China’s New 5-Year Plan: 3 Indicators for Foreign Companies

November 26, 2020
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Every five years, billions of individuals in China and across the world cast their eyes on one single document. A document issued by China, that serves as a temporary manifesto, encapsulating the republic’s targets for the next five years. As 2020 continues to transform our world order, China’s 14th five-year-plan (2021-2025) bears extraordinary meaning. And of course, any shift in strategy by the world’s second-largest economy will have ramifications on both foreign and global businesses.

The final outline of the plan is expected to be published in the first quarter of 2021, but a summary that was released lately broadly reveals some of China’s key objectives, that form the basis of its future policy:

  • Targeting GDP per capita rather than a national GDP target
  • Putting emphases on long-term “sustained and healthy growth”
  • Significantly improve quality and efficiency
  • Alleviating poverty and increasing incomes
  • Lessening dependency on foreign markets and promoting China’s self-reliance

This article will present what is currently known about China’s agenda for the next five years that is relevant for foreign companies doing business in China and those interested to leverage this momentum for their China market entry.

1 – The Dual Circulation Strategy

The term Dual Circulation Strategy is a main theme in China’s new five-year plan, and refers to a new economic model that consists of two complementing systems:

  • Internal circulation:

Amid the global turmoil in 2020, China has greatly felt its vulnerable status while being “stuck” in the heart of the global supply chain. Consequentially, China realizes it has to enhance its independence by boosting domestic demands and reducing its reliance on global markets.

  • External-international circulation:

This part is poorly defined in the plan’s summary. But the main message is that China is continuing to welcome foreign investors, especially those who can assist China in strengthening its technological foundation. China is intending to maintain its open-door policy by negotiating free trade agreements and developing free trade zones, to name a few.

In short, this dual strategy is going to serve as the driving engine for this five-year plan. China’s dual commitment to the internal and external circles indicates that it is not abandoning its interests outwardly, but rather that it still has every intention of nurturing global business relations so long as they support its long-term goals.

2 – Technology and innovation

Against the backdrop of the aggravating relations with the US, China is now striving more than ever before to cultivate a burgeoning tech sector. Interestingly, this technological vision is not confined to the next five years but is in fact planned for the next 15. In other words, innovation is viewed as a strategic force in China’s national development, and China will continue to strive for such developments so that by 2035 it will become an innovation leader.

And as a means to fulfill this vision, the Chinese government is intending to invest massively in the tech industry, with some policies related to implementing government support and fostering tech infrastructures having already been announced.

The key technologies to benefit from the government’s new resource allocation are not specified in the summary, but some predictions based on former government plans are the following:

  • Semiconductors
  • Blockchain
  • Artificial intelligence
  • 5G networking
  • autonomous vehicles
  • Big data

Read more about the top-5 post-corona emerging industries

3 – Green development

China is one of the most polluting countries, with the highest rates of carbon emissions in 2018. Hence, climate and environmental goals in the new five-year-plan are part of a bigger vision of making China “carbon neutral” by 2060.

This vision is reflected on the ground in the Chinese government’s pursuit of environmental transformation through accelerating the development of green technologies; setting emission caps (for the first time in China’s history); and an effort to regulate and enforce “negative growth” in carbon consumption.

Moreover, China will have to find more creative ways to reduce its usage of pollutants dramatically. Therefore, among others, the government is intending to dedicate more attention and budgets to the following issues:

  • Replacing coal with other “natural energy resources” (e.g. solar or wind)
  • Developing carbon capture technologies
  • Investing in farming and the agribusiness industries

To summarize, over the course of the next five years, China is looking to boost its self-reliance, mostly through the advancement of its technological capabilities in the belief that such technological salience will pervade into all aspects of Chinese life. And although the practical measures that China will take to achieve these goals are still unknown, one thing remains clear: China is not intending to do it all alone. For those international tech companies that align with the areas where China intends to focus its efforts, this is a window of opportunity worth capitalizing on.

[Photo by Aron Visuals on Unsplash]

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