China’s 14th Five-Year Plan: Transportation, Logistics and Regional Development

Transportation and logistics facilities are infrastructure that is important for the smooth operation of the domestic economy and the development of domestic and foreign trade. They connect the different links of a nation’s supply chains. If different parts of a country can develop evenly and are linked by well-developed transportation and logistics facilities, the domestic market will grow. China has made significant progress in promoting balanced transportation, logistics and regional development in the past few years. For example, China’s railway operation mileage has increased from 121,000 km in 2015 to 139,900 km in 2019, with the mileage of high-speed railways increasing from 19,800 km to 35,400 km in the same period. ¹The number of provinces, municipalities and autonomous regions with per capita GDP reaching RMB50,000 also increased from 11 in 2015 to 26 in 2020.²​​​​​​​

This shows that, in addition to putting emphasis on the smooth movement of people between provinces, municipalities and autonomous regions in the next five years, the Chinese government is also highlighting improving the smoothness of people flow in individual large cities and city clusters.

Compared with the transportation policies on people flow, the logistics policies in the 14th FYP appear much more diversified. Under the “dual circulation” development paradigm, the Chinese government is stressing the need for seamless integration between different categories of domestic logistics networks. The following are some of the tasks mentioned:

Premier Li Keqiang pointed out at the State Council executive meeting he chaired on 24 March 2020 that the pandemic has led to a massive drop in cargo belly hold capacity of passenger aircraft and exposed the areas of weakness of China’s international air freight capacity. After the rolling out of various measures during the 14th FYP period, it’s expected that China’s logistics networks will become more mature and complete, and problems such as the supply of rural cold-chain facilities and the inadequacy of international air freight capacity of Chinese enterprises will see improvements.

Continuously Advance New Urbanisation

China’s urbanisation has made steady progress during the 13th FYP period. The urbanisation rate of the resident population increased from 56.10% in 2015⁵ to 63.89% in 2020⁶, with over 100 million non-household registered residents settling in cities⁷. For many people, moving into large cities⁸ is a path to a better career development and better life. According to the Communiqué of the Seventh National Population Census released in May 2021, Guangdong and Zhejiang were the provinces with the largest population growth in the last decade, with Guangdong’s population increasing by 21.71 million and Zhejiang’s by 10.14 million during the 2010-2020 period. In Guangdong, the population of Shenzhen rose by 7.14 million and that of Guangzhou by 5.98 million. ⁹In Zhejiang, Hangzhou’s population increased by 3.24 million. ¹⁰This shows that many people have moved from different parts of the country to live in large cities in the coastal provinces in the past few years.

China will continue the new urbanisation strategy of the 13th FYP during the 14th FYP period. The 14th FYP envisages China’s urbanisation rate reaching 65% of the resident population by 2025. To this end, the government will continue to improve its household registration (or hukou) system. The 14th FYP states: The government will “lift or ease settlement restrictions in cities other than individual super metropolises and trial implement the household registration system based on habitual residence. Settlement restrictions will be completely lifted for cities with a resident population of less than 3 million people and steps will be taken to ensure the same urban settlement standards for both outside and local agricultural transfer population. Settlement requirements will be completely eased for Category I large cities with a resident population of between 3 million and 5 million people. Improvements will be made to the point-based settlement policy for super metropolises and megacities with a population of over 5 million people. Point items will be streamlined and efforts will be made to ensure that social insurance payment and residence duration points constitute a significant proportion. The elimination of annual settlement quotas will be encouraged”. (8.27.1)

This suggests that the government will adopt a tiered approach in handling household settlement in different cities over the next five years. Settlement restrictions will be completely eased for cities with a resident population of less than 5 million. The household registration system will be streamlined for super metropolises and megacities with a population of over 5 million, with the duration of residence and payment of social insurance premiums remaining the primary requirements for settlement.

Chinese cities have developed into city clusters after another through years of urbanisation. This policy will contribute to a more even distribution of population and balance the resource limitations and economic development needs of large cities. This policy can also speed up the development of city clusters and metropolitan circles around large cities to form regions with complete economic functions and a reasonable distribution of industries, and boost the sustained and steady development of different regions. From the perspective of trade and commerce, the establishment of more mature city clusters and metropolitan circles means that more cities will become part of their regional business and consumption centres. Economic circulation in the city clusters and metropolitan circles will no longer centre around the core zones of large cities.

