About once a year, the 376 people who run China - the Central Committee of the Chinese Communist Party - get together to make important policy decisions. These meetings are called "plenums." Last week was the 4th plenum meeting of the current political cycle, and it was a big one - they finalized the main components of the next 5 year plan, the 15th in their history, which will be ratified in March.

The thing that makes the 5 year plan concept so remarkable is how well they stick to them. If many western governments tried something like this, I doubt I'd be alone in rolling my eyes and taking it with a grain of salt. The Chinese 5 year plan acts as a sort of contract between the Communist Party and the citizenry. I guess in the absence of elections, it is legitimizing to make explicit promises and then keep them. To put some numbers behind it - I went back and looked at the promises made in all of the previous 5 year plans post-Mao to see what percentage were kept - a sample of 60. What I found was that in 59 of the 60 cases, the promise was either completely met or at least meaningful progress was made. Some of the promises were subjective/qualitative and reasonable people could disagree if they did enough to get credit, and some are still in flight, but the synthesis is the same - in the context of the 5 year plan, the Chinese government pretty much does what they say they are going to do.

The point of all of this is not to be a cheerleader for the Chinese government - instead it is to point out that the 5 year plan makes things a little less uncertain for investors who are paying attention. The first highlights of the plan that were released make clear that self-reliance - in terms of technology and manufacturing - is the absolute primary focus, head and shoulders above everything else. Other meaningful issues - excess capacity in many industries, lack of household demand, domestic deflation, wasteful investment and related credit worries - are basically on the backburner. They are "nice to haves" that probably won't get more than the bare minimum focus and resources. This has large implications for economies and markets - implications that will factor into our thinking.

As investors, we have to live with the fact that we don't know what is going to happen. We can only make probabilistic guesses, and apply risk controls such that being wrong is acceptably painful. It's nice to have some of the important things in the global economy a little more knowable from time to time.