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Sustainability and Innovation in China’s 12th Five-Year Plan David Nieh, AIA AICP LEED AP General Manager Shui 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 The five-year plan – a strategic approach to long-term development China’s impressive economic track record GDP growth yoy 16% 14.2% 14% 12% 10.3% 9.5%f 10% 9.2% 8% 9.6%f 6% 4% 2% 2012f 2011f 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 0% Source: National Bureau of Statistics, IMF (2011 and 2012 forecasts) 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 4 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 fiveyear 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 policymaking 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 YOY Growth Real GDP growth and targets 15% 14% 13% 12% 11.2% 11% 10% 9% 8% 7% Average growth rate during 9th Five-Year Plan period : 8.6% Average growth rate during 10th Five-Year Plan period : Average growth rate during 11th Five-Year Plan period 9.8% Average growth rate during 12th Five-Year Plan period Target: 8% Target: 7% Target: 7.5% Target: 7% 6% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 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 11th Five-Year Plan (2006-2010) Most targets achieved or exceeded Key economic targets in the 11th Five-Year Plan Target Actual 7.5 11.2 <5 4.1 43.5 35.4 2 around 20 43 34.9 1.8 19.1 Urbanization rate (% ) 47 47.5 Urban pension system coverage (mn persons) 220 260 >5 >5 9.7 8.9 Item Macro economy GDP growth (%, real) Unemployment rate (%) Economic structure Service sector share of GDP (%) Service sector share of total employment (%) R&D spending as a share of GDP (%) Decline in energy consumption per unit GDP (%) Living standards Urban disposable income per capita growth (%) Rural net income per capita growth (%) China’s 12th FYP is the national blueprint to achieve mediumterm economic, social and environmental objectives China’s 12th FYP builds in sustainability China’s 12th FYP marries environmental and energy challenges with huge economic opportunities Five key themes in the 12th Five-Year Plan 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 I. Adjust the growth model – boosting the role of services % share of GDP 60% 50% Secondary sector 40% 30% Tertiary sector 20% 10% 0% 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Source: National Bureau of Statistics 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 I. Adjust the growth model – global rebalancing entails switch to domestic-led growth % Source: National Bureau of Statistics 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 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 GDP and Per Capita Disposable Income GDP Average Per Capita Disposable Income 16% 14% 10.3% 12% 10% 7.8% 8% 6% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: National Bureau of Statistics 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 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 Total agricultural land (mn commercial acre) Reduce water consumption per unit of industrial added value (%) Efficiency index for use of water in agriculture Non-fossil energy as a share of primary energy consumption (%) Energy consumption reduction per unit of industrial added value(%) Carbon dioxide emission reduction per unit of GDP (%) Carbon dioxide Reduction of pollutants emission Sulfur dioxide volume (%) Ammonium nitrogen Nitrogen oxide Forest coverage (%) Forestry Total forest volume (mn cubic yards) 362 362 0.5 8.3 0.53 11.4 Target type Resources and environment 20.4 21.7 [0] [30] [0.03] [3.1] [16] [17] [8] [8] [10] [10] [1.3] 17.8 18.6 [6] Mandatory targets are ones to which the government accords absolute priority Mandatory Mandatory Non-mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Key targets in the 12th Five-Year Plan Selection from a total of 24 quantitative targets Key economic targets in 12th Five-Year Plan Item Economic development (3 items) GDP (RMB trn) Service sector share of GDP (%) Urbanization rate (%) Science, technology and education (4 items) R&D spending as share of GDP (%) Invention patents per 10,000 people Resources and the environment (8 items) Reduction of energy consumption per unit GDP (%) Reduction of carbon dioxide emissions per unit GDP (%) Living conditions 2010 2015 Annual Growth Rate (%) 39.8 43 47.5 55.8 47 51.5 7 [4] [4] Non-mandatory Non-mandatory Non-mandatory 1.8 1.7 2.2 3.3 [0.4] [1.6] Mandatory Mandatory [16] [17] Mandatory Mandatory Target type Urban disposable per capita income (RMB) 19,109 26,810 >7 Non-mandatory Rural net per capita income (RMB) Construction of social housing (mn units) 5,919 8,310 >7 [36] Non-mandatory Mandatory Mandatory targets are ones to which the government accords absolute priority Tapping China’s market opportunity Urbanization on an epic scale creates consumer demand Chinese urbanization rate 中国城镇化率 % 55 51.5 50 45 40 36.2 37.7 39.1 40.5 41.8 43.0 43.9 44.9 45.7 2007 2008 46.6 47.5 35 30.5 30 25 20 1996 2000 2001 2002 2003 2004 2005 2006 2009 2010 2015 Source: National Bureau of Statistics and 12th Five-Year Plan 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 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, environmentalhealth 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 • Electric car prototype developed by Shanghai Automotive Industry Corp Motor • Due to be launched in October 2012 Source: China Daily 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 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 Silicon Valley Bank EMC Corporation 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 Russia Mongolia Japan N. Korea DALIAN BEIJING S. Korea Beijing Shanghai CHINA CHENGDU NANJING KUNSHAN WUHAN SHANGHAI Nepal Taiwan India SHENZHEN Myanmar Hong Kong Australian firms in China post impressive results and are optimistic about the market outlook AmCham Shanghai Survey of Business Performance in China AusCham Survey of Business Performance in China 2010 % of respondents answering affirmatively 100 90 80 70 60 50 40 30 20 10 0 87 79 77 70 65 61 52 47 40 Revenue growth Profitable 2008 2009 2010 Gained market share 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 Thank You [email protected] ___ Discussion