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New leadership, new
agenda for growth
18th National Congress of the
Communist Party of China
November 2012
The 18th National Congress of the Communist
Party of China (CPC) sent the international
community a clear and consistent message
that the new leadership remains committed
to “deepening reform and opening up.” In
the process that includes working towards
a prosperous and environmentally-friendly
China, it will adopt a “positive open-strategy”
to seek win-win solutions between all parties.
China is an important market to foreign
investors. According to a survey, 78% of
foreign businesses remain optimistic about
the China market in the next two years, and
63% plan to increase investment.1 There’s
every reason to believe China is still a nation
of opportunity.
Understanding which sectors and industries
offer the best growth opportunities is critical.
As China moves towards the “new normal”
of single digit growth, investors should focus
on its growing domestic market and rising
incomes, while targeting green projects and
the movement of labour-intensive industries
towards the western and central parts of
China. Most importantly, multinational
companies should always stand ready to
respond to further policy changes as they
occur in China.
Commentary at a glance
This commentary highlights the
following: China’s new leadership,
their policy platform, the rationale
behind these policies, and the
implications for multinational
companies doing business in China.
Dawn of a new leadership
Themes for a new China
New darling industries
Shift towards domestic consumption
Income growth equates economic
expansion
Single digit growth: the new normal
Roadmap towards renminbi
internationalisation
Promoting the private sector
Urbanisation and moving inland
Going green: the new economy
China: not a Western political
system
The way forward for foreign
enterprises
1 European Chamber of Commerce’s Business Confidence
Survey 2012
Dawn of a new leadership
The 18th Party Congress in Beijing marks
a significant milestone: the successful
election of the fifth generation of leaders
who will determine China’s future
direction for the next 10 years. This will
have significant implications for the
global community.
Under the leadership of President Hu
Jintao and Premier Wen Jiabao, China
has made remarkable progress over the
past decade. The country is poised to
overtake the US as the world’s largest
economy in terms of purchasing power
parity as early as 20162.
As President Hu pointed out in the
report, China also faces many challenges
that include unbalanced industrial
structure, resource and environmental
constraints, large development gap
between urban and rural areas and
between regions, gap between income
disparities, social problems in various
areas that affect people’s immediate
interest, bureaucratism and corruption,
and systemic barriers that stand in the
way of promoting development in a
scientific way. China’s new leadership
will need to tackle these issues.
XI JINPING (习近平), 59
• General Secretary of the CPC Central Committee; Chairman of the CPC Central
Military Commission; Vice President of the People’s Republic of China; Vice
Chairman of the Central Military Commission of the People’s Republic of China;
President of the CPC Central Party School
• Former Vice Chairman of the CPC Central Military Commission and former Vice
Chairman of the Central Military Commission of the People’s Republic of China;
former secretary of the CPC Shanghai Municipal Committee; former secretary of
the CPC Zhejiang Provincial Committee
• Graduated from the School of Humanities and Social Sciences of Tsinghua
University, majoring in Marxist theory and ideological education; earned a
bachelor’s degree in chemical engineering from Tsinghua University; holds a
doctorate in law
LI KEQIANG (李克强), 57
ZHANG DEJIANG (张德江), 66
• Member of the Standing Committee of the Political
Bureau of the CPC Central Committee; Vice premier of
the State Council and deputy secretary of its Leading
Party Members’ Group
• Member of the Standing Committee of the Political
Bureau of the CPC Central Committee; Vice premier
of the State Council and member of its Leading Party
Members’ Group; secretary of the CPC Chongqing
Municipal Committee
• Former director of the Three-Gorges Project
Construction Commission of the State Council; former
secretary of the CPC Liaoning Provincial Committee
and former secretary of the CPC Henan Provincial
Committee
• Former secretary of the CPC Guangdong Provincial
Committee; former secretary of the CPC Zhejiang
Provincial Committee and former secretary of the CPC
Jilin Provincial Committee
• Graduated with a major in law and economics from
the School of Law and School of Economics of Peking
University; holds a bachelor degree in law and a
doctorate in economics
• Graduated from the Department of Economics of Kim
Il Sung University of the Democratic People’s Republic
of Korea
YU ZHENGSHENG (俞正声), 67
LIU YUNSHAN (刘云山), 65
• Member of the Standing Committee of the Political
Bureau of the CPC Central Committee; secretary of
the CPC Shanghai Municipal Committee
• Member of the Standing Committee of the Political
Bureau of the CPC Central Committee; secretary of
the Secretariat of the CPC Central Committee; head
of the Propaganda Department of the CPC Central
Committee
• Former secretary of the CPC Hubei Provincial
