China’s 14th Five-Year Plan: Research Priorities and Industrial Policies
15 July 2021
In the Outline of the 14th Five-Year Plan for the National Economic and Social Development and the Long-Range Objectives Through the Year 2035 (the 14th FYP, in Chinese only), the Chinese government sets forth a strategy of the “domestic and overseas markets reinforcing each other, with the domestic market as the mainstay”1. The key to building a strong domestic market is enhancing supply capacity. There are a number of policies laid down in the 14th Five-Year Plan that are designed to support the development of scientific research and advanced manufacturing, expand domestic demand and optimise the consumption market, accelerate the services industry’s growth and foster the green industry’s development. All these are aimed at strengthening the different components of the supply chain from R&D to sales. This article discusses and analyses the policies on scientific research and industrial development related to these four areas. This should help Hong Kong companies map out their business directions and drive their business to new levels during the 14th FYP period (2021-2025).
When quoting the text of the 14th FYP2, this article adopts the following format: (Part No. Chapter No. Introduction/Section/Table No.). Thus, “(1.1.1)” refers to Part 1, Chapter 1, Section 1; “(3.11.Table 5)” refers to Table 5 of Chapter 11, Part 3; and “(3.8.Introduction)” refers to the Introduction of Chapter 8, Part 3, and so on.
Dual Emphasis on Basic Research and Technology Applications
A number of targets for promoting the development of scientific research and advanced manufacturing are set out in the 14th FYP. Some examples are:
- By 2035, significant breakthroughs will be made in core technologies in key areas, turning China into a global leader in innovation, and to achieve new-type industrialisation, informatisation, urbanisation and agricultural modernization, creating a modernised economy (1.3.1)
- During 2021-2025, public and private R&D investment will increase by 7% annually and to strive for a higher investment intensity than that of the 13th FYP period (1.3. Table 1)
- The value-added of digital economy industries is projected to account for 10% of GDP in 2025 (1.3.Table 1)
- The ratio of basic research funding as a share of R&D investment to over 8% (2.4.3)
In order to foster scientific research, the Chinese government is looking to target cutting-edge fields such as artificial intelligence (AI), quantum information, integrated circuits (ICs), life and health, brain science, biobreeding, aerospace technology, deep earth and deep sea, and implement a series of forward-looking and strategic National Science and Technology Major Projects. (2.4.2) Support will also be given to Beijing, Shanghai and the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) to establish global technology innovation centres, and to Huairou of Beijing, Zhangjiang of Shanghai, the GBA and Hefei of Anhui to develop comprehensive national science centres. (2.4.4)
In order to encourage enterprises to invest more in R&D, the Chinese government will implement inclusive policies like granting more tax deductions for R&D expenditure, offering tax concessions to new- and hi-tech enterprises (2.5.1), improving tax concession policies to incentivise technology SMEs to make innovations (2.5.1), enhancing the financial innovation support system, encouraging financial institutions to develop financial technology products such as intellectual property pledge financing and technology insurance, and launching pilots on transforming technological achievements into loan risk compensation (2.5.3).
To spur the growth of advanced manufacturing, the Chinese government will attach importance to developing the information technology, advanced manufacturing and biotechnology sectors. The 14th FYP specifies that the focus will be on strategic emerging industries, including next-generation information technology, biotechnology, new energy, new materials, high-end equipment, new-energy vehicles, green and environmental protection technology, aeronautics and astronautics and marine equipment. Furthermore, efforts will be made to drive the integrated and innovative development of biotechnology and information technology, expedite the growth of biomedicine, biobreeding, biomaterials and bioenergy, and expand the bioeconomy. (3.9.1) Specific policies include:
These policies show that the Chinese government will place emphasis on both basic research and technology applications during the 14th FYP period. On top of the government’s heightened efforts to launch major technology projects and build scientific research centres, businesses will also be given more policy support to conduct scientific research. Enterprises looking to transform and upgrade should explore the opportunities related to the BeiDou system, virtual reality, augmented reality and state-of-the-art medical equipment, in addition to leveraging new technologies like 5G, cloud computing, big data, IoT, blockchain and AI.
