5 Jul 2011:
More domestic consumption, less pollution, more sustainable growth – China’s new five-year plan signals the central government’s bid to manage its move away from being the world’s factory floor, to diversification and a restructured economy. But can it succeed, and what are the implications for the rest of the world?
‘Ambitious’ doesn’t begin to cover the sheer sweep of China’s latest five-year sustainability plan. Its vision encompasses everything from economic and environmental targets to the wages, housing, pensions and even the lifespans of the country’s 1.3 billion citizens.
Officially, the theme of Premier Wen Jiabao’s plan is sustainability. Key to meeting a target of reducing carbon emissions by 17% per unit of GDP will be investment in strategic emerging industries, including energy saving, biotechnology and next-generation IT. China’s leaders want to see these new, high-value industries make up 8% of GDP by 2015.
Opinion is split on what this might mean for foreign partners in these strategic sectors. An analysis by Brunswick Group suggests: “Foreign companies will face intensifying competition – both in the Chinese market and beyond – from fast-growing and heavily-subsidised Chinese counterparts.”
That view is qualified by analysts such as Tomo Kinoshita, of Nomura in Hong Kong, who believes China will need to import Western technology if it’s to achieve its goals. “The Chinese market will be very attractive, given expectations that the government will provide subsidies and tax incentives to attract foreign direct investment in these areas,” says Kinoshita, quoted by Reuters.
Besides environmental sustainability, there is also an emphasis on economic stability – an acceptance that the world’s economic powerhouse needs to maintain growth at more manageable levels.
The plan foresees average annual GDP growth of 7% between now and 2015, compared with 11.2% over the past five years. However, opinion is divided on the regime’s ability to achieve this more moderate pace. Growth in the provinces shows no sign of slowing, and the central government doesn’t necessarily have the means to curb this trend. “Everybody wants to be the next Shanghai, so everybody wants to expand faster than their neighbours,” says HSBC’s chief economist for China, QuHongbin, quoted by Reuters.
Alistair Thornton, China analyst for HIS Global Insight, notes that previous plans have announced similar goals, but failed to achieve them. Writing in The Diplomat, he suggests: “This time, there will at least be more effort spent in reaching the targets.”
New direction notwithstanding, the Chinese love of domestic infrastructure spending rolls on. In a preliminary analysis of the plan, China Law Blog’s Steve Dickinson notes 21 major project types, covering transport systems, oil and gas pipelines, modernisation of the entire heavy industry sector, and new networks of hospitals, sewage and waste treatment facilities across China.
Key opportunities
New strategic sectors
China will promote seven strategic industries:
• energy saving and environmental protection
• next generation IT
• biotechnology
• new energy
• new energy vehicles
• high-end equipment manufacturing
• new materials
Innovation
China’s bid to stimulate R&D growth will bring opportunities in technology transfer and partnerships with academic and scientific institutes.
Infrastructure
A huge development programme will trigger opportunities for construction and related industries.
Environment
There will be potential for firms that provide low-carbon products, or can offer skills and technology that will contribute to new sustainability targets.
Urbanisation
The central government will encourage investment to boost consumer markets in the less-developed regions outside the eastern cities.