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At China’s annual meeting of its top legislative body, three draft reports are usually submitted for delegates to discuss and approve.

They comprise the premier’s government work report, the National Development and Reform Commission’s economic development report, and the Ministry of Finance’s budget report.

The documents provide a review of the past year and explain how the central authorities will govern the country in the coming year.

This year’s plenary session will also review and approve the proposed 13th five-year plan for the period from 2016 through to 2020. 

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Here are the five key points to take away from the draft plan and reports.

1. Growth target set at 6.5 to 7 per cent

This year’s proposed target for gross domestic product expansion has been set at a range between 6.5 per cent to 7 per cent.

The range, rather than a specific number, reflects China’s dilemma between pursuing economic growth and pushing ahead with reforms.

Innovation would be the top driving force for future growth, according to Li’s work report.

2. Hong Kong, Macau to play bigger roles in China’s economic development; Taiwan policies to be maintained

Beijing will “elevate Hong Kong and Macau’s positions and roles in China’s economic development and opening up” according to their “distinctive strengths”, Li said.

In its draft 13th five-year plan, also released on Saturday, China pledged to support Hong Kong in furthering its status as a global financial, shipping and trading hub.

He added that Beijing would adhere to previous policies on Taiwan, “firmly oppose secessionist activities” and maintain peaceful development of cross-strait ties.

3. Further interest rate liberalisation; government-managed floating system to stay

China has pledged to further liberalise interest rates and stick to a government-managed floating system.

Beijing aimed this year to keep the yuan generally stable on a “reasonable and balanced level” and to control “abnormal flow of cross-border capital effectively”, according to the annual report of China’s top economic planner, the National Development and Reform Commission.

4. China to boost overseas defence

The premier also pledged to improve China’s ability to protect its citizens and businesses abroad.

China would ensure that the G20 summit in Hangzhou this September would go smoothly, Li said. Beijing would “participate constructively” in seeking solutions for global issues, he added.

The government has budgeted 954 billion yuan (HK$1.13 trillion) for defence spending this year – a 7.6 per cent increase from last year. 

5. Slack officials warned, blundering ones to get second chance, rewards for innovators

Li warned officials against neglecting their duties.

China has been facing a situation in which many cadres chose not to perform their duties at all for fear of making mistakes and getting hauled up amid the country’s ongoing corruption crackdown.

Li warned that the Communist Party would have zero tolerance for officials who slacked off on their jobs. There was room for correction for those who made mistakes and rewards for innovators, he said.

See the full article from the South China Morning Post here.

 

One of the new notions Premier Li Keqiang put forward in this year’s Government Work Report on March 5 is a “New era of mass tourism”.

In it, the phrase “Paid vacations” appears again as a fundamental aspect of the trend. “We will ensure people are able to take their paid vacations, strengthen the development of tourist and transport facilities, scenic spots and tourist sites, and recreational vehicle parks, and see that the tourist market operates in line with regulations. With these efforts, we will usher in a new era of mass tourism,” he said.

Premier Li’s mention of “Paid vacations” has ignited widespread public reactions.

Liang Jianzhang, co-founder of Ctrip (a leading online travel agency), who views tourism as the most promising industry in the future, believes that the implementation of “Paid vacations” is an incentive to Chinese economy. He maintains that “the average number of travels made by Chinese tourists is still far below that of the developed countries, so in the decades to come, China’s tourism industry will have to make great strides and will eventually become a significant driver for economic growth. During this process, opportunities for innovation and employment will increase”.

In Liang’s opinion, facilitating paid vacations can bring a new cycle of tourism consumption and investment-as long as competent travel products can be developed, stable profit can be expected in the long run.

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As far as public holiday arrangement is concerned, several proposals emerged into the spotlight during the ongoing two sessions, all of which focus on a modification of the current holiday arrangement. NPC deputy, deputy director of Shaanxi Provincial Tourism Bureau CSU Mingzheng proposesthat the Spring Festival holiday should be extended to 10-12 days from the current 7-day vacation.

Whatever the solution, what can’t be denied is the substantial potential China has for tourism and Chinesepeople’s ever-increasing need to upgrade their consumption style. According to reports of theNational Tourism Administration, in 2015, 120 million Chinese went overseas and spent$104.5 billion.

“Tourism is a high-level spiritual need”, said Liang Jianzhang, and this inner driving force candefinitely lead China into an era of mass tourism.

See the full article from China Daily here.

China has recently announced new details of it’s 13th five year plan.

The five year plan system is a Soviet-style planning technique  from China’s Communist past, but it remains a pivotal feature of the Chinese government. We are currently just concluding the twelfth version of the plan. The full details of the thirteenth version will only be revealed in March 2016, when the 13th Fifth Year Plan is unveiled in full.

Focus: Balancing the economy

Attempts to steer the economy into a new direction formed a large part of the last five year plan.

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Graphic from the Telegraph.

China’s leaders have stated repeatedly they want to move away from a dependence on low-cost exports towards more sustainable growth that relies on the service sector, high-end manufacturing and domestic consumption. Analysts widely expect the party to ditch its 7% target growth rate over the course of 2016-2020.

Instead, party officials seem more likely to concentrate on metrics such as job creation and wage growth as a better gauge of sustainable economic growth and, perhaps more critically, social cohesion.

However, growth targets are still likely to remain ambitious, hovering somewhere around 6.5-6.9% over the next five years. This is still on the optimistic side of most independent estimates, which forecast growth averaging just under 6%.

Other headline topics:

The abolition of the one child policy- This is one of many social welfare changes. The goal is to alleviate the social strains caused by an ageing population and an escalating dependency ratio and is meant to be seen as a “gift” to Chinese society from the government. Other changes include extending elderly insurance to the full population through state funds, overhauling the healthcare system and promoting education specifically for 16-18 year olds.

