Shortly after the Fifth Plenary Session of the 18th CPC Central Committee concluded on 29 October, the Central Government released "The CPC Central Committee's Proposal on Formulating the Thirteenth Five-year Plan (13th FYP, 2016-2020) on National Economic and Social Development" (the Proposal) on 3 November. The Proposal covers the details and the chain of thought of the Central Government in various areas, from protecting agricultural land and accelerating financial reform to the opening up of the Chinese economy.
In this update, we focus on three areas that may face obstacles at least in the short term:
1.) Maintaining mid- to high-growth rates
[Facts] The Mainland aims to become a “moderately prosperous society” by 2020, and aims to double per capita income and GDP from 2010 levels. In addition, it plans to seek balanced growth among different sectors of its economy, including the Government’s intention to “notably” raise consumption’s contribution to GDP growth. The communiqué also suggested that the economic structure will be shifting toward a more services-oriented model.
[Our take] The documents emphasize building a “moderately prosperous society,” which indicates that growth remains high on the agenda. To reach the target of doubling income per capita and GDP between by 2020, the Chinese economy will need to achieve an annual growth rate of not less than 6.5% during the 13th FYP period.
Maintaining such momentum for a maturing economy, at least in the near-term (see Chart 1), will not be easy. While the service sector has kept the growth momentum going (+11.9%YoY in 3Q2015), recent trends show that the manufacturing sector is facing tremendous pressure (+0.2%YoY in 3Q2015). The Government will need to find ways to ease the dramatic slowdown of the secondary industry, which represents some 42% of the country’s GDP and employs over 230 million people. This will require stronger fiscal support on top of the loosening monetary restrictions.
2.) Relaxation of the ’One-child Policy’
[Facts] The documents propose full implementation of a “Two-child Policy,” allowing all couples to have a second child
[Our take] Over the past two decades, the Chinese economy has benefited from the expansion of its working population base, as people between 15 and 64 years of age represented 73.4% of the total population in 2014, compared to 61.5% in 1982. This trend is expected to reverse, partly due to the “One-child Policy,” as the country now faces an ageing population, combined with a low birth rate (see Chart 2).
A pilot programme to remove the “One-child Policy” introduced in the late 1970s was first rolled out after the Third Plenary Session in November 2013, when families with one parent being a single-child were allowed to have a second child. While the to-be-approved universal “Two-child Policy” could help ease the challenges of the Mainland’s ageing population, the immediate impact on its population is difficult to forecast. According to Yuan Xin of Nankai University in Tianjin, out of the 11 million eligible families under the pilot programme, only 1.5 million applied to have a second child. Therefore, the nationwide impact of the second child policy may not result in immediate robust increase in the Mainland’s birthrate.
3.) Enhancing digitalization and the use of information technology
[Facts] The documents indicate policymakers’ strong intention to develop utilization of information technology. For instance, the Proposal suggests implementation of the "Internet+" action plan. It also proposes upgrading networks and reducing costs of access. Internet-based innovation is to be promulgated among businesses, supply chain and logistics services, among others.
[Our take] While the number of online transactions is growing rapidly (+48.7%YoY in the first half of 2015), e-commerce could face challenges for further growth (see Chart 3).
A report submitted on 2 November by Yan Junqi, Vice Chairwoman of the Standing Committee of the National People's Congress of China, highlighted that counterfeit goods played a role in the Mainland’s booming online sales. The report estimates that only 58.7% of internet purchases in 2014 involved genuine products. It also revealed that there were 77,800 complaints about online businesses, representing a 356.6%YoY increase. The report recommended speeding up the process of legislation to cover the e-commerce industry, which would help define the rights and obligations of the suppliers and consumers, and to further coordinate and rationalize the consumer rights protection mechanism. These developments are needed for further, sustainable development of the Mainland’s ecommerce landscape.
These changes may present opportunities for Hong Kong companies with expertise in certification and testing, as they can tap into the opening up of service sectors. This is also in-line with the suggestion in the documents, where Hong Kong is said to contribute significantly in the Mainland’s opening up process. In October, HKGCC hosted a seminar with four Mainland experts to talk about relevant developments on online dispute resolution in China. Members who missed the event can watch the seminar on the Chamber’s website.
Conclusion
This update does not aim to provide an exhaustive digest of the documents, but, rather, identify some areas where we see challenges. The post-meeting communiqué and the Proposal have given us a peek into what to expect from the 13th FYP, before the implementation plans are revealed at the “Two Sessions” (NPC and CPPCC Annual Sessions) in early 2016. The documents show policy makers’ relentless efforts to move ongoing reforms and development forward, including RMB internationalization and financial reforms involving equities and debt markets, improvement of people’s livelihood, strengthening of urban public transportation, green development and others. Liberalization of electricity, telecommunications, transportation, oil and gas, and other sectors are also on the agenda.
The next phase of development is highly anticipated. https://www.youtube.com/watch?v=2yQjGZ482l8
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