China’s 12th Five-Year Plan: Overview                                                                                     ...
China’s actual and forecast GDP growth vs.                   11th 5-Year Plan annual                                      ...
What important challenges will China tackle in the new plan?Key economic targets   Annual GDP growth: 7%                 ...
Global China Practice                         Who will be impacted by the Five-Year Plan?Thomas Stanley                   ...
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KPMG.China-12th-Five-Year-Plan-Overview-201104

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KPMG.China-12th-Five-Year-Plan-Overview-201104

  1. 1. China’s 12th Five-Year Plan: Overview March 2011 KPMG CHINAChina’s 12th Five-Year Plan marks a turning point from the country’s previous emphasison headline growth; China’s leaders are now prioritising strategies and measures toensure long-term prosperity for the entire nation. We should not only make the cake of China’s plan for national economic and social development social wealth as big as possible, but also distribute the cake in a fair way  On 14 March 2011, China’s National People’s Congress approved a new and let everyone enjoy the fruits of national development programme for the next five years from 2011 to reform and opening up 2015; the themes and targets in the plan will now form the basis for  Premier Wen Jiabao, 27 February industry-specific and provincial five year plans which will be rolled out over 2011 the next few months.  China’s 12th Five-Year Plan emphasises “higher quality growth”; the country’s rapid development during the past 30 years has lifted millions of citizens out of poverty, but has raised the question of sustainability as China grapples with challenges such as pollution, intensive energy use, and resource depletion.  According to President Hu Jintao, another important feature of the new plan is the concept of “inclusive growth”, as China attempts to solve the issue of increasing wealth disparity.  The government has set the new annual GDP target at 7 percent over the next five years, but industry analysts expect annual growth to exceed 8 percent; by comparison, the 11th Five-Year Plan called for annual growth of 7.5 percent (actual: around 11 percent). © 2011 KPMG Advisory (China) Limited, a wholly foreign owned enterprise in China and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in China. 1
  2. 2. China’s actual and forecast GDP growth vs. 11th 5-Year Plan annual targets GDP target: 7.5% Forecast 16 14.2 14 12.7 12th 5-Year Plan annual GDP target: 7% 12 10.3 9.6 9.2 10 9 8.7 8.5 GDP growth (%) 8 8 8 6 4 2 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: EIU Important goals in the planKey themes Sustainable growth  Develop China’s western regions Moving up the value chain  Protect the environment and improve energy efficiency  Continue transitioning to an economy driven by domestic consumption Reducing disparities instead of exports Scientific development  Improve the lives of Chinese citizens Environmental protection  Develop seven priority industries, with the aim of increasing their GDP contributions from 2 percent of GDP to 8 percent by 2015 Energy efficiency – three sectors align with the theme of sustainable growth: energy savings Domestic consumption and environmental protection; new energy; and clean energy vehicles – the other areas are consistent with China’s ambition to move up the value chain: biotechnology; new materials; new IT; and high-end manufacturing. 12th Five-Year Plan vs. 11th Five-Year Plan: what is new?  Housing target: develop 36 million units of affordable housing  Two new pollution targets: – Nitrogen oxide: 10% reduction – Ammonia nitrogen: 10% reduction  Wellbeing target: increase average life expectancy by one year  Innovation target: 3.3 patents per 10,000 people  Education target: increase high school enrollment ratio from 82.5% to 87% China’s 12th Five-Year Plan: Seven Priority Industries 1 New energy  Nuclear, wind and solar power 2 Energy conservation and environmental protection  Energy reduction targets 3 Biotechnology  Drugs and medical devices 4 New materials  Rare earths and high-end semiconductors 5 New IT  Broadband networks, internet security infrastructure, network convergence 6 High-end equipment manufacturing  Aerospace and telecom equipment 7 Clean energy vehicles© 2011 KPMG Advisory (China) Limited, a wholly foreign owned enterprise in China and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in China. 2