Committee; former Minister of Construction; former
secretary of the CPC Qingdao Municipal Committee
• Graduated from the Department of Missile Engineering
of Harbin Military Engineering Institute
• Former head of the Spiritual Civilization Steering
Committee of the CPC Central Committee; former
deputy secretary of the CPC Inner Mongolia
Autonomous Regional Committee; former secretary of
the CPC Chifeng City Committee of the Inner Mongolia
Autonomous Region
• Graduated from the CPC Central Party School
WANG QISHAN (王岐山), 64
ZHANG GAOLI (张高丽), 66
• Member of the Standing Committee of the Political
Bureau of the CPC Central Committee; Secretary
of Central Commission for Discipline Inspection;
Vice premier of the State Council and member of its
Leading Party Members’ Group
• Member of the Standing Committee of the Political
Bureau of the CPC Central Committee; secretary of
the CPC Tianjin Municipal Committee
• Former deputy secretary of the CPC Beijing Municipal
Committee; former mayor of Beijing; former secretary
of the CPC Hainan Provincial Committee; former
director of the Economic System Reform Office of the
State Council; former governor of China Construction
Bank
• Former secretary of the CPC Shandong Provincial
Committee; former deputy secretary of the CPC
Guangdong Provincial Committee; former secretary of
the CPC Shenzhen Municipal Committee
• Graduated from the Department of Economics of
Xiamen University with a major in planning and
statistics
• Graduated from the Department of History at
Northwest University
In addition to the seven Standing Committee members, the Political Bureau of the 18th Communist Party of China (CPC) Central Committee has another 18 members.
They are Ma Kai (马凯), Wang Huning (王沪宁), Liu Yandong (刘延东), Liu Qibao (刘奇葆), Xu Qiliang (许其亮), Sun Chunlan (孙春兰), Sun Zhengcai (孙政才), Li Jianguo
(李建国), Li Yuanchao (李源潮), Wang Yang (汪洋), Zhang Chunxian (张春贤), Fan Changlong (范长龙), Meng Jianzhu (孟建柱), Zhao Leji (赵乐际), Hu Chunhua (胡春华),
Li Zhanshu (栗战书), Guo Jinlong (郭金龙) and Han Zheng (韩正).
2 | PwC
2 The Organisation for Economic Cooperation and
Development.
Foreign investors
need to consider
how to capitalise
from China’s key
industries and adjust
their strategies
accordingly.
Led by Party General Secretary Xi Jinping,
China’s new leaders are veterans with
long service records in local and central
governments. Each brings a wealth of
experience in dealing with tough situations.
They’ve been deeply involved in China’s
economic transformation over the past three
decades as direct policymakers, caretakers and
participants. This will help ensure that China’s
existing path of reform and liberalisation
continues. The diverse backgrounds of the
new leadership – Xi holds a doctorate of law
while Li Keqiang a doctorate of economics
– contrasts with the engineering-focused
backgrounds of the previous leadership. These
credentials will add new dimensions to future
policy making.
Themes for a new China
The keynote report delivered by President
Hu at the 18th Party Congress largely reflects
the new leadership’s consensus and is “the
crystallisation of the wisdom of the whole
Party.” It’s believed the key themes will be
translated into more detailed action plans
when the new government forms at the
National People’s Congress in March 2013.
The report sets the goal of “completing the
building of a moderately prosperous society
in all respects” and “doubling China’s 2010
GDP by 2020.” The general task is to “achieve
socialist modernisation and the great renewal
of the Chinese nation,” with an overall
approach of “promoting economic, political,
cultural, social and ecological progress.”
The Scientific Outlook on Development was
hailed as a principal guide and “a powerful
theoretical weapon” added to the Party
Constitution.
Throughout the 64-page report, three key
themes stand out: restructuring the economy,
spurring green growth, and boosting domestic
demand. These themes must be put into
perspective if we are to understand their
implications for foreign companies operating
in China.
New darling industries
President Hu made clear the industries China
wants to develop as it continues its journey of
economic transformation. These include:
• Service sector, particularly modern service
industries;
• Next-generation information infrastructure
and IT industries; and
• Application of information network
technologies.
The country will also “speed up
transformation and upgrading” of traditional
industries.
President Hu has vowed to “follow more
closely the rules of the market and better play
the role of the government.”
Foreign investors will need to consider how to
take full advantage of opportunities in these
identified industries and adjust their strategies
accordingly.
Shift towards domestic
consumption
Over the past three decades, China’s economic
expansion has been driven largely by three
pillars: investment, exports and domestic
consumption. But massive government
investment has yielded low returns,
especially in infrastructure-related projects.
Furthermore, over-capacity in energy and
resource intensive industries has increased the
country’s reliance on foreign oil and minerals
imports. The costs of labour, land, water and
resources are also on the rise, and China
is losing its “population surplus.” Sluggish
external demand has also severely affected
China’s exports, forcing many factories along
the coast to shut down.
