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Sustainability and Innovation inChina’s 12th Five-Year Plan
David Nieh, AIA AICP LEED AP
General ManagerShui On Development, Ltd.
Confidential – not for distribution
Content
The five-year plan – a strategic approach to long-term development
Five key themes in the 12th Five-Year Plan
Tapping China’s market opportunity
4
GDP growth yoy
9.5%f
14.2%
10.3%
9.2% 9.6%f
0%
2%
4%
6%
8%
10%
12%
14%
16%
1978
1979
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f
2012
f
Average real GDP growth rate of 10.0% since the Open Door policy began in 1978
Timely and effective stimulus programme – China grew by 9.2% in 2009 and 10.3% in
2010
The IMF forecasts real GDP growth of 9.6% in 2011 and 9.5% in 2012, as China tackles
inflation through tightening monetary policy
Source: National Bureau of Statistics, IMF (2011 and 2012 forecasts)
China’s impressive economic track record
Strategic approach to long-term development – China’s five-year planning process
Chinese government leaders have demonstrated their ability to confront
important challenges and solve difficult problems
China is one of the very few socialist countries that have made a smooth
transition from a centrally planned to market economy and is a model for
other transition economies such as Vietnam
As China switched from central planning to a mixed market economy, the five-
year plan evolved from detailed instructions into a set of guidelines and broad
social and economic goals
The national five-year ‘plan’ represents a complex web of Chinese policy-
making containing regional and long-term development plans and targeted
policy initiatives
The plan is subject to constant review and revision over the course of the
five-year cycle
GDP growth usually exceeds the official target
GDP growth target lowered from 7.5% to 7.0% in the 12th Five-Year Plan
This reflects an emphasis on “higher quality growth”
China consistently exceeds the official growth targets
Average growth rate during 9th Five-Year Plan period :
8.6%
Average growth rate during 10th Five-Year Plan period :
9.8%
Average growth rate during 11th Five-Year Plan period
Average growth rate during 12th Five-Year Plan period
11.2%
Target: 8%Target: 7%
Target: 7.5%Target: 7%
Real GDP growth and targets
11th Five-Year Plan (2006-2010) Most targets achieved or exceeded
Key economic targets in the 11th Five-Year Plan
Item Target ActualMacro economy GDP growth (%, real) 7.5 11.2
Unemployment rate (%) <5 4.1
Economic structure
Service sector share of GDP (%) 43.5 43
Service sector share of total employment (%) 35.4 34.9
R&D spending as a share of GDP (%) 2 1.8
Decline in energy consumption per unit GDP (%) around 20 19.1
Urbanization rate (% ) 47 47.5
Urban pension system coverage (mn persons) 220 260
Living standards
Urban disposable income per capita growth (%) >5 9.7 Rural net income per capita growth (%) >5 8.9
China’s 12th FYP is the national blueprint to achieve medium-
term economic, social and environmental objectives
Important features of the 12th Five-Year Plan
Chinese government determined to de-emphasize quantitative
growth and focus on the quality of economic growth
Plan provides for increased expenditures for education and
healthcare, especially in rural areas, environmental protection,
and air and water pollution control
Transformation of the Chinese economic growth model
From export-oriented to domestic demand-oriented
From input-driven to innovation-driven
Five key themes in the 12th Five-Year Plan
I. Adjust growth model
II. Enhance innovation and upgrade economic structure
III. Speed up growth in inland provinces
IV. Improve living standards
V. Strengthen environmental protection
0%
10%
20%
30%
40%
50%
60%
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
% share of GDP
Source: National Bureau of Statistics
I. Adjust the growth model – boosting the role of services
Services (tertiary sector) share of GDP has increased by 2.1 percentage points over the past five years to 43.0% in 2010
The new target is to increase services’ GDP contribution by 4 percentage points to 47% in 2015
This will require services to grow more quickly than manufacturing, especially high-value services areas such as finance and business services
Secondary sector
Tertiary sector
I. Adjust the growth model – global rebalancing entails switch to domestic-led growth
In 2009, China successfully deployed an aggressive stimulus, including
infrastructure investment, to cushion the economy from the impact of the global
financial crisis
China now aims to rebalance the economy and ensure that growth is based on
a broad mix of consumer spending, investment and exports
%
Source: National Bureau of Statistics
II. Enhance innovation
