Ancient Chinese leaders used Oracle Bones (bones with inscriptions of divination) to tell the future and guide them in important matters.
Today, modern businessmen can look to China’s January 1 implementation of its 12th Five Year Plan to guide them in important cross-border business matters. The five year plans have been a staple of the People’s Republic of China since its founding in 1949. Each plan outlines the most important issues and projects to be addressed in the coming half decade. This year’s version is pretty clear about what China views as vital to its continued growth but reading between the lines and finding the right guide is key to making it work for your business. CCTV interview shares perspectives on the plan.
Here are some key elements that business people from around the world should be paying close attention to:
Green Means A Cleaner, Richer China – China sees alternative energy development and a cleaner environment as integral to the growth and health of its society and economy. It’s well known that China’s water, air and land are polluted almost beyond compare. The Central Government in Beijing knows that for China’s growth to be sustainable a nationwide effort to combat existing pollution and to prevent future pollution is a matter of national interest. Beijing also realizes that in a world beset by expensive and diminishing fossil fuels green and clean tech will be a future moneymaker as well.
The plan calls for an increase in wind energy to produce 90 Gigawatts (GW) of power for the country by 2016. For comparison, the United States, the world leader in wind power production, currently produces 35 GW of power from wind energy. The plan projects seven major new 10 GW wind power construction sites to help achieve the targets in the five-year plan according to China’s National Energy Administration.
Takeway: If you are a foreign company focused on or with ties to Green and Clean tech China is likely to be your fastest growing market over the next five years.
Health Care Reform with Chinese Characteristics – The Five Year plan continues its focus on the health and well being of the Chinese people. A major objective is building a modern healthcare infrastructure which will benefit the health of the country’s people and China’s financial health as well.
The modern health care industry is still in its adolescence in China, the population is aging and people are demanding better and more comprehensive care. All this means that China is a top destination for pharma, bio-tech, medical equipment and device makers, elder-care specialists and health care companies across a wide array of fields.
The Government will also be focusing on improving the social safety net so that Chinese consumers do not have to save as much for health care costs and can open their wallets wider to consumer goods. In other words, the investment in healthcare has a three-fold positive effect: A healthier populace, the chance to become a world leader in health and life sciences and to help with the transition to a more consumer and less export oriented economy.
Takeaway: China realizes that sustainable growth requires not only a healthy environment, but a healthy population as well. Foreign companies stand to realize huge gains by strategically entering or expanding in China.
Rising Wages and Inflation – This is the area where much of the media has focused its attention and we would be remiss not to mention it here, albeit with some context. The five-year plan clearly seeks to increase people’s income across China’s population, especially for low-income earners. The plan seeks to create a “balanced economy” where the growing disparity between the elites and the average wage earner is addressed. China cannot sustain itself on a “rich coast – poor interior” paradigm.
This is a double-edged sword for China in that as it increases the wages of workers, it will be in jeopardy of losing its “low-cost” manufacturing base. This is a trade-off China must and wants to make.
As it moves up the value chain and derives more of its wealth from innovation, R&D, marketing and sales the low margin manufacturing that built the new China will move offshore.
Takeaway: Increasing disposable income, a fast growing elite class and a middle-class population approaching that of the total population of the United States is the growth many companies are banking on for their near and long term growth. The tenets of the Plan should increase these opportunities.
The Technomic Asia Take
In our general analysis of China’s 12th Five-Year Plan, we believe the following sectors will see the greatest gains:
- Healthcare/Pharma/Bio/Life Sciences
- Alternative Energy/Green Tech
- Brand/luxury retail
- High-end, high marging manufacturing and sourcing
- Leisure/Sports
- Automotive and automotive after market
- Construction
Over the next several weeks we will expand on these sectors in the China Business Podcast and on this blog.