Real objectives towards environmental policy- This reflects the popular social movement which has built over the past year as well as the impending Paris summit on climate change taking place in December.

An anti-corruption campaign- The campaign is the most extensive and brutal we have seen in recent years. Xi commented back in September that the fight against corruption “never ends”. In keeping with this message, the Fifth Plenum endorsed the removal of 10 former Central committee members on charges of corruption.

As more details emerge about the plan, China’s area of focus will become more clear.

Brands need to recognise themselves not as vehicles of consumerism but as intricate entities within the broader system of culture. 

Chinese consumers are seeking a more active and healthier lifestyle, as they have better awareness and seen more media coverage on key issues like pollution, the environment, and food safety. These increasingly health-conscious Chinese consumers represent an important growth opportunity for companies selling their products and services across a myriad of industries from health & wellness, sports & apparel, through to pharmaceuticals and even into more niche categories. However, to attract these consumers brands will need to be more forward thinking in their marketing approach. 

In the food industry, for example, 14% of Chinese respondents claim to be eating more healthy food now, compared with 13.1% in 2012, according to CTR China National Resident Survey (CNRS-TGI). The awareness among Chinese people of the bad effects of junk food has also risen by 15% in the past two years alone. Yum Brands, the parent of KFC and Pizza Hut, has enjoyed fast business growth as China’s fast food industry grew at an average rate of over 12% per year from 2009 to 2014. It is the largest western restaurant operator in China with over 6,500 outlets and 50 % of its global revenues come from China alone. But the shift in consumers’ attitudes towards food quality changed, its business was inevitably impacted: KFC’s sales in China in the second quarter of 2015 dropped 10% from a year ago. 

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Changing socio-economic and political parameters, shifting perceptions of the role of consumerism, increasing competition as well as consumers’ familiarity will not only change the market in the coming years but also consumers “immunity” to promotional messages. Brands need to fundamentally re-evaluate; from the way they view their broader role within society and construct strategies to the way they carry out research, communicate and innovate. The key is to recognise themselves not as mere money-making machines and vehicles of consumerism, but as intricate entities within the broader system of culture. 

We can find strong locally relevant brands in many markets worldwide, including China where culture is now a critical area that marketers can no longer neglect. From health to sports to food & beverage, brands have started to see great success by adopting a culturally tapped marketing strategy which combines the past, present and the future, fusing nature and technology simultaneously to give a cutting edge positioning in all their brand communications.

See the article in full from Kantar China Insights here.

“Five-year plans” may sound like rusty Communist lingo – but in China they are matters of real importance as they outline government plans for the following 5 years. The plans set a direction for the country’s economy, social development targets, and – judging from this year’s iteration – online video view count.

China’s five-year plans are typically heralded by a series of glowing articles in state media. But not this year, it seem the Chinese Communist party has decided to release a psychedelic video promoting the new plan.

The video was realised earlier this week on Twitter. As Twitter is blocked in China, putting the video on that platform implies that it is specifically meant for those outside of the country. The video does represent an odd change in pace for Chinese propaganda. Conventionally, films or videos praising the Communist Party were produced for domestic Chinese consumption. But over the past several months, there have been more examples of pro-CCP (Chinese Communist Party) videos aimed at foreign audiences.

Lets see if this video gives them the credibility they were seeking…

A media release from state news agency Xinhua explained the goals of the latest round of guidelines. ‘China will modernise SOEs, enhance state assets management, promote mixed ownership and prevent the erosion of state assets… The government will improve the competence of SOEs and turn them into fully independent market entities,’ said the release.

Why are they doing this? Efficiency.

China says that state owned enterprises are a pillar of the economy. These government companies enjoy a range of benefits. For example, they have easier access to loans. And they have what’s euphemistically described by the state as ‘more favourable policies’. Basically, they have monopolies over certain products.

But SOEs are inefficient. At least, compared to private firms they are. Which is what really matters here. This inefficiency means they’re less resilient when the economy is going south. Like it is now. The State Council said that reforming SOEs is a top priority for Chinese lawmakers at the moment.

What the SOE reform guideline says

Promoting mixed ownership is a top goal for China. The guideline says that SOEs should bring in diverse types of investors. There will be multiple ways they can do this. A few examples are: bonds, share rights swaps, and outright buying stakes in the enterprise. For the first time, the SEOs will be allowed to test the waters of selling shares to employees. Eventually, the government wants these firms to go public. 

guideline holes

In the official report, China claims that executives will be more tightly supervised. They say that a ‘mechanism for accountability’ will be put in place. Apparently, this will help stop corruption and embezzlement. But so far, there are no details on what this mechanism will look like. Or how violations will be investigated and prosecuted.

Also briefly mentioned was the fact that government agencies will no longer be able to intervene in SOE decisions. The thing is, the SOEs will still be ‘administered’ and overseen by the State-owned Assets Supervision and Administration Commission (SASAC). There isn’t an effective separation of state and corporation here — yet.

New foreign stakeholders may or may not have much chance to influence this. Under Chinese law, it is illegal to threaten to withdraw ‘registered capital’. That’s the amount the investor has put in, according to official records. Registered capital can only be withdrawn to pay company expenses. 

Then, there’s the problem of timing. An institutional investor with a significant proportion of shares cannot profit from a purchase or sale within six months. It’s meant to be a defence against insider trading. But it also applies to investment companies.

Overall

The main takeaway is: from an investor’s point of view, SOE reform would have to be thorough and transparent to be worthwhile.

And the Chinese administration is not famous for being transparent.

See this article in full from Money Morning Australia here. And more on the topic form the FT here.