China’s 14th Five Year Plan: Unsolved Issues and Possible Way Out

Continued from the previous five year plan, the 14th Five Year Plan (2021–2025) emphasizes quality and innovation-led growth. To allow more flexibility to accomplish the qualitative targets, the central government did not explicitly set a growth target for the 14th Five Year Plan, which is unprecedented since China’s First Five Year Plan (1953–1957). Further, a new growth paradigm of “dual circulation” becomes the mainstay for future economic growth. One of the main planks of “dual circulation” is to boost economic growth via domestic consumption. It is argued that lifting domestic consumption will at best serve as counter-cyclical measures, but have limited impact on long-term growth that rests on the efficient use of factor inputs and the enhancement of total factor productivity (TFP). It is illustrated that China’s growth is constrained by declining population and labor force, shrinking labor and capital productivity as well as dwindling growth of TFP. Future policy initiatives must focus on quality human capital investment, mobility of factor inputs from low value uses to high value uses and productivity-enhancing innovation.