EsChina’s National People’s Congress has approved the 14th Five Year Plan, Xinhua reports, as part of its broader annual policy approval process. That sets the stage for economic and supply chain developments through to 2035. The plan includes a focus on making “science and technology self-reliant” while still encouraging foreign direct investment and ensuring continued export earnings growth within the context of the “dual circulation” approach to economic expansion.
Detailed plans will be rolled out for seven areas of technology developments in the coming months covering areas with national security and economic development consequences including: semiconductors, AI, quantum computing, medicine (including gene therapy and neuroscience) and exploration across space, maritime and polar arenas.
In technology for example the government plans during 2021 to cut taxes and increase government R&D spending by over 10% with a view to also creating detailed targets for 2030. The prior “Made in China 2025” program outlined detailed plans of state support for critical industries and drew the ire of the U.S. (resulting in part in the section 301 trade review which underpinned the trade war between the two countries) among others from a state aid perspective. Similar issues may emerge for the new plans.
Government funding approaches may result in offsetting measures from other countries, including India and the U.S. as noted in Panjiva’s 2021 Outlook. It is worth bearing in mind, however, that there are echoes of China’s plans in the Biden administration’s supply chain Executive Order will likely end up covering similar ground.
The importance of controlling the semiconductor sector in particular cannot be understated. As an underpinning for growth, access to the best R&D and most advanced technologies is key. From a practical standpoint having control of the means of production is vital to stable economic development, as the automotive industry has found during the past few months.
A major risk that the Xi administration will therefore look to offset is reliance on U.S. semiconductor supplies, with Huawei’s experience being an exemplar. Panjiva’s data shows U.S. exports of semiconductors to China surged 22.2% higher year over year in 2020, including a 27.0% jump in Q4’20 and resulting in a one-month record in December.
That may reflect a degree of stockpiling as well as elevated demand for consumer electronics globally. Imports in the new year have continued to grow with a rise of 22.2% in January. Shipments to North America in the meantime have declined, potentially reflecting the challenges being faced by the automotive industry.
Source: Panjiva
China will also likely want to reduce its exposure to U.S. semiconductor manufacturing equipment, particularly given these are likely to be an area of export restrictions as technological rivalry between the two countries escalates. China’s imports of semiconductor machinery from the U.S. climbed 35.8% higher year over year in 2020 to reach $4.75 billion.
That may reflect a push to build infrastructure in case of restrictions. Yet, a 49.8% jump in exports to South Korea would suggest that the surging global demand for semiconductors is expected to continue to be robust.
Source: Panjiva
