Setting the Context - China’s political system
-Overview of the 12th Five Year Plan
-Plan importance
-Plan Development
-Key Themes
Impact on multinational corporations in China
Economic Outlook
Only Cash On Delivery Call Girls In Sikandarpur Gurgaon ❤️8448577510 ⊹Escorts...
China’s 12th Five Year Plan & Economic Outlook - Ira Kasoff
1. China’s 12th Five Year Plan
& Economic Outlook
Prepared for US-China Cross-Border M&A
Forum
October 2011
2. Today’s agenda
Setting the Context - China’s political system
Overview of the 12th Five Year Plan
Plan importance
Plan Development
Key Themes
Impact on multinational corporations in China
Economic Outlook
4. China’s Power Structure in Theory
Four government
organs with power and
responsibilities shared
between them
5. China’s Power Structure in Reality:
Top-down from the Party
Communist Party of China
The Central Committee of Chinese Communist Party (CCP) and its 9-person
Politburo Standing Committee is the ultimate authority
State Council
State Council follows CCP’s guidance to develop and implement policy
National People’s Congress
NPC is a ‘rubber stamp’ rendering policy into law
Chinese People’s Political Consultative Congress
CPPCC is vehicle for outreach to non-CCP elements with
influential individuals but no executive or legislative authority
6. China’s Economic Evolution:
Reflecting leadership’s vision
POLITICAL DEVELOPMENT ECONOMIC DEVELOPMENT
1ST GENERATION—MAO ZEDONG 1949-1978 CENTRAL PLANNING
Focus on class struggle & ideology Central-planned economy dominated by SOEs and collectives
Emphasis on state planning and industrial development Administrative orders, quotas and procurement drive China’s
Personality cult - Mao as center of power economy
2ND GENERATION—DENG XIAOPING 1978-1994 REFORM AND OPENING UP
Class struggle deemphasized Growth, modernization and reform prioritized
Pragmatism trumps ideology (To get rich is glorious) Many price controls and quotas removed and greater
Deng as supreme leader, but without personality cult foreign investment permitted
Coastal areas benefited most from reform
3RD GENERATION—JIANG ZEMIN 1994-2003 CONTINUED REFORM
“Three Represents” justifies market economy Accession into World Trade Organization
Party legitimacy sustained by economic growth and increased Socialist market-economy principles promoted
prosperity State role reduced, SOE dismantling begins
Enhanced individual freedoms, but limited political reform Foreign investment and technology transfer encouraged
4TH GENERATION—HU JINTAO 2003-PRESENT EQUITABLE DEVELOPMENT
“Harmonious Society” and “Scientific Development Outlook” Increased globalization
Focus on equitable growth Greater focus on sustainable development
Growing confidence and nationalism Combating resource inefficiency & environmental
degradation prioritized
5th GENERATION
Two candidates, 54-year-old Xi Jinping and 52-year-old Li Keqiang have emerged as competing candidates to be China’s next
generation of leaders. In addition, another six members in their 50s were named to the Politburo and/or the Secretariat. These
eight rising stars collectively have formed a “succession team” set to take over as the 5th generation of leaders in 2012-2013.
7. Importance of the 12th Five Year Plan
Plan Development
Key Themes
Impact on multinational corporations in China
8. Five Year Plans Through the Ages
Key industrial planning tool
Important coordinating mechanism even with transition toward
market economy
More qualitative than quantitative (计划 to 规划)
•Fewer numerical targets/quotas
•More sophisticated measurement systems
•More market-based approach
Includes environmental & social planning
Implementation remains difficult
Dangers of excess; pressure to meet goals
Does it matter?
9. The Planning Process: Five-Year Plans
China’s key document to achieve
medium-term economic and social policy objectives
A master policy blueprint… … that cyclically structures policy-making
The 12th National Five-Year Plan for Economic and Year 3
Social Development Mid-Term Years 3-5
Review Revision
Broad policy objectives for 2011-2015.
Largest policy-making event in China.
Scope includes wide range of social and economic
issues: GDP growth, industry restructuring,
healthcare, environmental protection, urbanization Years 1-5 Years 4-5
and energy policy. Plan Drafting
Carried of Next
FYP Issuance followed by roll-out of detailed Out FYP
implementing actions, including related laws,
pricing policies, financial incentives, and Year 1
(March)
investment support. FYP
Issued
10. More Players Than Ever Before
Extensive consultations within government and with outside experts;
increasingly standardized process
Key players in central-level FYP development
Organization Role Non-Government
CPC Central Committee Issue basic FYP guidelines Consultation process
includes domestic and
National People’s foreign experts from
Review and approve final draft academia and industry.
