China Decode: China’s Next 5-Year Plan & Xi’s Possible Successor

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1:25I think these five-year plans, I mean, they sound like they could be a bit workmanlike, a little bit sort of socialist, communist type of terminology, but they're really important way markers for China's development. We've had a five-year plan every five years since 1953, and they really show where China's aiming. And as you say, this one, I think, will be AI, AI, AI. It's really hard to overstate the importance of that.

1:57Welcome to China Decode. I'm Alice Han. And I'm James King. Today's episode of China Decode, we're discussing China's five-year plan and Xi's possible successor, how the US-China trade war is hurting soybean farmers, and what a Chinese Trump impersonator says about political satire and the state of comedy in China. All right, let's get right into it. I think it's an exciting time in general in China in October, not just because the first week is the national holiday, but also because you've got some important plenary meetings coming up. Notably, among them, we've got the fourth plenum in which China is going to discuss the next five-year plan, which will cover 2026 through to 2030.

2:39The fourth plenary session will be held October 20 to 23, and there should be approval of updates to this new five-year plan, which we will soon hear about at the end of October. On paper, it's about rebalancing a slowing economy, boosting consumption, investing in high-tech industries, and trying to shake off a prolonged property slump and deflation. But behind the scenes, this is also about politics, where Chinese President Xi Jinping is personally driving the blueprint, even as questions about his eventual successor and how that transition could reshape China are starting to surface. I'm really excited about what's going to come out of Beijing at the end of October, James.

3:19I think that if you look back to the last five-year plan, at least my reading of the 14th five-year plan, which covered 2020 to 2025, China placed a lot of emphasis on high-quality growth, mainly in the form of technology. It also placed a lot of emphasis on dual circulation, so boosting the internal demand in the economy, not just the external demand. And we can debate whether or not they've been successful in this last five-year plan, but I'm excited to see what they announce for the next five-year plan. My own sense is that it's going to be about AI, AI, and AI. When I was in China, it was very clear to me that they were using this kind of AI plus approach to the economy that they did.

4:01If you remember, Li Keqiang announced the Internet Plus program several years ago. I think a similar methodology is being applied to AI. And I could see, I think, a big push towards trying to boost consumption, trying to boost China's social security safety net, which remains significantly weak by global standards. But what's your take, James, on the next five-year plan? I'm curious to hear. Well, like you, Alice, I think these five-year plans, I mean, they sound like they could be a bit workmanlike, a little bit sort of socialist, communist type of terminology, but they're really important way markers for China's development.

4:38We've had a five-year plan every five years since 1953, and they really show where China's aiming. And as you say, this one, I think, will be AI, AI, AI. It's really hard to overstate the importance of that. And, you know, if we look at some of the statements that China's made about AI, just in August, there was a big government report that said that AI would be the core engine of a new round of technological revolution and industrial transformation. It's quite rare that you get in Chinese documents them using the R word, revolution. I mean, that's normally a word that's reserved for the 1949 communist revolution.

5:24So to be using that, I think, is quite significant. China is betting really big on this. Yes. And the way that I think about these five-year plans is it shows what Beijing politically and economically is trying to prioritize. Now, whether or not they reach those targets or those goals remains to be seen. And certainly you can debate that parts of the last five-year plan were not met, but it shows what policymakers will care about moving forward. And I think critical to the last five-year plan, I think, was made in China. I think China has been quite successful in meeting many of those goals, especially when it comes to EVs, as well as robotics and aviation.

6:02But what I think about this next five-year plan is that AI is going to be the cornerstone and key to the way that they think about their economic, political, and social problems. I was just looking at some of the AI Plus plan earlier this week that they've unveiled. It's a three-step roadmap for the future of Chinese AI. So they want a penetration rate of 70 % of AI integration in six key sectors by 2027. And they want this to cover 90 % of the economy by 2030 and have, quote-unquote, universal adoption by 2035. I think this fits very well into the framework that Xi Jinping announced in 2023, the new quality productive forces.

6:44That, I think, will come up again in the next five-year plan. And I think a lot of emphasis will be placed beyond AI on some of these choke point technologies, whether it's advanced semiconductors, especially for AI, advanced chemicals, advanced pharmaceuticals in the biotech realm, as well as scientific equipment and aviation. These are sort of what they call the choke point technologies, where China still is relatively weak and relies on a lot of imports from the West. I think that that is going to be a key focus and part of Xi Jinping's ideology when it comes to China's technological supremacy and self-reliance.

