialize."