Australia: China's 13th Five-Year Plan is one to watch

Last Updated: 30 November 2015
Article by Carl Hinze

For thousands of years, China's hierarchical society has emphasised the need to maintain social and political stability. Yet, China's earliest philosophers recognized that "change" is the only constant. So, throughout Chinese history rulers have done their best to control change by creating precise guidelines for both the rulers and the ruled. In modern times, this philosophy has manifested most obviously in China's Five-Year Plans. Since the early 1950s, China's Five-Year Plans have traditionally served as a blueprint for the implementation of governmental policy at all levels. On 29 October 2015, the Communist Party of China adopted a proposal on China's 13th Five-Year Plan, covering 2016 to 2020. The 13th Five-Year Plan will be released by the Chinese government in the first quarter of 2016. It will set out the Chinese government's overarching strategy and targets for economic and social development during the next 5 years, and in the process seek to control change and guide it in a positive direction.

The Chinese government's proposal for the 13th Five-Year Plan is a key indicator of the directions and changes in the Chinese leadership's development philosophy. Both the 11th and 12th Five-Year Plans moved away from central planning-style hard production targets and described broader development objectives, relying more heavily on a "managed market" to achieve such goals.

The 11th and 12th Five-Year Plans placed a high priority on improving Chinese citizens' well-being through wage increases, education opportunities, sustainable development and healthcare. The proposal for the 13th Five-Year Plan continues this focus, aiming to make China a "moderately prosperous society" by 2020 by increasing domestic consumption, speeding up urbanisation and improving people's livelihoods. However, the "relatively rapid economic development" sought in the 12th Five-Year Plan has been downgraded to a "medium-high speed of growth" in the proposal for the 13th Five-Year Plan.

Still, the Chinese government will seek to double its 2010 GDP and per capita income by 2020, pursuing annual GDP growth of at least 6.5% between 2016 and 2020. Assuming China is able to achieve such growth targets, the impact on the Australian economy and the global economy will be substantial. According to Professor James Laurenceson, deputy director of the Australia-China Relations Institute at Sydney's University of Technology, China has contributed around 40% of global income growth during the period of the 12th Five-Year Plan (2011-2015).

The proposal for the 13th Five-Year Plan highlights the ideas of innovation, green development, opening up and coordination.

Innovation

China's previous Five-Year Plan indicated the nation's determination to push for innovation. With China's rising labour costs, innovation is a necessity. Accordingly, the new Five-Year Plan will elevate innovation to the top of China's development objectives. Although China has become a global R&D hub and has experienced a rapid increase in the number of patents filed each year, question marks still hang over the viability of many Chinese patents and technologies. Even so, China's advances in innovation are exemplified by the fact that everyday Chinese discourse now includes the English acronym "BAT" - representing the three kingmakers of China's Internet, Baidu (search), Alibaba (e-commerce) and Tencent (social media). With the ongoing rise of China's tech giant, Huawei, the acronym could be extended to "BATH".

China will seek to build on these successes with the innovative development of the Internet under the 13th Five-Year Plan. In March 2015, Chinese Premier Li Keqiang introduced the "Internet Plus" concept. This entails integration of mobile Internet, cloud computing, big data and the Internet of Things with modern manufacturing, fostering new industries and business development, including e-commerce, industrial Internet and Internet finance. "Internet Plus" aims to promote innovation-driven development, upgrading China from a "big industrial country" to a "powerful industrial country". The 13th Five-Year Plan will pursue the goals of three network convergence, accelerating fibre optic network construction, improving broadband speed and promoting information consumption.

Innovation will need to extend beyond the Internet to liberalizing regulatory hurdles and streamlining administration. It will also need to extend beyond "indigenous innovation" to include attracting foreign expertise and knowhow in areas such as high-end manufacturing and clean energy.

Green development

Facing environment deterioration and energy shortages, under the 12th Five-Year Plan China committed to:

  • reducing fossil fuel as a percentage of its total primary energy consumption;
  • reducing water consumption per unit of value-added industrial output; and
  • cutting energy consumption per unit of GDP.

Under the 13th Five-Year Plan, China has no choice but to stick to green development. It will promote clean industrial production, low-carbon development and energy conservation in a bid to ensure sustainable growth. According to a program released in June 2015, China aims to hit its CO2 emissions peak by around 2030 and slash CO2 emissions per unit of GDP by 60-65% from the 2005 level.

In this context, there will be clear opportunities for Australian companies to sell their expertise in urban development and environmental innovation to China.

Australian companies can also develop innovation plans that will assist China to reach its non-fossil fuel primary energy consumption target.

Australian companies can leverage upon their energy solutions or products to seek market entry themselves or through collaborations with Chinese partners that result in the cutting of China's CO2 emissions and the raising of China's forest stock.

Australian companies can seek to grasp opportunities that may emerge in respect of "clean coal" solutions, technology transfer, wind power expertise, utility scale solar, plug-in vehicle solutions, advanced battery solutions, alternative fuels, integrated water solutions for heavy industry, water usage and management technologies, water recycling solutions, advanced building materials, energy saving solutions for smart buildings, among others.

Opening-up

Over the past five years, the "awakened giant" analogy that is so often applied to China has been most apt. China has begun to play a more substantial role on the global stage. This is evident in many areas, including China's approach to foreign policy and the global economy with the "Belt and Road" initiative and the creation of the Asian Infrastructure Investment Bank. Chinese enterprises have expanded abroad in search of new markets as well as new sources of hard and soft commodities. In doing so, China is now engaging in international trade and investment in a manner not seen during the giant's slumber.

Under the 13th Five-Year Plan, China will continue this "opening up to the wider world". China will accelerate its liberalisation of its finance sector (including its currency, capital markets, banking and insurance industries) and, more broadly, its services sector (including aged-care, healthcare, education, tourism). Indeed, China has already released a special Five-Year Plan for the healthcare sector, highlighting the importance of reforms in this space.

China's ongoing opening-up will bring extra capital to increase industrial and agricultural capacity in Australia and present opportunities to Australian service providers, especially in respect of the education, tourism, high-end industrial and equipment manufacturing, healthcare, construction and engineering, and financial services sectors. Opportunities will continue to develop for Australian hard and soft commodities suppliers and processors. If Australian enterprises can integrate successfully into chains of production and consumption in China, they stand to benefit. However, given the pervasive role of government, deference to hierarchy and intense nationalism that characterises China, China's ongoing opening-up will pose challenges for Australian regulators in certain sensitive sectors.

Coordination

Over the next 5 years, China intends to adopt a coordinated approach to sustainable development. Coordination is seen as a means to achieve balanced development and to narrow rural-urban gaps. In order to achieve the objectives of the 13th Five-Year Plan, China will certainly need coordination at the administrative level. Critics of China's administrative system often point to discrepancies in how policies and regulations are applied across the national, provincial, municipal and local governmental levels as being a restraint on reform and development. A coordinated approach to the implementation of policy and regulation across all governmental levels will go a long way to supporting further opening up and sustainable development over the next 5 years.

China's continuing rise will be augmented by its 13th Five-Year Plan. The fundamental objective of the Chinese government will be to ensure this rise is sustainable and harmonious. China's leadership speaks of pursuing the "Chinese dream" of a better life, while at the same time asking its dreamers to adjust to a "new normal". The better life is a fundamental tenet of the unwritten social contract between the Chinese leadership and their constituents. The "new normal" mantra serves to both temper expectations as well as act as a framework for sensible and sustainable development. How China evolves over the next five years is sure to have a significant impact on Australia and the world as a whole. The 13th Five-Year Plan will be one to watch.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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Authors
Carl Hinze
 
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