7:18What do you think, James? Yeah, I mean, I think you're right to stress the applications of AI. What I sometimes find a bit annoying about commentators on China and AI is that they never get down to specifics. They're constantly using the word AI as if it's a kind of magic wand. So I think, you know, it's as well to think about actual specific examples. I came across three just the other day. So the latest unitary humanoid robot is powered by AI. And just in the last month, this robot has had a new breakthrough, it can now jump and then do a 360-degree spin in the air and then land on its feet.

8:03And if it falls over, it can get back up onto its feet again using what's called an anti-gravity mode. Apparently, all of that stuff, the ability to turn 360 degrees in the middle of the air, apparently that's all powered by AI. Last year, there was this extraordinary missionary mission to the dark side of the moon that the Chinese lunar probe Chang 'e, Chang 'e 6, I think it was, did. And then after it landed on the dark side of the moon, there was a tiny little lunar rover that went walkabout or trundle about on the surface of the moon. And then it turned around and it took a selfie, a historic selfie, of the Chang 'e lunar module sitting on the moon on the dark side of the moon.

8:50That was all powered by AI, entirely, the whole mission. And so that's another example. And then a more kind of down-to-earth example is in Beijing. At the moment, there's an AI hospital at Tsinghua University. This is actually like a test hospital. It's not treating real patients yet. But they've got 42 AI doctors. These doctors can see simultaneously thousands of patients because they're just AI, and they have diagnosed already about 10 ,000 test cases of people in inverted commas with ailments. And apparently their success rate is about 93%, which compares to human doctor success rates. So we can see just in those three examples that AI is really across the board.

9:40Alice, if I have a chance, could I tell you about my experience with a humanoid robot in a hotel in Shenzhen last year? Please do. I'm excited to hear about it. How dystopic on the scale of one to 10 is this story going to be? Dystopic. It's not that dystopic, I don't think. But a disclaimer, first of all, I met this robot in the hotel lobby. I can't quite call it humanoid because it was on wheels, not on legs. But anyway, I decided to give it a test. It was sort of hanging around. And I thought, look, I'll give it my mobile phone and I'll ask it to deliver my mobile phone to my hotel room. So I gave it the mobile phone and it trundled over to the lift and it somehow opened the doors of the elevator.

10:24And then it went to the fifth floor and it went all the way down the passageway to my room and then opened my hotel door. And I politely, being British, of course, politely asked it to give it my mobile phone back. And it did so. And then I discovered that these humanoid robots, or whatever you call this, are developing a little bit of chutzpah because it then said to me, if you approve of my service, please give me a five-star rating. Okay. Did you give it a five-star rating? I certainly did. It was worth it. Okay. And it seemed like a happy robot. Well, it trundled away. It didn't have any complaints.

11:03Well, that's interesting. And I think begs the question more broadly about to what extent some of these applications will be in automation as opposed to real integration and application of AI. Certainly, I think that what's really interesting about China's AI ecosystem that doesn't get enough press, I think, is the fact that it's mainly open source. And I think that this creates a more competitive landscape for AI models. We see a lot more AI models cross-proliferating in the Chinese ecosystem. What is interesting to me to see potentially in the five-year plan is the way in which AI is integrated in public governance.

11:38So in the public sector, when it comes to medical records or local government records, I think already certain companies like DeepSeek have partnerships and relationships with local governments and the central government. So for me, it'll be interesting to see to what extent these AI models are integrated in sort of the public governance capacity, which brings back to, I think, the beginning of the discussion. Well, this all matters because ultimately the fourth plenum historically is when the CCP comes together and talks about party governance, personnel discipline, organizational logistics and whatnot.

12:11And as I was preparing for this talk, I was looking at some of the data about purges in China. So we've seen the biggest, I think, purge of the CMC, the Central Military Commission and the PRC since Mao. There's been a big, I think, a rooting out of especially the senior level, the general level of the military. So to my mind, it will be interesting to see if we get any glimmers about what is going to happen to the PLA and the CMC structure. How are these people going to be replaced? And secondly, the most important question is, is she prepared to groom a successor or is he going to continue as president for life?

