Western media reactions to China’s 14th 5-year-plan: How poor analysis can destroy understanding and trust
On October 29, the Central Committee of the Communist Party of China (CPC) released a summary of the first draft of the 14th 5-year plan, followed on Nov. 3 by the draft itself and an explanation by President Xi Jinping. It is now time to look back at the media coverage these documents got in a selection of major US, German, Swiss and Austrian newspapers. The result of this analysis is alarming. Most of what commentators call “new” is actually not new. What is new and important in the 5-year-plan was missed by all journalists. No effort was made to connect this document to the reality it describes and to which is reacts. As a result, Western media reports only further harm the mutual understanding and trust between the various regions of the globe which were already badly damaged by Trump’s trade war.
The bottom line of most commentators is that China had to realize how “vulnerable” it was to Trump’s trade war and that as a consequence, China has decided to withdraw to a strategy of self-reliance and autarchy in production for its home market. Some articles also mention that China will welcome foreign companies to play a role in its domestic market. In other words, from a Western perspective, Trump was indirectly proclaimed the hero of a decisive victory over China, which was pushed back into isolation and forced to renounce any plan to play a major role on the global stage. The fact that these media reports were published just before the US presidential elections on Nov. 3 raises legitimate questions.
Actually, the 5-year-plan contains many indications that China has got no intention of withdrawing from the world stage. In addition, both trade data and latest news about China’s efforts to set up a reliable supply of microchips indicate that US sanctions hurt the US far more than China. The alleged “vulnerability” to US sanctions of China’s high tech industry is therefore largely overrated. Since every attempt by the US to deny China access to its high-tech products inflicts massive harm on the US high-tech industry as a whole, such attempts will be rare.
Some misunderstandings might result from the fact that the summary of the draft was released five days before the draft itself. Virtually no Western media outlet commented on the draft itself. Could it be that they were caught in their quest for the “latest breaking news”, instead of using the time until the release of the draft itself to collect some background information? And what kind of information could they have looked for?
Let us take the assertion that China will build up technological self-reliance and rely on its domestic market for development. When you want to know what is new and what is not, one way is to restrict search engine results for a certain expression by date. This takes a few minutes, but only few journalists realized that the attempt to increase domestic demand (expressed by the Chinese expression 扩大内需) figures prominently on official Chinese websites since the 1990s.
When searching for the past use of certain expressions, it is also interesting to see in what context they were used. For example, the expression 自立自强 can mean “self-reliance”, as provided by Google Translate. However, it is generally not used in a technical meaning in the sense of “economic autarky”, but rather in motivational speeches, with a moral or ethical component. Some Chinese websites actually translate it with “to strive for self-improvement”. The whole phrase “把科技自立自强作为国家发展的战略支撑” can of course be translated as meaning “Make self-reliance in science and technology a strategic pillar of national development”; this is the translation selected (or assumed as given) by all Western commentators. However, “Striving for self-improvement in science and technology should become a strategic pillar of national development” takes the various connotations of the expression 自立自强 better into account and does not exclude the possibility of international cooperation.
It is obvious that Trump’s trade war was a wake-up call and made the Chinese leadership aware of the importance of building up a reliable supply chain. The call for a “自主可控[…]供应链” (supply chain under our own control) is unequivocal, but there are many way of reaching this objective. One of these ways is definitely new, but no journalists have noticed it in the draft of the 5-year-plan: 国际产业安全合作 can best be translated by “international industrial security cooperation”. This expression simply does not exist in Chinese on the whole Internet before the end of October of this year. We can safely assume that the Chinese leadership considers building up a reliable supply chain in cooperation with foreign companies a high priority. This does not correspond at all to the alleged quest for autarky and self-reliance which all Western media describe.
Examples can already be seen in news reports. Various companies in East Asia and Europe reacted positively to China’s request in the field of microchip manufacturing for supply chains without any US components, which would therefore not be affected by US sanctions. This is precisely what showed US manufacturers in the field of microchip production how vulnerable they are to decisions made by their own president. The whole US microchip industry, both the manufacturers of chips and the manufacturers of equipment used to produce chips, had to watch how their clients and competitors worldwide scrambled to satisfy Chinese demand without using any US products. Within the relatively short duration of Trump’s trade war, doing so for the cutting-edge 7nm and 5nm technologies was impossible, but substantial results were achieved for less challenging technologies.
Everybody is aware of the fact that these efforts will continue despite the election of Joe Biden, not only in China, but also by many manufacturers in Asia and Europe. US media consider that Biden is likely to continue Trump’s policy of restricting Chinese access to US microchip technology. Even if he does not, the danger of seeing another impulsive fan of trade wars elected in the future is simply too great. To many Asian and European manufacturers, it will seem preferable to prepare for a US-free production rather than losing their Chinese customers in the event of a new trade war.