Congress
Consultation process
State Council Draw up final draft trending toward greater
transparency and
Organize intra-governmental higher degrees of input
NDRC research & drafting; early drafts from different levels of
government, experts
State Council Assist in research & drafting and the public.
Departments within relevant mandate
CPPCC Review and provide comment
11. Integrates Central & Local Plans
Local plans must Findings from local plan fed
reflect central goals into central plans
National FYP Coordinated Planning:
Broad objectives
Matrix of Central/Local-Level FYPs
Local FYPs • National FYP governs policy
Match central-level
objectives documents at all levels
• Approval from local levels of
Special Plans government, but plans must conform
State Environmental Protection to National FYP
Standards for the 12th FYP
(Draft for Comment) (Oct. 2010) • Provincial-level FYPs must also
conform to any relevant Regional FYP
Regional Plans • Special Plans must conform to Special
Yangtze River Delta Regional Plan Plans at higher levels of government
(May 2010) • Extensive vertical and horizontal intra-
governmental consultation in drafting
Medium and Long-Term Plans plans with drafts of subordinate FYPs
Medium/Long-Term Renewable Energy Dev. Plan often completed before, and feeding
(to 2020) (Aug. 2007)
into, the National FYP
• Implementation also coordinated
Decisions, Programs, etc.
State Council Decision on Accelerating the Cultivation and
Development of Strategic Emerging Industries (Oct. 2010)
12. Now Official: Ratified by NPC
12th FYP drafting process began in 2008, around 11 th FYP mid-term review
Drafting process lasted more than two years
Dec. 2008 Dec. 2009 Jan.-Oct. 2010 Oct. 2010 Nov.-Dec. 2010 Nov.-Jan. 2011 Mar. 2011 Beyond Mar.
11th FYP 2nd National FYP draft CPC Central NDRC launches State Council FYP Outline Special,
mid-term review Economic formulated by Committee two-month completes Released after Regional, MLT
Census NDRC and releases public comment final version of NPC’s plans
provides reviewed by FYP Guidelines period FYP endorsement formulated and
economic data special expert implemented
for coming FYP committee across China
2008 2009 2010 2011
Research
Drafting
Review & Approval
13. Key Themes & Targets
12th FYP (2011-2015) Key Targets
Key Themes 12th FYP 11th FYP
Restructuring Promoting Protecting Annual GDP Growth 7% 7.5%
the Social the
Economy Equality Environment
Annual Service
4% 3%
Sector Increase
Main Tasks and Strategic Priorities
GDP Energy
16% 20%
Intensity Reduction
GDP Carbon
Clean up environment
Promote new energy
Regional development
Income disparity
Save energy
Urban /rural divide
Strategic Industries
Growth rate
Rebalancing the economy
17% --
Intensity Reduction
Annual Affordable
36 million --
Housing Units
Annual Urbanization
4% 4%
Increase
14. Economic Restructuring
Focus I: Strategic Emerging Industries (SEI)
• Develop 7 SEIs as backbone of Chinese economy: next-generation information technology, high-end
equipment manufacturing, new materials, new energy cars, energy saving and environmental
protection, alternative energy and biotechnology
• Spend RMB 10-14 trillion to develop these industries; increase SEI’s contribution from 5% of GDP to
8% by 2015 and 15% by 2020
Focus II: Consumption-led Growth
•Upgrade economy from export-oriented to consumption-oriented, innovative growth model
•Cancel favorable polices designed to encourage processing trade (eg. export VAT rebates), resulting in
shrinking profit margins for low-value-added manufacturers
Focus III: Industrial Upgrading
• Upgrade and consolidate certain industries (esp. highly-polluting industries)
• Promote industry M&As as well as investments in advanced manufacturing equipment and technology
15. Promoting Social Equality
“Inclusive growth” 包容性增长
Focus I: Urban/Rural Divide
•Reduce urban/rural income gap by:
• Increasing urbanization (47.5% to 51.5%)
• Increasing social safety net for rural population
• Improving basic health care coverage and rural land distribution
Focus II: Regional Development
• Promote balanced regional development by attracting investments and industrial relocation to China’s
central and western provinces through preferential policies including:
• Industry-specific regional development plans
• Establishing Liangjiang New District in Chongqing which offers same incentives found in Shanghai’s
Pudong New District and Tianjin’s Binhai Development Zone, including 15% EIT
• Regional development incentives (reduced EIT)
Focus III: Income Disparity
•Increase minimum wages and standards of living
• More public housing
• Beijing government has announced plans to increase minimum wages by 40% by 2015
• CPPCC Vice Chairman Huang Mengfu says should increase 20%/yr for next five years (Sept 2010)
16. Environmental Protection & Energy Efficiency
Red to Black to Green?
