During the annual National People’s Congress meeting (02.03.2016-16.03.2016) in Beijing, close to 3,000 delegates have approved the 13th Five Year Plan, which covers the period from 2016-2020 and outlines the general agenda for China’s economic, social, and political development.
Here are our implications for your business in China:
I. The end of cheap and low-quality China
China’s 13th Five-Year Plan clearly creates a differential in prospects for different industries, with its strong emphasis on consumption, innovation, social welfare and health. As a result, the era of cheap and low-quality China may be drawing to a close with the soaring labor cost, increasing land prices,environmental and safety regulations, as well as rising emphasize on quality, authenticity and innovation. For companies doing business in/with China, adapting to such changes and tapping into China’s other advantages, such as the rising productivity and sophisticated industrial chains, is becoming critical for avoiding losing ground in China in the coming years.
II. Technological and business-model innovations waves
To improve efficiency, product quality and brand reputation, the government will invest in initiatives such as ‘Made in China 2025’. In particular, the 13-5 plan identifies several strategically important industries for the nation’s development, such as services, IT and robotics; power, aerospace, railway.
Both technological and business-model innovations are nurturing waves of entrepreneurs in China, who are disrupting the ways businesses have traditionally been done, and thus changing the global competition landscape. It’s time for companies worldwide to think about what this could mean to them.
III. Further market-oriented reform
The deregulation measures and the reforms of SOEs would permit private companies to enter most industries other than those related to national security, such as banks, infrastructures, public services, new energies, telecom, medical services etc. This would significantly boost the growth of the private sector, and lift China’s growth potential in the coming decade.The adoption of the negative-list approach in market access and pre-establishment national treatment system for foreign investment, better-defined boundaries between government and market, and proper rule of law would mean more investment
opportunities and a more open, efficient and transparent business environment for foreign investors.
IV. The leading role of city clusters
During the 13th Five Year Plan, the spatial expansion of development area is seen as one of the drivers of China’s development, and the strategy is to make city clusters the primary focus of such expansion. In China, cities are increasingly functioning in clusters. The clustering effect allows cities to better utilize resources and benefit from mutual competitiveness.For companies seeking opportunities in China, managing their business by city clusters may allow them to leverage the linkages among different cities and serve larger market areas from a smaller number of locations in different clusters, thereby achieving synergies among these cities and reducing operational cost.
V. Optimizing trade structure and promoting cross-border e-commerce
With progress in industrial upgrading, further removal of administrative barriers, and efforts in signing free trade agreements during the 13-5 period, the structure of export is expected to further move up the value chain.More recently, cross-border e-commerce, including both import and export, has become a rising tide in China. Chinese shoppers frequently cross borders and buy products online, and sellers are exporting their products online with diversified business models. Companies doing business in/with China must take into account China’s changing trade pattern when
formulating their business strategy.
VI. Changes in the population policy
Starting from the 13-5 period, the new fertility policy allowing all couples to have two children will be fully implemented to boost the nation's birthrate. This could be an immediate boost for baby/child-related consumption such as infant formula, baby care products, clothing, education etc., and may help raise China’s long-term growth potential by easing the decline in the working age population.
VII. Companies’ social and environmental responsibilities
Environmental protection and low-carbon economy are among the top priorities in the 13-5 Plan. Companies operating in China will face stricter environmental regulations, such as on carbon emission and wastewater treatment. This is likely to increase compliance cost and necessitate investments in energy-efficient machineries, technologies and production processes. On the one hand, the Plan will also bring huge business opportunities in green industries, including renewable energy, fuel-efficient automobiles, environmental-friendly materials and recycling. On the other hand, the private sector assumes significant responsibilities in the inclusive development goals in the 13-5 Plan, such as paying higher wages, improving their salary-adjustment mechanisms, developing pension schemes, and training workers.
VIII. More chances for foreign investment
According to the 13-5 Plan the government want to enhance co-operations between China and Belt and Road countries and to enhance cooperation with international financial institutes on AIIB, Silk Road Fund and New Development Bank. And there will be a more even and transparent playing field for foreign companies wanting to invest in China.