Enhancing Consumption Market to Expand Domestic Demand
One of the core strategies to fortify domestic circulation is expanding domestic demand on a continuous basis. During the 14th FYP period, the Chinese government will not only look to upsize the consumption market, but will also focus on market optimisation. The 14th FYP stipulates that China will expedite the establishment of a complete domestic demand system, with new demands to be created by innovation-driven and quality products (4.Introduction). It should be noted that expanding domestic demand entails not only upgrading the scale and quality of the consumer goods market, but also implementing policies to improve the quality of the services market. The following paragraph in the 14th FYP sets out the gist of the policies designed to enhance the consumption market:
To guide and generate new consumption demands, the Chinese government will focus on enhancing the spending experience and offering more consumption channels. A case in point here is the internet. It has evolved from a one-way channel for traders to sell goods and services to consumers to an ideal platform for exploring and developing novel consumption modes. Meanwhile, stimulating holiday spending and duty-free shopping domestically have been effective ways of boosting local consumption. The policies to enhance consumption experience and add more consumption channels during the 14th FYP period include:
Developing a complete domestic demand system hinges not only on enhancing the shopping experience and establishing more consumption channels. Improving the market supervision system is also critically important. A number of relevant measures are specified in the 14th FYP, with top priority being given to supervision on food and drugs. The relevant policies include:
To better understand the Chinese government’s policies on expanding domestic demand during the 14th FYP period, Hong Kong companies should also note the following three developments. Firstly, the Chinese government does not intend to promote excessive consumption. The 14th FYP states clearly that the government will regulate the development of consumer credit (4.12.4). Secondly, the Chinese government will press ahead with strengthening the China brand as a priority during the 14th FYP period. Efforts will be made to launch a China brand-building campaign, protect and develop time-honoured Chinese brands, and raise the influence and competitiveness of indigenous Chinese brands. The plan is to first establish a number of upmarket brands in consumer goods like cosmetics, garment, home textiles and electronic products (4.12.1). Thirdly, while continuing to expand imports through various policies during the 14th FYP period, the Chinese government stresses that import sources must also be diversified. It will seek to lower import tariffs and institutional costs, expand the import of quality consumer goods, advanced technologies, important equipment and energy resources, and promote the diversification of import sources. (4.13.1)
Despite the constraints posed by these three developments on Hong Kong companies doing business on the mainland as an importer or overseas brand dealer, opportunities still abound in the consumer market there. Although total retail sales of consumer goods dropped by 3.9% in 2020 following the Covid-19 outbreak, the figure still reached RMB39.2 trillion. Of this, online sales of physical goods for the whole year amounted to RMB9.76 trillion, up 14.8% from 2019. 3These figures highlight the resilience and sheer size of the mainland market. Prospects in the mainland consumption market are most promising for Hong Kong companies capable of offering trendy and quality products and services. In particular, Hong Kong importers bringing commodities from non-traditional markets into the mainland have a better chance of seizing the upcoming opportunities.
Propelling Development of Service Industry
Service industries play a pivotal role in the supply chain, performing many functions in the working of the economy. For instance, production enterprises operate more smoothly with the support of the logistics and financial services, consumers have access to quality products with the certification service offered by the testing and certification industry, and families are more productive with the support of childcare and elderly care services. During the 14th FYP period, the Chinese government will focus on transforming and upgrading service enterprises and addressing consumers’ escalated demands, expanding the supply of the service industry, enhancing service efficiency and quality, and forming a new service industry system marked by high quality and efficiency, an optimised structure and great competitiveness. (3.10.Introduction)
The 14th FYP sets out the plan to build a safer and more reliable supply chain with stronger innovative capability and higher value-added (3.8.2), which is to be achieved through transforming and upgrading manufacturing enterprises and driving the continuous growth of technology enterprises. The following policies aim to strengthen producer services which can help enterprises innovate and create higher value-added:
Given the declining birth rate and an ageing population, the Chinese government is placing special emphasis on childcare and elderly care services. Policies to develop services to improve people’s lives include the following:
It is important for service enterprises to note that the initiative to fuel the service sector’s development goes beyond merely expanding the sector’s scale. In the 14th FYP, great emphasis is placed on developing the service industry to back up the manufacturing sector and technology enterprises as well as addressing public demands. A flourishing service sector is not only crucial to expanding the domestic market and enhancing domestic circulation, but also key to improving people’s lives.