12:47I don't yet see the signs to indicate that Xi Jinping is ready to pass on the baton, so to speak. But I know that people will be watching that closely as well, not just for the five-year plan, but also for any glimmers or suggestions as to whether or not Xi Jinping will remain in power. Have you heard anything about this, James? This is a total black box. The China analysts that I speak to, everybody says that nobody honestly has a clue about Xi Jinping's plans to stay on or not stay on. I do think that what you mentioned, Alice, about the Central Military Commission and replacing those members of the Central Military Commission that we're supposed to be loyal to Xi is interesting, and it's a puzzle.

13:30And in a sense, where there's smoke, there's fire in the Chinese political system, but we just can't read it accurately. You know, at the same time as looking at signs like that, we also have to acknowledge that all seven members of the Politburo Standing Committee, so that's the pinnacle of Communist Party power in China, they are all either long-term allies of Xi or have served him loyally over more than a decade. And more than half of the broader, 24 members in the broader Politburo are also his protégé. So I really think that if Xi wants to stay on, he probably can. That's my gut feel. But to be honest, I don't think there's an analyst in the world outside a tiny number of charmed individuals in Beijing who honestly have a clue whether Xi Jinping will stay on or not.

14:24I mean, I would agree with this, although my money is that he's staying on. He's not too old by American politics standards. He's 71. So if he takes care of his health, he should see, I think, a good solid decade ahead. But everyone will be watching that closely for the political ramifications if anything does come up. All right, we'll be back for more after a quick break. So stay with us.

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16:56welcome back soybeans are the latest flashpoint in the u.s china trade conflict for the first time in years and this is very startling china hasn't bought a single soybean from american farmers this season choosing instead to rely on imports from brazil and argentina now that's a huge blow for U.S. farmers who have long depended on China to buy a huge share of their crop. And it comes as U.S. President Donald Trump vows to raise this issue directly and personally with Chinese President Xi Jinping at this month's APEC summit in South Korea. There have been reports that Trump may actually be going to Beijing earlier than expected, as early as November.

17:37And a lot of this probably hinges on whether or not some kind of a deal can be ironed out beforehand that involves soybeans and Boeing parts. James, obviously, the soybean story, which is so critical to American agriculture, is also critical to the US-China trade conflict that is still ongoing. How much leverage does Beijing really gain by cutting off US soybeans entirely? I think they gain quite a lot of leverage. This is the first time in more than 20 years that Chinese importers have not bought soybeans from the US autumn harvests. So that's the first point. The next point is that China bought roughly 13 billion US dollars worth of US soybeans last year.

18:23So if it continues this policy of not buying a single bean, then that obviously removes 13 billion from the pockets of American farmers. The other point is that China has bought 52 % of all American soybean purchases, i.e. those are purchases that are sold abroad in the past. So this is a really big hit to American farmers. And I don't know a huge amount about American politics, but I think these farming areas in middle America are really important when it comes to politics. And so far, the price, because China has exited the market effectively, the price of soybeans has also been falling. They're now trading at about$10 a bushel.

19:09That's down from around$13 at the start of 2024. And when you consider that farmers are often on a kind of a knife edge in terms of their profit margins, that's a big hit as well. So this comes at a very inconvenient time for the Trump administration's trade negotiators. As you mentioned, Alice, we've got one important meeting after another, and we've got the end of the so-called tariff truce coming up on the 10th of November. And so something's got to give. We don't really know what, but something, I think, has got to give on this. Otherwise, those American farmers are really going to be hit.

19:48Yeah, I agree. And to some extent, I think this is pretty low-hanging fruit for the Chinese to agree to commit to. Although the numbers are startling, just as you cited, James. U.S. total soybean exports are down 23 % year on year so far this year. But it's all part of a bigger narrative. Since Trade War I, China has pivoted significantly from U.S. soybeans. And it's largely moved towards Latin America, namely Brazil. So U.S. soybeans now meet about 20 % of Chinese demand, whereas Brazil is 70%. And this pivoting away, I think, is a big strategic shift that has obviously hurt the U.S. agriculture sector.