Focus I: Energy Consumption
•Support energy-efficiency technology
•Set a national mandatory energy emissions reduction target of 17%
Focus II: Environmental Quality
• Consider linking green indicators to accountability of local government officials to encourage green
development
• Consider introduction of new carbon tax and other environmental taxes and policies such as
increased fossil fuel prices and carbon-trading market
• Promote water conservation projects: improve efficiency of usage, limit scale of water exploitation,
curb water pollution
Focus III: Renewable Energies
•Comply with China’s pledge, namely, 15% of energy coming from non-fossil fuels by 2020
•Cap coal production and support development of wind, solar, biomass, hydro and nuclear energies
•Increase government funding: $700-800 billion from $181 billion in 11th FYP
17. Sector Snapshot: Healthcare
Create a modern health care industry with expanded coverage
Health Care System Restructure Promote
Reform Pharma Sector Biotechnology
• Continue broader • Establish large • Support development
basic health care national pharma of innovative biotech
coverage champions, with products, high-end
• Expand infrastructure revenues reaching medical devices, and
for grassroots medical RMB 100 billion patented medicines
networks
• Increase public • Consolidate small drug • Government funds for
awareness of disease distribution companies R&D of new drugs
prevention
• Create national health • Reduce drug prices • One of the 7 SEI’s
care standards and ensure drug
• Heavy investments in quality
health care IT
18. Sector Snapshot: Food & Consumer Products
Expect gains as China shifts to consumption-driven growth
Support Consumption:
Raise minimum wages
Develop logistical and administrative capacity for
movement of goods and services between eastern,
western, and central China
Continue providing subsidies for consumer durables
purchases in rural areas
Encourage urbanization, particularly development of
tier 2 and 3 cities
Promote a Modern Service Industry:
Financial services, including credit cards, leasing, Source: Economist Intelligence Unit
e-commerce China hopes to increase
Wholesale and retail consumption by approx 3%
Hospitality, including hotels and restaurants
Community services, including healthcare
19. Sector Snapshot: Technology
Transition from “Made in China” to “Designed in China”
Indigenous
Innovation Informatization Next-Gen IT Education
•Heavy •Upgrade •Develop triple •Higher
investment in technological play services, e- education
S&T capabilities of commerce and reform
•Strengthen IPR “triple play” e-government •Improve
use and services, e- •Invest in R&D of scientific
protection commerce, e- “Internet of achievement
•Support government things,” cloud evaluations and
commercializa- and statistics computing, and rewards
tion of systems develop digital •Encourage
technology and virtual Chinese
technologies nationals to
return home
20. Sector Snapshot: Energy and Environment
Maintain coal as dominant energy source, but increase proportion of renewable energy
Continue consolidating coal mining
companies: 8 to 10 coal companies will
account for two-thirds of coal production by
2015.
Structure new energy policies around hydro
and nuclear power: an additional 14 nuclear
power plants and 50% increase in
hydropower capacity by 2015.
Three of seven SEIs devoted to energy and
environment sectors: “Energy Efficiency and
Environment,” “New Energy” and “New
Energy Vehicles.”
Further development of power grid and
smart grid: State Grid’s investments will
exceed RMB 17 billion during this period.
22. Pessimistic view (e.g., Michael Pettis,
Carnegie)
China's growth based on large increases in government-directed
investment.
Chinese households consume only about 35% of GDP, far less than any
other country. Must rebalance away from investment and toward domestic
consumption
To raise consumption to 50% of GDP, household consumption would need
to grow four percentage points faster than GDP
In the past decade, Chinese household consumption has grown by 7% -
8% annually, while GDP has grown 10% - 11%.
If GDP grows by 6% - 7%, household consumption would have to surge by
10% - 11%
powerful structural factors working against this level of growth in
consumption
And, Chinese GDP numbers are overstated
23. Optimistic view (e.g., Yukon Huang,
Carnegie)
Many point to China’s low consumption-to-GDP ratio at 35%
and a high investment-to-GDP ratio that exceeds 45%.
