Local Five-Year Plans Reveal National Priorities

By Owen Haacke

With the release of China’s central government’s 13th Five-Year Plan (FYP)—an economic and social planning blueprint—expected later this month, newly released local plans may point to common themes of raising incomes, modernizing industry, environmental protection, and innovation.

Provincial- and municipal-level five-year plans already released include Zhejiang, Guangdong, Chongqing, Jiangsu, and Shanghai, among others. Key themes include increased investment to promote development and commitments to funding industries and projects that bolster development plans. Details, such as specific industry focus, provide important insights for companies planning China business strategies for the next five years.

Investment to support development and growth

Local FYP’s investment plans range from broad commitments to general infrastructure development, to industry-specific investment, and often have more details on investment and revenue generation targets. For example, Chongqing allotted RMB 400 billion ($61 billion) to transportation for the next five years. Zhejiang budgeted RMB 300 billion ($46 billion) for water conservancy efforts. Beyond broad stimulus to specific industries, companies should note:

Jobs  Employment targets are an important indicator of local government priorities. For example, Xinjiang hopes to create 600,000 jobs in the textile industry by 2020, and produce about 500 million garments a year. Such targets indicate the industry will receive additional government support, and may be of interest to companies with a focus on textiles.

Local designations  To establish themselves globally, localities often aim to become a leader in a specific industry or service and serve as a model for other provinces. For example, Shanghai has broad ambitions to become a global economic, financial, trade, and shipping center. Other jurisdictions have more targeted goals, such as Qinghai, which, as one of China’s biggest suppliers of water, hopes to become a pioneer for environmental stewardship. In Sichuan, the capital city Chengdu aims to become a “National Innovative City” by launching policies to develop new high-technology development zones in cities like Deyang and Mianyang. Jiangsu Province—home to many multinational operations—aims to become an “international intellectual property protection demonstration platform” through the establishment of the Jiangsu (International) Intellectual Property Trading Center.

Zones  With the expansion of free trade zones (FTZ) to Guangdong, Fujian, and Tianjin, these locations incorporated the zones and development plans into their five-year ambitions. While governed by a unified list of investment restrictions, each FTZ has its own development focus. FTZs will reportedly expand across China in the 13th FYP period and offer some guidance on China’s goal to implement a national investment negative list by 2018.

Hukou policies  Hukou—residential registration—policies directly impact the economy and affect multinationals’ hiring practices. Though easing of China’s Hukou policy is expected, highly developed cities such as Shanghai and Guangzhou are unlikely to amend existing population control measures. Guangdong’s development plan, for instance, will continue strict control on population growth in Guangzhou and Shenzhen through hukou restrictions, but will ease hukou policies in Zhuhai, Foshan, Dongguan, and Zhongshan, which could make these locations more attractive to domestic talent, and by extension foreign investment, by allowing workers not born there to apply for local residency.

Economic growth  Economic growth remains a top priority. Some second-tier municipalities, such as Hefei in Anhui Province, are aiming for double-digit growth in the next five-year period. Many provinces, such as Jiangsu, Sichuan, and Guangdong, set annual growth targets higher than the presumed minimum 6.5 percent national growth goal.

Zooming in: District plans

Companies should also look to district plans for more detailed goals that could impact business. At the top level, district plans in the past have included import and export goals, inbound FDI targets, and talent attraction goals. District plans can reveal implementation of new special economic zones, adjustments to jurisdiction of district authorities, and other changes that impact foreign businesses. For example, Pudong New Area District’s plan outline—a 75 page document released in February—encourages the establishment of foreign company Asia Pacific headquarters and R&D expenses to account for 3.8 percent of GDP in the district. Many of the district plans are still in the works;the Shanghai Jing’An District plan is expected in July or August and the Chaoyang District plan is expected sometime in September.

Common themes reflect central policy goals

National initiatives such as the One Belt, One Road, Made in China 2025, Internet Plus, supply-side reform, and goals to achieve a “well-off society” typically lack implementation specifics in local plans, but companies can expect these initiatives to be among high-level talking points and priorities for local government officials. For example, Sichuan’s local plan highlights the importance of implementing a Sichuan Made in China 2025 Action Plan and integrating transportation networks that support the One Belt, One Road initiative, though no details are included. National initiatives also make their mark in district plans as well, for example, the One Belt, One Road initiative is mentioned in Pudong New District’s plans to improve air and sea hubs, such as Pudong Airport and Waigaoqiao Sea Port.

Understand and align company goals with locality priorities

Companies operating in China should pay close attention to local five-year plans, from the provincial-, municipal-, and even more detailed district-level plans to assess alignments with industry and overall business goals. Doing so can give companies a better understanding of where the government will be focusing resources for the next five years, and better position companies to engage with officials.

Understand priorities in your jurisdiction   To maximize benefit from local government engagement where current operations exist, companies should understand local development priorities and sought-after designations, as well as how the area aims to implement national policies.

Be prepared for engagement  Companies should be armed with knowledge about local plans where they are engaging local governments or business partners on their turf. Knowing the goals of a district when conversing with district officials where a company is planning a new site, for example, will demonstrate companies are interested in supporting local development goals.

New opportunities   Teams with a broad knowledge of local plans could open additional business opportunities for government support by offering assistance to meet goals in the five-year plans. Companies should note if a specific jurisdiction is promoting development in areas where companies can provide solutions.

As a rule of thumb, companies should think through where their strengths lie that may be helpful in supporting local development goals in the five-year plans.

About the author: Owen Haacke is the chief representative of  the US-China Business Council’s business advisory services team in Shanghai. Contact him at [email protected]

Posted by By Owen Haacke