Reaganomics Plus

One of the themes that dominate the pages of the 13th Five-Year Plan is the imperative to turn the economy toward a new direction. The new direction which was named "supply-side structural reform" by President Xi Jinping a few months back, intends to reduce the ineffective and low-end supply of goods and boost the medium-to-high-end supply of goods to spur domestic demand.

The new strategy which closely resembles the key elements of "Reaganomics" that saw President Ronald Reagan advocating the reduction of taxes to encourage companies to produce more, deregulate, reduce government expenditure and trim down bureaucracy, takes the 1980s strategic steps further by adding elements of consumption based growth and an increasing reliance on quality over quantity. This is the newly coined "Made in China 2025" which assumes critical significance. The key thrust is to scale up low end to high end manufacturing, thereby addressing the growing domestic consumer goods market. In effect, such a strategy would spur innovation and entrepreneurship.

Taking note of the strong domestic demand for quality consumer goods in China, the leadership has emphasized measures that would boost a medium-to-high-end supply of goods and services. Furthermore, the leadership has rightly reckoned that the urgent necessity to cut down industrial overcapacity and phase out "zombie state-owned enterprises" in a timely manner. It must be recalled, in response to global panic in 2008, China had released a mammoth $586 billion stimulus mostly meant for state-owned companies. The new Five Year Plan has done well to limit such state spending to selective sectors only.

The game changer, however, is the emphasis on service sector growth. After decades of a manufacturing boom, the economy needs a logical shift to the service sector. The target of expanding the service industry from its current figure of 50.5 percent to 56 percent looks ambitious. However, it should be achievable. On numerous occasions, China has proved the soothsayers on its economic performance wrong. In this respect, the plan has rightly invested in a new ecosystem for research, innovation and higher education. The game changer would be the promise to earmark a mammoth 2.5 percent of GDP towards research and development (R&D).

This notwithstanding, the deft strategy and elaborate action plan and the realization of the key goals of the 13th Five-Year Plan are going to be a long struggle. This is because any radical change in the existing direction of the economy (from a traditional dependence on manufacturing to the service sector) can be disruptive and may render livelihood losses for a sizeable section of society. Thus, every change has seeds of opposition in it and the likelihood of social unrest cannot be ruled out.

What makes planned projection little more uncertain is the continued slowdown of the global economy and a looming uncertainty of free trade and liberalization regimes in many regions of the world. One is witnessing rising tides of protectionism and trade blocks. It's no wonder, when dedicating the new plan, Premier Li Keqiang astutely observed that "China will face more and tougher problems as well as challenges in its development."

Niranjan Sahoo is a senior fellow at the Observer Research Foundation in New Delhi.

Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.