Fully Leveraging the Advantages of Different Cities

In addition to making improvements to the household registration system, the 14th FYP also stresses the need to fully leverage the advantages of different cities in industrial development. Specifically, future super metropolises and megacities will “play a stronger role in allocating global resources, tapping into the sources of innovation and leading the development of high-end industries” in order to “take the lead in forming an industrial structure with modern service industry playing a dominant role with the support of advanced manufacturing”. (8.28.3) To achieve this goal, these super metropolises and megacities will “systematically relieve their functions and facilities as central urban areas in terms of general manufacturing, regional logistics base and specialised market, as well as over-concentrated public services such as healthcare and higher education, and reasonably reduce their development intensity and population density”. (8.28.3)

Neighbouring large and medium-sized cities will “fully take advantage of their relatively lower overall cost to undertake industrial transfers and relieved functions from super metropolises and megacities”. “Relying on their special resources and industrial foundation, they will adopt a different positioning for their manufacturing industry, promote the clustering development of manufacturing based on economy of scale, and build advanced manufacturing bases, commercial logistics bases and regional specialised service centres according to local conditions”. They will also “increase the supply of cultural and sports resources and create more modern and trendy consumption scenarios to improve the quality of urban life”. (8.24.4) Overall, the development direction of large cities and city clusters is to “focus on central cities, city clusters and other advantageous areas of economic development, enhance their economic and population carrying capacity, and bring about the overall improvement of national economic efficiency”. (9.30.2) This suggests that in future, super metropolises and megacities will give priority to the development of hi-tech and modern services industries with their neighbouring large and medium-sized cities playing a supporting role and modern comprehensive transport systems closely linking different cities.

These policies create challenges as well as opportunities for businesses. In terms of challenges, enterprises operating in the super metropolises and megacities (especially in the central urban areas) may need to quicken their pace of upgrading and transformation, and the share of the total accounted for by modern services industry and advanced manufacturing will need to increase. At the same time, some existing facilities (such as warehouses) may gradually move away from these super metropolises and megacities. This means enterprises may face short-term rising rentals for logistics facilities due to a shortage of supply.

In terms of opportunities, since economic development in super metropolises and megacities is led by high-end industries, there is likely to be an increase in hi-tech talent with greater spending power settling in these cities, bringing with them a more promising consumer market. For the neighbouring large and medium-sized cities, undertaking industrial transfer from super metropolises and megacities will spur economic growth and stimulate demand, as well as providing more business support in areas such as storage and professional services. Enterprises will find it more convenient to expand their business to large and medium-sized cities.

Promoting Balanced Regional Development

As mentioned above, China has made significant progress in promoting balanced regional development in recent years. However, there still remain disparities in social development between well-developed regions and the rest. Take the per capita disposable income of Chinese residents grouped by regions for example (see table below). Although nominal annual growth in per capita disposal income between 2015 and 2019 is slightly faster in the central and western regions than in the eastern region, per capita disposal income in the eastern region in 2019 was still more than 40% higher than in other regions. The central government attaches great importance to co-ordinating the pace of development between different regions. In the guideline (Chinese only) jointly released by the CPC Central Committee and the State Council in November 2018 on establishing a mechanism to promote more effective co-ordinated regional development, the central government called for the establishment of a regional strategic co-ordination mechanism, improvements in the market integration development mechanism and a deepening of the regional co-operation mechanism.

The following are some of the other policies enumerated in the 14th FYP for promoting balanced regional development:

Balanced regional development benefits China’s long-term development in many ways. Besides easing the resource burden on the well-developed regions, thereby leaving more room for the development of modern services industry and advanced manufacturing, industrial transfer can also boost industrial development in other regions, increase the revenue channels and income of the local people, and promote the development of domestic circulation. Growing trade relations with neighbouring ASEAN and central Asian countries have also expedited the development of inland and border regions and turned these regions into regional trade hubs. This will in turn deepen China’s trade exchanges with neighbouring countries and strengthen China’s international circulation.

The promotion of balanced regional development will give businesses more development options. In the past, some manufacturers thought that inland regions lacked logistics and other supply chain support and therefore resisted relocating their manufacturing base there from the coastal provinces. Now the government has made clear its intention to strengthen the ability of the central, western and north-eastern regions to undertake industrial transfer, the supply chains of these regions should gradually mature. Provided that they can comply with the government’s environmental and labour policies, businesses may consider relocating more production capacity to the central, western and north-eastern regions in order to take advantage of the development bonus these regions provide in terms of lower labour cost. For traders, retailers and service providers, the development of the inland and border regions into regional trade hubs will mean greater development prospects in these regions.

Greater Bay Area and Integrated Regional Development of the Yangtze River Delta

As well as elaborating on the macroscopic plans for the country’s transportation, logistics and regional development, the 14th FYP also describes the latest developments of major national development strategies, such as the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) and the integrated regional development of the Yangtze River Delta (YRD). On the development of transportation and logistics in the GBA, the 14th FYP says: Steps will be taken to “expedite the construction of inter-city railways, co-ordinate planning for the positioning of ports and airports, and optimise the allocation of maritime and aviation resources”, and “deepen the customs clearance reforms to facilitate the effective and convenient flow of people, goods and vehicles (between Hong Kong and Macao and the mainland). (9.31.3) On the development of transportation and logistics in the YRD, the 14th FYP states that steps will be taken to “accelerate infrastructure connectivity, build a high-speed rail network that covers all cities at or above the prefecture level in the YRD, and promote the integrated governance of port clusters. (9.31.4)