Against this backdrop, the Chinese
government is determined to shift course
and steer its growth emphasis towards the
domestic market. In the report, President
Hu called for “economic development
driven more by domestic demand, especially
consumer demand” and “increasing
motivation for pursuing innovation-driven
development.” Meanwhile, China needs to
“make development based more on improved
quality and performance” and to promote
“coordinated and mutually reinforcing urbanrural development and developments between
regions and resource conservation, as well as a
circular economy.”
• Emerging industries3 and advanced
manufacturing industries;
3 The State Council identified at the end of 2009 the
following seven key strategic emerging industries: new
energy; new energy automotive; new materials; energy
saving and environmental protection; biological
technology; new information industry; and high-end
equipment manufacturing. These industries, regarded
as representative of the future industries, have since
received significant government investment and
been added into the 12th Five-Year Plan as priority
industries.
3 | PwC
Income growth equates economic
expansion
Of China’s three growth pillars, domestic
consumption has been the weakest, with
growth in worker salaries lagging consistently
behind that of GDP. Most of the wealth
generated has been controlled by the
state, and reinvested into industries and
infrastructure projects. The rising cost of
education, housing, healthcare and pension
have forced people to prioritise saving
over spending.
Foreign financial
institutions can share
much with their
Chinese counterparts
in the areas of
risk management,
product innovation
and project finance
modelling, while
reaping the benefits of
renminbi business.
In the report, President Hu called for
“doubling per capita income for both urban
and rural residents by 2020.” This is the first
time the government has linked economic
growth with per capita income increase for
its residents. President Hu also vowed to
“establish a long-term mechanism to increase
consumer demand” and “unleash the potential
of individual consumption.” In an effort to
dispel concerns over spending, he promised
progress in “ensuring that all people enjoy
their rights to education, employment,
medical and old-age care and housing so that
they will lead a better life.”
While this means labour costs will continue
to rise, it also implies that China’s domestic
market will expand markedly in coming years.
Better established foreign brands in particular
will benefit from the increased purchasing
power.
According to the National Bureau of Statistics
of China, China’s retail sales grew 14% yearon-year in the first three quarters of 2012 to
14.9 trillion yuan, contributing to about 55%
of GDP, surpassing fixed investment for the
first time in driving economic growth.
Single digit growth: the new
normal
Sluggish external demand resulted in the
Chinese economy only growing 7.4% yearon-year in the 3rd quarter of 2012, the
seventh straight decline, according to the
National Bureau of Statistics of China. As the
government adopts relaxed monetary policies
and accelerates approvals of new projects, the
economy may stabilise and recover towards
the end of the year. The World Bank forecasts
China will grow by 7.7% in 2012.
In China’s 12th Five-Year Plan, the target
growth rate has been set at 7% between 2011
and 2015. While this stands in strong contrast
to the double-digit growth rates of previous
years, the government can still achieve its new
goal of “doubling China’s 2010 GDP by 2020”
4 China’s Private Sector Report, 2012
5 2012 Position Paper of the European Chamber of
Commerce in China
4 | PwC
by maintaining this growth over the next
eight years. China’s future growth is likely
to remain in the single digits, particularly
in the face of economic restructuring,
changing demographics and global economic
uncertainty in the short term. Nonetheless,
China’s growth rate is still high in comparison
with this year’s 2-3% global average.
Roadmap towards renminbi
internationalisation
Concerned about repeating mistakes made
by the US, the report stressed the importance
of the real economy as the “firm foundation
of the economy.” It urged China’s financial
sector to adopt policies and measures to
“better facilitate the development of the real
economy.” This shows that the new leadership
is agile in reacting to excessive financial
innovation.
On financial reform, the report did not
introduce anything new other than claiming
“to take steady steps to make interest rates
and the renminbi exchange rate more market
based and promote the yuan’s convertibility
under capital accounts in due course” and to
“improve financial supervision and oversight”
to ensure “financial stability.” Recent trends
to establish renminbi centres abroad and
encourage its use in “going global” projects
suggest that free renminbi convertibility is
drawing closer.
China’s number of non-performing loans,
especially from local financing platforms,
could be more serious than expected.
According to the Development Research
Centre of the State Council, China’s total
liabilities reached 23.76 trillion yuan by 2010.
Foreign financial institutions will have much
to share with their Chinese counterparts in the
areas of risk management, product innovation
and project finance modelling, while reaping
the benefits of renminbi business.
