President Xi is gambling on high-tech dominance

China’s government has unveiled a new master strategy for its economy every few years since 1953 – the crucial five-year plan. For the most part, these blueprints have been geared at spurring growth and unity as the nation transformed into a manufacturing powerhouse.

Yet the task that faced Beijing’s leaders as they met in October to map out their 15th such program was complicated by two main factors of sluggish domestic growth and intensifying geopolitical rivalry. Their solution? More of the same.

In pledging to deliver “high-quality development” through technological self-reliance, industrial modernization and expanded domestic demand, China is doubling down on a state-led model that has powered its rise in recent years.

President Xi Jinping and others who ironed out the 2026-2030 blueprint are betting that innovation-driven industrial growth might secure the country’s future, even as questions loom about underpowered consumer spending and mounting economic risks.

Still, I view China’s strategy as being as much about power as it is about economics. Indeed, it is primarily a program for navigating a new era of competition. As such, it risks failing to address the widening gap between surging industrial capacity and tepid domestic demand.

Future industries

At the heart of the new plan are recommendations that put advanced manufacturing and tech innovation front and center. In practice, this means upgrading old-line factories, automating and “greening” heavy industry and fostering “emerging and future industries.”

They include aerospace, renewable energy and quantum computing. By moving the economy up the value chain, Beijing hopes to escape the middle-income trap and cement its status as a self-reliant tech superpower.

To insulate China from export controls put in place by other countries to slow China’s ascent, it is doubling down on efforts to control critical technologies by pumping money into domestic companies while reducing dependence on foreign suppliers.

This quest for self-reliance is not just about economics but explicitly tied to national security. Under Xi, China has aggressively pursued what the ruling Communist Party calls “military-civil fusion,” or the integration of civilian innovation with military needs.

The new five-year plan is poised to institutionalize this fusion as the primary mechanism for defense modernization, ensuring that any breakthroughs in civilian artificial intelligence or supercomputing automatically benefit the People’s Liberation Army.

A state-led push in high-tech industries is already yielding dividends In the past decade, the country has surged to global leadership in green technologies such as solar panels, batteries and electric vehicles thanks to hefty government support.

Now, Beijing intends to replicate that success in semiconductors, advanced machinery, biotechnology and quantum computing. Such ambition, if realized, could reshape global supply chains and standards.

But it also raises the stakes in China’s economic rivalry with advanced economies. Its prowess in building entire supply chains has spurred the United States and Europe to talk of reindustrialization to avoid any overreliance on Beijing.

By pledging to build “a modern industrial system with advanced manufacturing as the backbone” and to accelerate “high-level scientific and technological self-reliance,” the new plan telegraphs that Beijing will not back down from its bid for tech dominance.

Yet what the strategy gives comparatively modest attention to is the lack of strong domestic demand. Boosting consumer spending and livelihoods gets little more than lip service in the communiqué that followed the plenum at which the five-year plan was mapped out.

Household consumption

Chinese leaders did promise efforts to “vigorously boost consumption” and build a “strong domestic market,” alongside improvements to education, health care and social security. But these goals were listed only after the calls for industrial upgrading and tech self-sufficiency.

In short, this suggested old priorities still prevail. And this will disappoint economists who have long urged Beijing to shift from an overt, export-led model and toward a growth-driven prototype fueled by domestic demand.

Household consumption still accounts for only 40% of GDP, far below advanced-economy norms. The reality is that Chinese households are still reeling from a series of economic blows, such as the Covid-19 lockdowns that shattered consumer confidence.

A property market collapse has also wiped out trillions in wealth, while youth unemployment hit a record high before officials stopped publishing the data. With local governments mired in debt, there is skepticism that pro-consumption reforms will materialize.

As Beijing reinforces manufacturing even as domestic demand stays weak, the likelihood is extra output will be pushed abroad – especially when it comes to EVs, batteries and solar technologies – rather than be absorbed at home.

Yet China’s drive to climb the technological ladder and support its industries will likely intensify competition in global markets – potentially at the expense of other countries’ manufacturers.

In recent years, exports have surged to record levels. This flood of cheap Chinese goods has squeezed manufacturers among trading partners from Mexico to Europe, which have begun contemplating protective measures.

If Beijing now doubles down on subsidizing both cutting-edge and traditional industries, the result could be an even greater glut of Chinese products globally, exacerbating trade frictions. The world may feel more of China’s industrial might but not enough of its buying power.

Technological heights

With China’s 15th five-year plan, Xi is making a strategic bet on his long-term vision. There is no doubt that it is ambitious and comprehensive. And if successful, it could guide China to technological heights and bolster its claim to great-power status.

But the blueprint also reveals Beijing’s reluctance to depart from a formula that has yielded growth at the cost of imbalances that have hurt many households across the vast country.

Rather than fundamentally shift course, China is trying to have it all ways by pursuing self-reliance and global integration, professing openness while fortifying itself, and promising prosperity for the people while pouring resources into industry and defense.

But Chinese citizens, whose welfare is ostensibly the plan’s focus, will ultimately judge its success by whether their incomes rise and lives improve by 2030. And that bet faces long odds.

Shaoyu Yuan is an Adjunct Professor at New York University and Rutgers University.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.