Actually, many of the policies mentioned above had already been put in place before the release of the 14th FYP. For example, the outline of the plan for the integrated regional development of the Yangtze River Delta (Chinese only), released by the central government in December 2019, proposed that by 2025, Shanghai, Jiangsu, Zhejiang and Anhui¹¹would have a railway network density reaching 507 km per 10,000 sq km and a total highway density of 5 km per 100 sq km (the four have a total area of 358,000 sq km). In July 2020, the National Development and Reform Commission gave the green light to the gradual launch of inter-city rail projects in the GBA. The approval document (Chinese only) stated that by 2025, the railway network in the GBA will have 4,700 km in operation and under construction, covering the area’s core cities, node cities and major metropolitan circles such as Guangzhou and Shenzhen. By 2035, the railway network in operation and under construction in the GBA will reach 5,700 km, covering all cities above county level. Comparing the 14th FYP with some of the policies in previous years, we can see that the 14th FYP pays more attention to policy continuity, hinting that the relevant policies should be implemented as soon as possible.

The GBA and YRD are already China’s leading regions in terms of infrastructure construction. Under the policies outlined in the 14th FYP, they can expect even faster growth in the construction of transportation and logistics facilities. Many Hong Kong companies have a considerable amount of business in the GBA and YRD. The upgrading of transport infrastructure in these places should further reduce the time cost of people and cargo flow. This is very favourable for companies intending to strengthen their presence in the GBA and YRD.

Conclusions: Implications for Hong Kong Companies

According to a survey published by the Hong Kong Federation of Industries in July 2021, most Hong Kong manufacturing enterprises are located in Guangdong province and the YRD region. ¹²There is no doubt that these two places rank among the best developed regions of China. Hong Kong manufacturers should understand that these well-developed regions now shoulder the task of leading the country’s overall high-level development. They need to make proper use of their resources to steer their economies towards high-quality and high value-added development. Hong Kong manufacturers operating in these regions should therefore consider upgrading their production lines and raising the technological level of their products to become part of the advanced productive forces in these parts of the country. This will allow them to fully tap the advantages of the improved logistics facilities and modern supporting services there. They should also be aware of the latest developments in other regions and study the feasibility of relocating their production bases there. More importantly, Hong Kong manufacturers should actively consider developing or expanding their mainland business in order to take advantage of the opportunities generated by transportation, logistics and regional development in boosting domestic circulation.

Service enterprises should continue to explore business opportunities outside the big cities. According to the Directory of Hong Kong Service Enterprises in Guangdong, Fujian and Guangxi released in April 2021, Guangzhou (423 enterprises) and Shenzhen (282 enterprises) are the cities Hong Kong businesses prefer to use for doing business on the mainland. However, many enterprises choose to operate in other GBA cities, such as Dongguan (149), Foshan (63) and Huizhou (59). This suggests that Hong Kong service enterprises are also aware of the business opportunities within the GBA in cities other than Guangzhou and Shenzhen. With the government’s making strenuous efforts to boost industrial transfer and functional relief in super metropolises and megacities across the country and promote balanced regional development, and the potential development of inland regions into regional trade hubs, cities and regions other than large cities are expected to deepen the development of their services industry and become more important components in the dual circulation development paradigm. Service enterprises should continue to explore opportunities in these cities and regions.

¹ Source: China Statistical Yearbook 2016 and China Statistical Yearbook 2020.

² Source: National Bureau of Statistics.

³ For an overall analysis of the 14th Five-Year Plan, please refer to China’s 14th Five-Year Plan: Key Policies.

⁴ As of May 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.

⁵ Source: China Statistical Yearbook 2016.

⁶ Source: Communiqué of the Seventh National Population Census, National Bureau of Statistics, May 2021.

⁷ Source: Press briefing of the National Development and Reform Commission in April 2021.

⁸ The Chinese government classifies big cities as follows: According to the State Council notice on the adjustment of city classification standards issued in 2014 (Guo Fa No. 51 [2014]), cities with an urban resident population of more than 3 million people and less than 5 million people are classified as Category I large cities, cities with a population of more than 1 million and less than 3 million are classified as Category II large cities; cities with an urban resident population of more than 5 million and less than 10 million are classified as megacities; and cities with an urban resident population of over 10 million are classified as super metropolises.

⁹ Source: Communiqué of the Seventh National Population Census of Guangdong Province (No.2), Guangdong Provincial Bureau of Statistics, May 2021.

¹⁰ Source: Communiqué on the Major Data of the Seventh Population Census of Zhejiang Province, Zhejiang Provincial Bureau of Statistics, May 2021.

¹¹ According to the outline of the plan for the integrated regional development of the Yangtze River Delta, the plan covers the whole of Shanghai, Jiangsu, Zhejiang and Anhui.

¹² Source: Made by Hong Kong – The Way Forward for Hong Kong Industries, the Hong Kong Federation of Industries, July 2021.