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"I am worried about the broader environment for change in China"

22 January 2016

Themes and details of China’s upcoming 13th Five-Year Plan are only beginning to leak out, but according to Scott Kennedy, one thing is already clear: “This plan is not up to the task of what China needs to address its economic issues.” The expert on China’s economic and industrial policy from the Washington-based Center for Strategic & International Studies (CSIS) spoke to an audience of 70 at the latest MERICS Lunchtime Talk.

While Kennedy said that he approved of the document’s five themes – innovation, regional coordination, green economy, a larger Chinese role in global governance and global economic institutions and shared welfare at home – he doubted that the current political climate in Beijing would facilitate consistent implementation.

The centralization under President Xi Jinping made it harder for Chinese policy-makers to explore a variety of options to tackle China’s problems, Kennedy explained. As a result, China would lack the flexibility to meet its reform goals. “The specifics of the plan to reform state-owned enterprises add up to a plan to change the way the Communist Party can manage and control them,” he said.

The top-down approach stands in the way of innovation, the plan’s most important goal. “I am worried about the broader environment for change in China”, Kennedy said, mentioning the politicization of universities and the intimidation of journalists as examples for a stifling climate for creativity. His conclusion: “China will be able to reach some of its targets, but it won’t become an innovative society.”

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In the ensuing dialogue with MERICS president Sebastian Heilmann, Kennedy elaborated on the innovation theme and stated that certain sectors might be better positioned for success than others. He highlighted green technology and food safety as fields where pressing problems in China might trigger innovative solutions.

Some in the audience pointed to China’s booming Internet sector, singling out e-commerce as a leader in innovation. Kennedy agreed but said he remained worried about the tension between “the very smart ideas of Chinese tech companies” and China’s national security concerns – as well as the political demands on these companies to align themselves with the Party.

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