China to set five-year plan for steering economy through choppy waters

An employee walks at a engine factory of CSSC Wartsila Engine (Shanghai) Co. Ltd in Shanghai, China June 13, 2017. (REUTERS)
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Updated 24 October 2020

China to set five-year plan for steering economy through choppy waters

  • Some analysts say dropping growth targets would reduce the country’s reliance on debt-fueled stimulus and encourage more productive investment

BEIJING: China’s leaders will chart the country’s economic course for 2021-2025 at a key meeting starting on Monday, seeking to balance growth and reforms to avoid stagnation amid an uncertain global outlook and deepening tensions with the US.
President Xi Jinping and members of the Central Committee, the largest of the ruling Communist Party’s elite decision-making bodies, will meet on Oct. 26-29 behind closed doors to lay out the 14th five-year plan, a blueprint for economic and social development.
The plan and its execution will be crucial for China to avoid the so-called “middle income” trap, policy insiders say, referring to the struggle of many economies to boost productivity and shift toward higher value-added industries. “Although the Chinese government has been calling for a transition in the development model for a number of years, we think the next five years will be particularly important, both
politically and economically,” Goldman Sachs economists wrote in a note ahead of the plenum, the fifth meeting of the Central Committee since the 2017 party congress.
Sustaining steady growth will be the priority, even as expectations grow that the leaders could announce fresh reforms to spur domestic demand, innovation and self-reliance under Xi’s new “dual circulation” strategy, policy insiders said.
Investors also will be closely watching to see if China moves to a more flexible economic growth target, after dropping it this year for the first time since 2002 due to the uncertainty caused by the coronavirus crisis.
Some analysts say dropping growth targets would reduce the country’s reliance on debt-fueled stimulus and encourage more productive investment.
China, where the COVID-19 outbreak first emerged, has mounted a robust economic rebound after quashing the domestic spread of the virus, but global prospects remain gloomy and the pandemic has added to tensions with the US.

BACKGROUND

China, where the COVID-19 outbreak first emerged, has mounted a robust economic rebound after quashing the domestic spread of the virus, but global prospects remain gloomy amid continuing trade tensions with the US.

“China’s potential growth rate will slow further due to the aging population, weakening effects from investment in driving growth and diminishing dividends from globalization,” said Tang Jianwei, senior economist at Bank of Communications. “To reverse the slowdown, we need deep-rooted reforms.”
Policy sources have told Reuters that China’s leaders are set to endorse a lower growth target compared with 2016-2020. Government
think tanks and economists have made recommendations for average annual gross domestic product (GDP) growth targets of between 5 and 6 percent, the sources said.
The plan to be discussed and approved by leaders next week is expected to be unveiled at the annual parliament meeting in early 2021.
“We need to maintain a balance between development, stability, and risk prevention,” said a policy insider. “Macro adjustments will be more difficult and this will present a test for policymakers.”
Xi’s strategy to guide the next phase of development, which points to an inward economic shift, has fanned calls by government advisers for reforms to unleash domestic growth drivers, including loosening curbs on residency and land rights and boosting household incomes.
Speeding up reform of the household registration “hukou” system would enable migrant workers to enjoy more social welfare benefits, while land reform would enable farmers get a bigger share of the gains from land deals. Both measures would spur urbanization and consumption.
Expected moves to further free up interest rates and expand the role of capital markets would address distortions in credit allocation that see huge state banks lend to state companies while the private sector is often deprived of credit.
Chinese leaders are also expected to discuss further plans to curb greenhouse gas emissions and ease reliance on imported technology, especially semiconductors, as Washington squeezes Chinese tech giants including Huawei Technologies and Semiconductor Manufacturing International.


Abu Dhabi’s Mubadala seeks Israeli tech, investment partners

Updated 26 November 2020

Abu Dhabi’s Mubadala seeks Israeli tech, investment partners

  • Since the UAE and Israel agreed to normalize relations in August, the two countries have signed a host of accords to boost economic and business ties

DUBAI: Abu Dhabi state investor Mubadala plans to identify potential fund partners in Israel and find high-growth technology firms in which to co-invest, as the UAE and Israel seek to boost commercial ties after normalizing relations.

“There will be interesting opportunities with joint funds or joint ventures, but we are still early on in evaluating this,” Ibrahim Ajami, head of Mubadala’s Ventures unit, told a financial technology conference in Abu Dhabi on Wednesday.

He said that Mubadala — which manages over $230 billion in assets — has co-invested with Israeli investors in the US and Europe, but closer ties between the UAE and Israel open up a significant opportunity for investments.

“We are always excited about Silicon Valley. But we are also looking at Europe, we’re looking at the Middle East, we’re looking at India and we would like to be very active in China,” Ajami said.

Since the UAE and Israel agreed to normalize relations in August, the two countries have signed a host of accords to boost economic and business ties.

Bank Leumi, Israel’s second-biggest bank, this week brought a delegation of executives to Dubai from industries ranging from real estate to energy and technology.

“Once the peace agreement was signed we thought that being the leader for connecting Israeli companies and Emirati organizations could be our role,” Avraham Ortal, CEO of Leumi’s investment arm Leumi Partners, told Reuters on the sidelines of a business gathering on Dubai’s palm-shaped island.

“It’s very early,” said Ortal. “We are just planting the seed. We’re going to plant it, we’re going to nourish it, and eventually it will flourish, but it’s going to take a while.”

The UAE has recently announced visa and business reforms aimed at attracting more expatriates to live and work in the country, after many left as firms cut jobs amid a severe economic slowdown caused by the coronavirus outbreak.