China’s 12th five-year plan for 2011 to 2015, finalised last month, will have a dramatic impact on the global economy and ambitions for managing the risks of climate change. In our preoccupation with shorter-run debt and finance issues, we risk overlooking medium- to long-term changes of profound significance.

China is moving into uncharted territory, risking instability if growth slows too much and damage for the world if it cannot reduce carbon emissions faster. But the change is essential and the gamble carefully measured. The plan identifies three key objectives. Each involves a radical shift. China now sees growth as driven by: a rising share of consumption; moving to a low-carbon economy; and innovation. This contrasts with the past pattern of growth led by investment and high-energy and low-cost manufacturing.

The first objective is motivated by the prognosis that external sources of growth may be weaker than in the past. The second objective is based on a recognition that both the quality of life and the potential for growth are in danger as a result of pollution, including the immense risks to China and the world over this century of climate change. And the third objective is prompted by the fact that in a number of industries China is not far from the current technological frontier and that China’s engineers, technologists and entrepreneurs are becoming ever stronger in quality and quantity.