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China’s 12th Five-Year Plan. Go With It, Not Against It.

Posted in China Business

When I spoke at a Canada-China Business Council event in Vancouver a few weeks ago, Donald Lindsay, President & CEO, of Teck Resources Ltd. was the keynote speaker.  I have heard countless keynotes at China events by CEOs of big companies and this is the only one I can remember enjoying.  The problem with most North American CEOs giving a keynote talk about China is that they seldom have much personal involvement with China. It took all of about two minutes for me to realize this was not true of Lindsay. He started his speech by saying that as soon as he started at Teck, he made clear that China would become its focus and that he would be intimately involved with it. He talked very knowledgeably of how his presence in China was essential for Teck gaining trust and credibility there.

I also liked how he stressed the need for companies doing business in China to adjust their China business plans to China’s Five-Year Plan. Lindsay talked of how he always carries on his person a business card sized summary of China’s Five-Year Plan so he can easily check it and hand it out to others in his company.

He went on to say that if you want to know where China is going over the next five years, read the plan, as China has and will continue to hew closely to it.  If your China business plan coincides with China’s Five-Year Plan, your likelihood of success will be considerably greater than if it does not. Donald Lindsay has it absolutely right. To put it another way, “the trend is your friend.’

I asked him for a copy of his Five Year Business Plan card (he had offered it out) and I have kept it in my wallet ever since.

What does that card say and what does its content mean for those doing business in China or with China?

It starts out with the following preamble:  ”Long-term, steady and relatively rapid economic development.”  I buy that. China wants high growth, but wants to avoid bubbles. It wants growth now to help with growth later.

It then gets quite specific:

  • “Balancing the needs of growth with the needs of sustainability.”  I see this as meaning that the next five years will be good for companies with products or services that are good for the environment. Conversely, if you are in a high pollution, low wage business, expect things to get even tougher for you in China.
  • “Annual 7% GDP growth while creating 45 million urban jobs and promoting the service sector.”  I see the 7% part of this as not all that relevant, but I see the part on 45 million urban jobs as meaning that we can expect China’s cities to continue to grow rapidly in population.  No surprise here, but good news for companies involved with housing and urban transportation and whatever else city dwellers consume in greater per capita numbers than rural dwellers. The service part is also no surprise, as China has explicitly been shooting for this for many years.  We have been writing about this pretty much since day one on this blog, as evidenced by the fact that we wrote China’s Service Sector Will Reign, Part IV way back in 2006, and China’s Service Sector Will Reign. Part XXI, in 2011.
  • “Maintaining stable prices and growing domestic consumption.”  Good for you if you are in the consumer goods business or something related.  For more on this, check out Selling Into China: The New Wave.
  • “Breakthroughs in strategic emerging industries (bio-tech, clean-tech, IT, high-end equipment, new energy, new materials, green vehicles).” If you are in one of these industries, consider yourself lucky.
  • “Developing China’s inland regions.” This has been a governmental goal for a long time.  Couple it with the first goal listed above, and decide where your best chance is for locating your high pollution business.
  • ” 13% annual increase in the minimum wage.”  Thirteen percent increase every year in the minimum wage.  I intentionally wrote this twice to emphasize this because I am constantly surprised by American companies who both express surprise at China’s ever-rising wages and predict that those wage increases will end soon. If you are counting on China’s wages rising less than 13% a year, you probably should re-formulate your business plan and/or consider leaving China.
  • “7% annual increase in urban disposable income.”  This one is interesting in that it says that there will be a one for one correlation between the rise in GDP growth and disposable income, at least for urbanites. Further good news for those seeking to sell consumer goods or services to China.
  • “Improved public services and better social management to achieve social harmony.”  I have a couple of friends who consult to medical/pharma companies in China and they recently started screaming about how China’s healthcare sector is going to start booming for foreigners. I know this is anecdotal and a less than representative amount of time, but in the last three months, my firm has seen an onslaught of medical related companies.  Education is another public service that is going to keep rising in China over the next five years. I wrote the following about a public radio interview I gave:

I was asked where I saw the most opportunity for foreign businesses in China. My answer was education, healthcare, food,cleantech/greentech, and software.  It is the same five industries I have been saying for years and the one that always seems to draw the most surprise is food.

The card then gets specific (on its back-side) about China’s plans for building and energy infrastructure, including the following:

  • 36 million new low-income housing units
  • 70% (or higher) of class 2 standard (or above) national highways
  • 83,000 kilometres on the National Expressway Network
  • Addition of 42 national integrated traffic hubs
  • 440 10,000 ton and above deep berths to expand current port capacity
  • 120 million kilowatt increase in hydropower
  • 70 million kilowatt increase in offshore, large wind power bsaes capacity
  • 40 million kilowatt increase in nuclear power capacity
  • 5 million kilowatt increase in solar energy installed capacity
  • 200,000 kilowatt increase in power transmission lines of 330 kilowatts or higher
  • 150,00 kilowatt increase in the total length of oil and gas transmission pipelines

What’s in your wallet?

 

  • bystander

    “Breakthroughs in strategic emerging industries (bio-tech, clean-tech, IT, high-end equipment, new energy, new materials, green vehicles).” If you are in one of these industries, consider yourself lucky.

    Well, but that has to be balanced against the fact that since it regards these industries as strategic, and since it presumably wants the innovation (breakthroughs) to be indigenous, it may well turn out that you should consider yourself out of luck rather than lucky if you are in such an industry. Unless one is simply selling technology on a one-time transfer basis or something like that. I must say that I see the opportunities for foreign companies to be involved in what is regarded by China as strategic, which includes energy, high technology, and media, among other industries, as becoming more difficult, at a minimum.

    • http://www.chinalawblog.com/ Dan Harris

      Very good point and one I should not have missed as I am always railing against people who act like Google/Microsoft/Salesforce etc. are blowing it in China by moving so slowly. If only they knew all the restrictions and exclusions foreign companies face in the internet space.

  • Sviatoslav Richter

    it’s fairly common knowledge that you follow the Government line, and there are even “China Policy Investment Funds” available that invest in industries affected positively by them. The card is a nice sales touch, but the concept is well understood.