  3. 3. What important challenges will China tackle in the new plan?Key economic targets Annual GDP growth: 7%  Domestic consumption as a percentage of GDP fell to 36 percent in Increase urbanisation from 47.5% 2009, compared to about 45 percent a decade earlier, and short of to 51.5% China’s target. While private consumption (please see graph below) still Increase service sector surpassed exports in 2009, the goal is to continue establishing a macro- contribution to GDP by four environment that encourages domestic spending. percentage points, from 43% to  The growing gap between rich and poor is also be addressed in the plan, 47% partly by spurring income growth among Chinese workers. Some Increase spending on R&D to analysts predict that minimum wages will increase by more than 13 2.2% of GDP percent per year. Hold inflation (CPI) at or below  Upgrading social welfare is a key initiative; specifically, increased state- 4% per year supported education, health care and social security. These measures will reduce citizens’ out-of-pocket expenses, and boost disposable income and consumer spending.Key non-economic targets  Reduced energy use is a focus area in the 12th Five-Year Plan; industry Increase non-fossil fuel use to experts believe China may push the use of non-fossil fuels to 15 percent 11.4% of the country’s total energy use by 2020. The 2015 target for non-fossil Reduction of energy use per unit fuel is 11.4 percent. of GDP: 16%  Funding earmarked for key areas: industry experts predict that the Reduction of CO2 emissions per government will invest up to CNY4 trillion (about USD600 billion) to unit of GDP: 17% support areas such as IT, environmental protection, and scientific Increase forest coverage by research. 21.66%  China’s service sector output reached 43.4 percent of GDP in 2009 (11th Five-Year Plan target: 43.3 percent of GDP by 2010). Continued Decrease pollutants COD and sulfur dioxide by 8% each development of the service sector is an important element of the 12th Five-Year Plan. Private consumption vs. exports (2006-2015) 50 45 Forecast 40 16.0 35 14.6 Exports 30 CNY trillion 13.4 25 12.3 Private consumption 11.3 20 10.3 11.0 9.1 15 10.2 28.5 8.5 24.9 10 21.6 16.2 18.7 12.1 13.9 5 9.6 11.1 8.2 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: EIU© 2011 KPMG Advisory (China) Limited, a wholly foreign owned enterprise in China and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in China. 3
  4. 4. Global China Practice Who will be impacted by the Five-Year Plan?Thomas Stanley  Low-end manufacturers may come under pressure as China shifts toPartner higher value-added products and services; industries facing overcapacityTel: +86 2212 3884 will be forced to consolidate.thomas.stanley@kpmg.com  Ordinary Chinese citizens are expected to enjoy a higher standard of living as their disposable incomes increase and service-sector jobs become moreVivian Xu plentiful.Senior Manager  The low carbon sector, and the other priority sectors identified in the plan,Tel: +86 2212 3553 will benefit from increased investment and incentives.vivian.xu@kpmg.com  Companies may need to consider moving production and operations to cheaper inland regions as labour costs in coastal areas continue to rise. What can we expect in the immediate future?  The release of the national plan document is not the end of the planning process: we can expect a steady stream of industry and provincial five year plans and implementation details to be made public over the next few weeks and months.  In addition, China has set the following targets for the 5YP’s first year: Goal 2011 target Total retail sales of consumer goods Increase 16% Broad money supply (M2) Increase 16% Reduction in energy use 3.5% reduction per unit of GDP Reduction in carbon dioxide 3.5% reduction per unit of GDP emissions Emissions of sulfur dioxide and Reduce 1.5% nitrogen oxide CPI Increase 4% Total fixed-asset investment Increase 18% Sources: (1) National Peoples Congress, Government Work Report, 5 March 2011 (2) National Development and Reform Commission Report, 5 March 2011 (3) Other sources: Reuters, Xinhua, China Daily, APCO Worldwide, HSBC, WSJ, EIUDISCLAIMER: The information herein has been obtained from public sources believed to be reliable. The views and opinions in this memo are thoseof the authors. KPMG makes no representation as to the accuracy or completeness of such information. © 2011 KPMG Advisory (China) Limited, a wholly foreign owned enterprise in China and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in China. 4

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