How could the “international industrial security cooperation” called for by the 5-year-plan work concretely? In a highly specialized field like microelectronics, calling for manufacturers to set up US-free product lines will not have a major impact. Each manufacturer is highly dependent on a major number of suppliers and a significant number of products is available only from the US. We can safely assume that what Chinese leaders have in mind is an active collaboration between Chinese and foreign companies to make sure that all the necessary products are available from a diversity of suppliers and countries. The recent signing of the RCEP trade agreement is certainly an important step into this direction.
We must also keep in mind the present reality in terms of high-tech production and foreign trade when analyzing the 5-year-plan. For example, most analysts neglect the progress which China has made over the past decades in building up its own high-tech industry. China started decades ago with providing mainly labor-intensive assembling of computers and electronic devices. The high-tech high value added components came mainly from foreign countries. Vietnam is now in this phase of its development: 62.3% of added value in its exports in computers and electronic products is provided by foreign countries. Mainland China has reduced this value to 30.5%, almost on par with Taiwan (29.6%) and doing better than South Korea (35.9%). China does not have the export profile of a developing country anymore, but rather of a major high-tech producer. Believing that such a country can be forced into submission by barring its access to US products is wishful thinking; unfortunately, this is exactly what seems to drive both Trump and Western media on this topic.
Having a look at comprehensive foreign trade figures is equally important. Most Western reports focus on the latest figures of bilateral trade between China and the US. Sometimes, only the figures for the trade in goods is taken into account. China is often criticized for “not playing according to rules” because it sells more to the US than it buys. Taking into account the total trade balance for each country, adding trade in goods and services and return on investments to get the current account, expressed as percentage of GDP, draws a different picture. According to IMF WEO figures, the US have got a stable current account deficit of -2.1% of GDP both for the last five years (2015–2019) and forecasted for 2020–2025. UK has got an even bigger deficit of -4.3% resp. -3.3%. Germany achieves a massive surplus of 7.9% and 6.7%. Japan stands at 3.7%/3.0%, Russia at 3.9%/1.8%, Italy at 2.4%/3.0%, South Korea at 5.3%/3.8%. Compared to the other major economies, China has got an almost balanced current account with a surplus of 1.5% (2015–2019) and 0.7% of GDP (2020–2025). No figures are available for EU excluding intra-EU trade, but if we take only trade in goods and services, the EU taken as a single actor (excluding intra-EU trade) had a foreign trade surplus of 2.2% in 2019, compared to China’s 1.4%.
The reason for the massive US foreign trade deficit with China is therefore not the way China trades with foreign countries. The reason is that US products are not competitive on the world market. One of the main motivations for Trump’s trade war against China was to decrease the US trade deficit with China. However, if this deficit is not due to some irresponsible behavior by China, but to the lack of competitiveness of US goods, pressure on China cannot force China to buy more in general, but only to buy more from the US at the expense of other countries which made the necessary effort to offer competitive products. It is unlikely that the US can convince the major European and Asian economies to support any significant action against China.
Figures about a specific aspect of US foreign trade allow us to understand the problem even better. US statistics provide figures for the trade in Advanced Technology Products (ATP) from 1990 onward. In the early 1990s, the US had a massive foreign trade surplus in ATPs, despite a deficit in total trade. ATP imports were just over 60% of ATP exports. This sectorial trade surplus represented 0.6% of GDP. Then the surplus in this category decreased progressively until it turned negative in 2002. Since 2017, imports represent more than 130% of exports; the corresponding deficit represents 0.6% of GDP, i.e. almost one third of the total US deficit in current account. In the first nine months of 2020, the gap further increased. In other words: One of the reasons of the US trade deficit is the decreasing competitiveness of US high-tech products.
Microchip production was one of the rare fields where for a significant number of products, the US had no serious competitors for the most cutting edge technology. The rest of the world could live with this situation, because developing equivalent products requires massive resources. As long as the availability of US products was guaranteed, it was only reasonable to accept mutual dependence. This relationship of trust was destroyed by a few executive orders signed by a US president whose concept of high-tech product does not go beyond a slot machine.
This is the reality which the Chinese leadership reacts to in the draft of the new 5-year-plan. Unfortunately, it is a reality which the Western media, caught in their standard narratives, don’t even try to understand. The narrative of an impulsive US president successfully forcing China to withdraw into autarky certainly sells better to a Western audience than an analysis of market shares, foreign trade and high-tech production processes. Journalists don’t seem to realize that because of their incompetence, the breakdown in trust between major regions of the globe now goes well beyond the availability of microchip production lines.
