By: Steve Dickinson

On Monday, March 14, The PRC National People’s Congress approved China’s 12th Five Year Plan and the outline of the plan was released to the public yesterday. The full 105-page document can be found (in Chinese) here. I am now reviewing the plan and over the next several weeks I will provide a series of reports on its contents.

I can make some preliminary remarks at this time.

The striking thing about the plan is its lack of originality. In the policy documents that have been promulgated over the past year, the party and the National People’s Congress (NPC) concluded that China must boldly reform its entire economic structure. The idea was to have China move away from a export and infrastructure driven economy to a balanced, consumer demand driven economy. The Communist Party of China (CPC) issued an outline of a bold plan that would bring about this transformation. The conclusion of many Western economists was that 1) the transformation would be essential for the long-term health of the Chinese economy but that 2) the transformation would be extraordinarily difficult. See the recent writings of Michael Pettis on this issue.

Apparently, the NPC also concluded that the consumer driven economy simply would be too difficult to achieve. As a result, the 12th Five Year Plan basically abandons the concept of creating a consumer driven economy and falls back to the standard Chinese economic model of depending on massive infrastructure projects and export driven growth as the primary models. Though some lip service is paid to increasing household consumption, that concept is basically brushed aside in favor of domestic infrastructure spending.

The list of projects is breathtaking. In just a preliminary review, I noted the following:

  • Highways, conventional rail and high speed rail
  • New airports
  • New ports and port upgrades.
  • Oil and gas pipelines
  • Electric transmission lines, especially high voltage lines
  • Coal transport and storage
  • Environmental upgrades of virtually the entire system of coal fired power plants, together with constructing substantial new coal fired power plant capacity
  • Modernizing the entire heavy industry sector: steel, cement and aluminum, in particular
  • Expanding mineral mining, particularly coal
  • Oil and gas field development in Inner Mongolia and Xinjiang
  • Creating an entirely new industrial base, focused on seven strategic industries
  • Urbanizing rural China to allow at least 10,000,000 rural residents per year to move to the cities
  • Investing in massive amounts of new nuclear power and hydropower facilities
  • Major expansion of domestic oil refining capacity and LNG storage and transmission
  • Sewage and waste treatment facilities throughout the entire country
  • New hospitals throughout the country
  • Waterworks focusing on irrigation and water transport from the South to the North
  • Developing coastal marine resources, primarily focusing on maritime infrastructure
  • Developing the Central and Western regions
  • Redeveloping China’s Northeast industrial base
  • New jobs for 45,000,000 workers

Note that this set of projects is not designed to encourage the domestic household economy; all of it is designed to maintain China’s position as an export-oriented manufacturing powerhouse. It seems that the NPC has rejected the idealistic notion of reforming China’s economic structure and instead has adopted the easier plan of simply improving what China has been doing for the past ten years. No major changes here: just upgrades and refinements.

Of course, as is typical, there is no mention of how much this huge list of projects will cost and no mention either of from where the money will come to pay for all of this. If the past is any indication, the projects will feature a mix of direct central government expenditures and bank loans to local governments. The recent huge jump in bank lending supports the notion that the banks will be instrumental in funding this truly massive set of infrastructure projects. There is also no discussion of how this massive spending program will mesh with the China’s current concern with controlling inflation. Nonetheless, the basic plan is clear. Spend, spend, spend on creating manufacturing capacity and then export the surplus in order to pay for it all. 

In other words, we should be expecting more of the same.

What do you think?

 

 

Print:
EmailTweetLikeLinkedIn
Dan Harris

I am a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

I mostly represent companies doing business in emerging market countries. It has taken me many years to build my network and it takes constant communication and travel to maintain it. My work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

I was named as one of only three Washington State Amazing Lawyers in International Law, I am AV rated by Martindale-Hubbell Law Directory (its highest rating), I am rated 10.0 by AVVO.com (its highest rating), and I am a SuperLawyer.

I am a frequent writer and public speaker on doing business in Asia and I constantly travel between the United States and Asia. I most commonly speak on China law issues and I am the lead writer of the award winning China Law Blog (www.chinalawblog.com). Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed me regarding various aspects of my international law practice.

I am licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at my firm, I focus on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.