China aims to develop higher value-added products and services, while
moving away from excessive dependence on low-wage manufacturing
Innovation is a key plank of this strategy, and two targets explicitly relate to
innovation
R&D spending to increase to US$177bn (2.2% of GDP) in 2015 from
US$106bn (1.8% of GDP) in 2010*
Number of new invention patents to double from 228,00 to nearly 459,000 by
2015**
While some international companies view ‘indigenous innovation’ policies as
protectionist, many others have invested in China R&D centers or taken part in
venture capital/private equity investments
•*Estimates based on GDP forecasts from the IMF World Economic Outlook April 2011 database
•**Target is to increase from 1.7 new invention patent per 10,000 population in 2010 to 3.3 patents per 10,000 population in 2015, while total population is targeted to rise from 1.34bn to (no more than) 1.39bn in 2015
III. Speed up growth in inland provinces
Central and Western China are entering a take-off growth period
Huge infrastructure investment, including a 7,531 km high-speed rail network to date, is connecting inland provinces to the national market
Strategic designation of Chongqing Liangjiang New Area as a new development zone (similar to Shanghai Pudong) will help create a West China economic hub on the western stretch of the Yangtze river
Preferential policies in Central and Western China for foreign investors are expected, especially in favored industries
IV. Improve living standards – ensuring ordinary people enjoy the fruits of growth
Concerns about widening income inequality - targeting per capita income growth
of at least 7% a year for both urban and rural residents in 2011-2015
36mn units of social housing to be built over the next five years, covering about
one-fifth of the urban population, according to Premier Wen Jiabao
Additional targets for healthcare coverage, pension system coverage and
employment
6%
8%
10%
12%
14%
16%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
GDP Average Per Capita Disposable Income
10.3%
7.8%
GDP and Per Capita Disposable Income
Source: National Bureau of Statistics
V. Environmental protection becomes a major priority area
Greenest five-year plan in China’s history
• One-third of the plan’s targets relate to resources and the environment
• 7 of the 8 targets are mandatory, a higher proportion than in the other areas
Key resource and environmental targets in 12th Five-Year Plan
Item 2010 2015 Target Target type
Resources and environment
Total agricultural land (mn commercial acre) 362 362 [0] Mandatory Reduce water consumption per unit of industrial added value (%) [30] Mandatory Efficiency index for use of water in agriculture 0.5 0.53 [0.03] Non-mandatory Non-fossil energy as a share of primary energy consumption (%) 8.3 11.4 [3.1] Mandatory Energy consumption reduction per unit of industrial added value(%) [16] Mandatory Carbon dioxide emission reduction per unit of GDP (%) [17] Mandatory
Reduction of pollutants emission volume (%)
Carbon dioxide [8]
Mandatory Sulfur dioxide [8] Ammonium nitrogen [10] Nitrogen oxide [10]
ForestryForest coverage (%) 20.4 21.7 [1.3]
Mandatory
Total forest volume (mn cubic yards)
17.8 18.6 [6]
Mandatory targets are ones to which the government accords absolute priority
Key targets in the 12th Five-Year Plan
Key economic targets in 12th Five-Year Plan
Item 2010 2015Annual GrowthRate (%)
Target type
Economic development (3 items) GDP (RMB trn) 39.8 55.8 7 Non-mandatory Service sector share of GDP (%) 43 47 [4] Non-mandatory Urbanization rate (%) 47.5 51.5 [4] Non-mandatoryScience, technology and education (4 items) R&D spending as share of GDP (%) 1.8 2.2 [0.4] Mandatory Invention patents per 10,000 people 1.7 3.3 [1.6] MandatoryResources and the environment (8 items) Reduction of energy consumption per unit GDP (%) [16] Mandatory Reduction of carbon dioxide emissions per unit GDP (%) [17] MandatoryLiving conditions
Urban disposable per capita income (RMB) 19,109 26,810 >7 Non-mandatory
Rural net per capita income (RMB) 5,919 8,310 >7 Non-mandatory Construction of social housing (mn units) [36] Mandatory
Selection from a total of 24 quantitative targets
Mandatory targets are ones to which the government accords absolute priority
Urbanization on an epic scale creates consumer demand
China’s urban population will increase by 12mn-16mn every year
This will create huge demand for urban housing, shopping, workplaces, transport, education, healthcare and other civic amenities
% Chinese urbanization rate
Source: National Bureau of Statistics and 12th Five-Year Plan
Growth sectors under China’s rebalancing
While some industrial sectors are in overcapacity, huge swaths of economic activity and employment are virtually missing from the Chinese marketplace.