Few pause to notice that these numbers, especially in
consumption, are inconsistent with market perceptions.
Domestic consumption is seriously understated
Estimates of the share of investment in GDP are too high
China's GDP—like consumption—is likely much higher than
reported.
24. Practical view (e.g., David Barboza, NYT)
Economic system favors state-run banks and companies over wage
earners. interest rates on savings accounts kept artificially low, cannot
keep pace with China’s rising inflation
Other factors— a weak social safety net, depressed wages and soaring
home prices — create a hoarding impulse that compels many people to
save anyway, against an uncertain future.
Decade of remarkable economic growth has been underwritten by the
household savings — not the spending — of the country’s 1.3 billion
people (transfer of wealth from Chinese households to state-run banks)
Middle-class families are unable to enjoy the full fruits of China’s
economic miracle.
25. Significance for Foreign Business
The Medium to Long-Term Plan for
Challenges
Science and Technology (2006-2020) Opportunities
(State Council, February 2006)
Increased overhead costs Government procurement;
Minimum wage hike and value- expanded service sector
added tax increases Emerging business opportunities in
Potential environmental taxes tier-two cities in central and western
(i.e. environmental insurance provinces
plans and carbon tax) Potential collaboration opportunities
More complex operating with Chinese companies as
environment government increases investment in
R&D and technological innovation
Development of SEIs, economic for joint projects
restructuring plans, and income
level reforms will introduce new Stricter government enforcement of
regulations and new stakeholders IPR as government seeks to improve
IP legal system and strengthen IPR
China’s economic power will creation, application, protection and
increase; national champions management
26. About APCO Worldwide
About APCO Our Presence in China
Global consultancy started in 1984 20+ years in China
in Washington, D.C. Presence in 4 cities (Beijing,
Over 650 staff worldwide across 30 Shanghai, Guangzhou, Hong Kong)
offices
Over 100 staff members, including
Award-winning experience in public
former diplomats, PRC government
affairs, strategic communication,
officials, business leaders,
issue management and
journalists and NGO staff
organizational positioning and
reputation management In-depth knowledge of Chinese
government system processes and
Deep knowledge of highly-regulated
politics
sectors having worked with the
major MNCs and multi-national Extensive experience helping clients
organizations across a wide-range navigate China’s complex and rapidly
of sectors evolving landscape
4
27. Key experts
Kenneth Jarrett, chairman of APCO in Greater Dr. Ira Kasoff is the former deputy assistant
China, is based in Shanghai. He has more than secretary for Asia at the U.S. Department of
25 years of experience in U.S-Chinese affairs Commerce’s International Trade Administration
and previously served as the U.S. consul general (ITA). His extensive experience in Asia spans more
in Shanghai and Deputy Consul General in Hong than three decades, having completed six
Kong. Mr. Jarrett has held a range of commercial service assignments in the region, in
professional positions in the U.S. government in addition to private sector and academic
Asia and the United States. experience.
James McGregor, senior counselor for APCO in Greg Gilligan is the managing director of APCO
China, is the author of One Billion Customers: Worldwide’s Beijing office. Mr. Gilligan joined
Lessons from the Front Lines of Doing Business APCO after serving as general manager of
in China. While living in China for more than two corporate affairs for McDonald’s (China) Co.,
decades, McGregor has been The Wall Street Ltd., where he developed and executed
Journal bureau chief, CEO of Dow Jones China, strategies to enhance McDonald's brand and
a venture capitalist, founder of several corporate image among China’s regulatory
companies and chairman of AmCham-China. bodies, consumers and other key stakeholders.
,
Gao Weijie is former chairman of China Ocean Reggie Lai is deputy managing director in APCO
Shipping Company (COSCO) America and serves Worldwide’s Shanghai office, is a key member
as chairman of the China operation of Lloyd’s of the corporate advisory and government
Register Asia. He has more than 42 years of affairs team in China. Mr. Lai carries out
experience in the shipping, transportation and investment consultancy, market research and
logistics industry. With broad experience in government affairs work.
China, Europe and the United States, Mr. Gao
provides expert council to clients navigating
complex trade and regulatory issues in diverse
markets.
28. WASHINGTON DC GREATER CHINA
Ira Kasoff, senior counselor Kenneth Jarrett, chairman
ikasoff@apcoworldwide.com kjarrett@apcoworldwide.com