20:26But I think what isn't covered enough is that China is also internally seeing a slowdown in demand of soybeans. I was looking at some of the data on the demand side. What is interesting to me is a couple of things. The soybean ratio of hog feed, so basically how pigs and pork are the big meat industry in China. hog feed that is largely comprised of something like soy meal, which is a soybean component, that ratio has gone down due to government demands and targets. So actually soybean meal demand will actually fall in the near term. And China is targeting a cut to soy meal, which is the soybeans used in animal feed from 13 % in 2023 to 10 % by 2030.

21:10And this is really important because around 70 % of total Chinese soybean consumption is used in hog soy meal feed. So I think there's a bit of a rude awakening for US agricultural producers because not only has China strategically shifted towards Latin America since Trade War One, but it's also seeing an internal slowdown in its demand for soybean imports. So even although I think the low hanging fruit when it comes to this trade deal is for China to say, OK, US, we're going to buy more of your soybeans, it's going to be very hard for me to see them fully pivoting back to the US or even meeting the same kind of growth as we previously saw in demand in the past because of these internal dynamics.

21:51Again, another thing that I thought was interesting as I looked back at Trade War One is that China only purchased 58 % of the total additional$200 billion in purchases that they agreed to as part of the 2020-2021 first trade war framework deal. Again, it's hard for me to see them fully meeting any kind of increased agricultural purchase commitment that they may decide to promise. But again, when it comes to Trump, a lot of it is about the performance or rather the discussions rather than the real details. So that'll be really interesting to see. I sense that on the Chinese side, they can easily verbally say, look, we'll buy more agricultural products and Boeing products.

22:32we've basically greenlit this TikTok deal. I think that paves the way for a Trump-Xi meeting both in Korea and potentially in China. What do you think, James? Yeah, I mean, and you mentioned those U.S. agricultural producers there, Alice. And, you know, there's a strange sidelight to this whole story because back in 1985, a young man called Xi Jinping actually visited Iowa. He went as part of a lowly agricultural delegation from China's Hebei province to a town called Muscatine, which has just 24 ,000 people. And then just as he was preparing to become president again in 2012, he opted again to go to Iowa.

23:18And this time he was received by a farmer there called Rick Kimberley. Of course, he was a soya bean grower. And of course, there was pictures taken of a smiling Xi Jinping sitting behind the wheel of a John Deere tractor. And I just imagine that if Mr. Kimberley and his family are still producing soya beans, they're not going to be at all happy about what's going on right now. My sense of this is very much for some of the reasons you've given, Alice, that actually China does need American soybeans. And China would like to have a full trade deal with the US, obviously, that brings down US tariffs across a number of different sectors.

24:03And my sense of it, too, is that the Trump administration has been wrong-footed on several occasions so far by these tough tactics, this kind of shadow play that the Chinese have been implementing. So, you know, whether it be on rare earths that we've talked about in previous episodes or on the soybeans, I think China is basically building up its negotiating chips. Well, it's funny you say chips because to my mind, I think the Chinese strategy is we'll buy more soybeans if you sell us Blackwell chips from NVIDIA. And it may actually work out for them if Trump really believes politically he needs to support US agriculture.

24:43Brilliant segue there, Alice. Yes, yeah. Which I think, you know, chimes with his recent tweets, which have been very much about China needs to buy more soybeans, needs to buy more aircraft from Boeing. But certainly, I think, you know, again, to put it in perspective, I think Latin America and the global South is a big part of this story because, you know, you're seeing record Argentine exports of soybeans to China and other agricultural products, even though China may promise to buy more goods from the US, I think the bigger picture is that China is diversifying from the US and is increasingly buying commodities and agricultural products from Latin America, where they seem to have an ease of doing business with countries like Brazil and even Argentina, even though Malay is a known ally to Trump.

25:30So again, I think in the larger context, it's important not to forget that China has pivoted quite a bit since Trade War One towards the global south. Absolutely. Yeah. I mean, you're so right to bring this back to the big picture. Those are the big tectonic shifts of China's trading relationships with the world and very deliberately done by China. I think something like 44 % of China's total trade these days is done with countries of the global south. So China's sort of uber strategy looking forward, you know, five, 10 years is really to engage with the parts of the world that are not in the West and thereby increase its influence with those countries.

26:13And of course, those countries make up the vast majority of countries in political organizations like the UN. So if China can get stronger relations with them, then it can enlist the voting power of the global south, all of those countries, to basically get its way in international affairs. So that's an important part of this whole topic. I very much agree. Perfect. All right, let's take a quick break. So stay with us.