Healthcare: China has 1.6 doctors per thousand people; the US has more than 23. Reaching the US ratio would mean adding almost 30mn doctors and other healthcare professionals
Manufacturing White Collar: China's manufacturers are focusing more on R&D, quality control, brand management, financial planning, environmental-health safety. China would need 60 million more white-collar workers to be comparable with the US on this score, or 30mn if we adjust for relative development levels.
Education: China has 10 teachers per thousand people, as opposed to 22 in the US. China needs another 16mn teachers to reach the US ratio in the US.*
* Source: Daniel H. Rosen is the principal of Rhodium Group, an advisory firm focusing on China, and is also a visiting fellow with the Peterson Institute for International Economics and an adjunct associate professor at Columbia University.
Opportunities in seven emerging strategic industries
Value-added output of seven emerging strategic industries to grow to account for 8% of GDP by 2015, according to the official highlights of the draft plan distributed prior to the National People’s Congress in March 2011
Under the 2011 Foreign Direct Investment Industry Guidelines, ‘encouraged’ sectors for foreign investment include high-tech, clean energy, aerospace and aviation, new materials, high-end manufacturing, advanced logistics, vocation and training
Long-term plan for new-energy vehicle industry
The State Council is reviewing a US$15.3bn development plan for the new-energy vehicle industry
Goal of becoming a leader in the new-energy vehicle sector over the next 10 years
Targeting sales volumes of 5mn units by 2020
• Electric car prototype developed by Shanghai Automotive Industry Corp Motor
• Due to be launched in October 2012
Source: China Daily
Opportunities in next-generation IT
China has 50% more internet users (475mn) than the entire US population and is forecast to reach 750mn by 2015 (McKinsey)
Government plans to invest in R&D of the "Internet of things" and cloud computing, and develop digital and virtual technologies.
Silicon Valley Bank and EMC Corp come to the Knowledge and Innovation Community in Shanghai
EMC CorporationSilicon Valley Bank
KIC Vision and Mission
…weaving together the resources of universities and research institutions nearby, domestic and international high-tech corporations, venture capital firms and government services to create a world class knowledge and commercialization center for high added value sectors such as Creative Media, Life Science and Cleantech.
KIC / Knowledge Community Developments (KCD) as a part of China’s push towards innovation
Innovation – a supportive environment for creativity
Education System – a bridge between international, local universities and industry to share best practices and latest research
Entrepreneurial Culture – business model encourages entrepreneurship
IPR – a catalyst in addressing and debating IPR issues
Financial – investor platforms for angels, PE and VC’s
Environment – a model example of an environmentally friendly community: green “LEED” certified buildings and ample green space
Real Estate – an innovative mixed-use master planned community helping shape China’s built environment.
LOCATIONS
Shanghai
Beijing
DALIAN
SHANGHAI
BEIJING
N. Korea
S. Korea
Japan
Taiwan
Russia
India
Nepal
Myanmar
Mongolia
Hong Kong
C H I N ANANJING
KUNSHANWUHAN
SHENZHEN
CHENGDU
Australian firms in China post impressive results and are optimistic about the market outlook
AustCham Shanghai's survey of business performance in China shows Australian companies' revenue, profitability and market share shot up in 2010
Optimism regarding the China market continued in 2010, despite concerns over the regulatory environment favoring local enterprises China is the No.1 priority for 20% of Australian companies About nine out of 10 Australian companies in China forecast a revenue increase for 2011 The percentage of companies expecting to increase investment in China by more than 15%
more than doubled in 2010
Source: AustCham-Shanghai website, January 20, 2011
AmCham Shanghai Survey of Business Performance in China
7770
5247
65
40
8779
61
010
2030
405060
7080
90100
Revenue growth Profitable Gained market share
% of respondentsanswering
affirmatively
2008
2009
2010
AusCham Survey of Business Performance in China 2010