Promoting the private sector
China’s private sector, which includes
foreign invested enterprises (FIEs) in China,
comprises 60% of GDP4 and employs the
majority of the country’s workforce. Yet it
faces multiple challenges, from access to
bank loans and government incentives to high
taxes and employee turnover. The new 36
Articles of the State Council to liberalise more
economic sectors to the private sector was met
with limited response. FIEs face additional
difficulties in restricted market access, joint
venture and licensing requirements, forced
transfer of technology and an inability
to qualify for subsidies. FIEs also face
challenges in securing R&D funds and public
procurement contracts, and not being able to
take part in standards-drafting processes.5
Opportunities for
foreign investors
abound in the
areas of building
design, construction
material, real
estate management,
household appliances,
as well as culture
and recreational
activities.
While calling for support for “small and micro
businesses, especially small and micro science
and technology companies,” President Hu
stressed “increased investment in industries
crucial to national and economic security, as
well as further development and reform of the
state sector.”
These statements seem to backtrack from
previous government commitments to break
up monopolies and stimulate economic
vitality.
Urbanisation and moving inland
In 2011, China’s official urbanisation rate
reached 51.3% – a first in its history. As part
of efforts to “promote balanced development
between regions,” “advancing urbanisation”
was emphasised in President Hu’s report.
Analysts expect 200 million migrant workers
will move to urban areas,6 while China’s
growing middle class will spur an additional
40 trillion yuan in investment demand over
the next 10 years. Residential consumption
should rise from 16 trillion yuan in 2011 to
30 trillion yuan in 2016.
Opportunities for foreign investors abound
in the areas of building design, construction
material, real estate management, household
appliances, as well as culture and recreational
activities.
Foreign investors
need to consider
moving labourintensive industries
to China’s inland
to reap benefits
from preferential
treatments and
partnering with more
developed cities.
As the government strives to implement a
strategy of “regional development and fully
leveraging the comparative advantages
of different regions,” China will “give
high priority to rural areas in developing
infrastructure.” It will also invest more in
“old revolutionary base areas, ethnic minority
development, border areas and poor areas
through pairing assistance and other means.”
Foreign investors need to consider moving
labour-intensive industries to the western and
central parts of China to reap benefits from
preferential treatments and partnering with
more developed cities to cultivate the inland
market.
Going green: the new economy
In response to China’s critical environmental
situation, the ecology has received
unprecedented attention in President Hu’s
report. He vowed to “give high priority to
making ecological progress, and incorporate
it into all aspects and the whole process of
advancing economic, political, cultural,
and social progress.” It marks the first time
Chinese leaders have called for the “building
of a beautiful China.”
Establishing a green and low-carbon
development perspective was adopted during
the 5th plenary session of the 17th Party
Congress. This is consistent with China’s
commitment to reduce energy intensity by
16% and carbon intensity by 17% by 2015
as stipulated in the 12th Five-Year Plan.
The State Council has also recently ordered
major industrial projects to undergo “social
risk assessment” before commencement
through public opinion hearings. Recent
riots and protests in Sichuan, Jiangsu and
Zhejiang highlight rising public awareness on
environmental issues.
It’s expected that green building, green
construction, green mining, green
consumption, green government procurement
and green certification of products will all
become mainstream in China soon. According
to the National Development and Reform
Commission, China plans to invest 2 trillion
yuan on energy saving and low-carbon
development projects during the 12th FiveYear Plan.
Foreign companies will have opportunities
to provide services or sell products and
technologies to Chinese customers in cleaner
conventional energy, renewable energy
(wind, solar, thermal, biofuels and landfill),
waste management, water treatment, electric
vehicles and batteries, reforestation, depleted
mine restoration, nature conservancy,
biodiversity, and smart city design and
management.
6 A series of papers by Chi Fulin, Executive President of
China Institute for Reform and Development (CIRD)
5 | PwC
China’s focus on
a green economy
offers multinational
enterprises
opportunities to
sell products and
technologies to local
customers in areas
including renewable
energy, waste
management and
water treatment.
China: not a Western political
system
The way forward for foreign
enterprises
The report also covers the long-delayed yet
highly expected political reform. It calls for
“making both active and prudent efforts to
carry out the reform of the political structure,
and making people’s democracy more
extensive.” Still, the report made clear China
“will never copy a Western political system.”
President Hu’s keynote report highlights the
direction of China’s future growth. China’s
commitment to opening up its markets and
deepening reforms will pave the way for
more opportunities for overseas enterprises.
Investors are encouraged to focus on areas the
government has identified when drafting their
business strategies and respond to further
reforms as they occur.
In recognition of rising corruption, the report
concluded that if not handled well, it could
“prove fatal to the Party and even cause the
collapse of the Party and the fall of the state.”
For foreign investors, the government’s ability
to demonstrate “the rule of law” and level the
playing field to create a fair and predictable
business climate in the process of “deepening
administrative reform” will be crucial.
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commentary have been sourced from Xinhua News Agency’s English media reports.
© 2012 PwC. All rights reserved.
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