China's newly adopted 15th Five-Year Plan (2026-30) has generated attention around the world with its ambitious goals for the nation's economic and social development.

This enthusiasm contrasts the view by some of state economic planning as practiced elsewhere. Perhaps the most common impression of other countries concerning five-year plans through history is that of the command economy of the former Soviet Union, which conjures images of wasteful allocation of resources, overproduction of heavy industrial commodities, a dearth of consumer goods and general inefficiency. Yet, although comprehensive planning based on input-output tables did suffer such defects, this certainly does not apply to all five-year plans, as China has long demonstrated.

State economic planning, often specifically through five-year plans, has been used in South Korea, Singapore, Japan, Malaysia and elsewhere since the 1950s. In market economies, state-led planning shapes the overall industrial structure of the economy, such as the balance between domestic-market versus export-market production, heavy versus light industry, and manufacturing versus services.

State economic planning targets specific industries seen as critical for national development, security or both. Clear economic plans guide policymakers in setting tax, subsidy and regulatory incentives or disincentives to encourage investment and business activity in targeted sectors and, crucially, not in disfavored ones.

By definition, economic planning is about "getting the prices wrong". Economists tend to balk at the idea of purposefully distorting markets, but evidence suggests that breaking out of the poverty and middle-income traps requires directing capital into sectors whose development undergirds broader economic expansion and development of an array of new industries.

This allocation may not accord with current national comparative advantages. However, whether in the case of South Korea promoting steel and shipbuilding in the 1960s or China today promoting artificial intelligence and semiconductors, the goal is to create industries whose output supports other industry sectors.

Economic planning can avoid the pitfalls of Soviet-style planning — producing mountains of industrial commodities without consumers who want or need them — if plan performance is evaluated not on the volume of output, but on the quality and the buyers it cultivates.

China is now embarking on its 15th Five-Year Plan (2026-30). Since the 1990s, its five-year plans have followed the market-shaping type seen in other leading Asian economies, rather than Soviet-style comprehensive planning. China's 14th Five-Year Plan (2021-25) and 15th Five-Year Plan (2026-30) have set goals of reorienting China's economy away from reliance for growth on exports and real estate construction.

The results to date have been mixed. China remains the world's leading exporter. Its production capacity in sectors ranging from mobile phones to photovoltaics to hobby drones ensures that it remains the global price setter. Productive capacity and capability make it easy for companies to find overseas buyers, even as domestic demand continues to recover. Real estate prices, which have declined significantly since 2021, remain a major challenge.

In terms of success, however, both the 14th Five-Year Plan (2021-25) and the 15th Five-Year Plan (2026-30) have focused on developing new industries and independent domestic innovation. This has led to continued industrial and technological development.

Planning has shaped, and will continue to shape, China's innovation system and capabilities through a combination of historical emphasis on growth and acceptance of investment inside and outside the plan. Having specific favored sectors and general support for whatever works has created powerful innovation capabilities. Chinese companies are adept at innovating with less and innovating around obstacles. Enterprises often produce sophisticated technologies that may not always be at the cutting edge, but they offer reliable performance at costs that are more competitive than those of many developed-country alternatives.

While not every technology may become the de facto or de jure global standard, China's plan and the industries it promotes will be highly influential. The 15th Five-Year Plan will not only shape the trajectory of China's economy, but also that of the world in the coming years.

The author is senior lecturer in the School of International Business, Logistics and Supply Chains at the University of Sydney Business School in Australia.

The views do not necessarily reflect those of China Daily.