Fuelling Growth of Green Industry
China will try to achieve carbon peak by 2030 and carbon neutrality by 2060. The 14th FYP specifies that China will implement a sustainable development strategy, improve the co-ordination mechanism for improving ecological civilisation, construct an ecological civilisation system, promote the establishment of a green economy and green society, and build a beautiful China (11.Introduction). The green industry4 will, therefore, present huge opportunities. China’s green industry has grown exponentially in recent years, the environmental protection industry generated revenue of RMB1.78 trillion in 2019, up 11.3% from 2018. 5The major policies on the green industry outlined in the 14th FYP are as follows:
Given these policies, Hong Kong manufacturers wanting to tap the potential in China’s green industry could consider venturing first into the fields of green construction materials, prefabricated construction, express delivery packaging materials, energy-efficient home appliances and water-saving devices. For service providers, the waste recovery and recycling industries and green city construction are sectors worth exploring.
Meanwhile, the mainland’s vigorous efforts to develop green financing will generate tremendous opportunities for Hong Kong. In 2020, Hong Kong issued green bonds and granted green loans amounting to US$12 billion, of which 60% was issued by mainland entities. 6Development of green financing will certainly strengthen Hong Kong’s status as an international financial centre.
Conclusions: Implications for Hong Kong Companies
In building a strong domestic circulation during the 14th FYP period, China will try not only to expand market supply, but also to enhance the quality of supply. Under the 14th FYP, the Chinese government will promote the development of scientific research and advanced manufacturing, enhance the consumption market, advance the service industry’s growth and fuel the green industry’s development. These policies are expected to strengthen and modernise various components of the supply chain from R&D to sales, enabling it to meet ever-rising market demands, cut down on wastage, protect the environment, and maximise the use of limited resources. Indeed, the market’s continuous expansion can only be achieved by constantly enhancing the quality of supply.
Many organisations have projected that the Chinese economy will sustain medium to high growth during the 14th FYP period. According to the International Monetary Fund’s predictions in April 2021, China’s GDP will maintain an overall annual growth rate of more than 5% between 2021 and 2025, which means that there are huge opportunities in the market that are yet to be explored. In drawing up their operational plans for the mainland market in the next few years, Hong Kong companies can adopt a more aggressive approach, incorporating elements like technological innovation, personalised consumption and green growth. For those operating in sectors such as healthcare, elderly care and education, special efforts should be made to provide services with care and compassion and to meet consumers’ varying needs. Given mainlanders’ rising per capita spending, Hong Kong companies that can upgrade their product and service quality continually are bound to reap very high benefits.
1 For an overall analysis of the 14th Five-Year Plan, please refer to China’s 14th Five-Year Plan: Key Policies.
2 As of July 2021, the Chinese government had not released an official English version of the Outline of the 14th Five-Year Plan for the National Economic and Social Development and the Long-Range Objectives Through the Year 2035 (14th FYP). The English version provided here is for reference only.
3 Source: Communiqué of the People’s Republic of China on the 2020 National Economic and Social Development, National Bureau of Statistics, February 2021.
4 For an official definition of the green industry in China, please refer to the green industry guidance catalogue (2019 edition) issued by the National Development and Reform Commission (Fa Gai Huan Zi No. 293 ).
5 Source: China’s Environmental Protection Industry Development Report 2020, Department of Science, Technology and Finance of the Ministry of Ecology and Environment and China Association of Environmental Protection Industry, September 2020. The environmental protection industry in the report refers to the six sectors of water pollution prevention, air pollution prevention, solid waste disposal and resource utilisation, noise and vibration control, soil remediation and environmental monitoring.
6 Decarbonisation and Financial Opportunities, Paul Chan, Financial Secretary of the Hong Kong Special Administrative Region Government, May 2021.
- Mainland China
- Hong Kong
- Hong Kong