china shifts toward market-oriented economy

By Valerie ANG, LAW Chung Ming, Gordon TAN, Carol ZHUOChina [email protected]

After 35 years of rapid economic growth fuelled by investment and manufacturing, China’s double-digit GDP growth has steadied to the level of 7% to 8%, with the 2013 GDP registering a growth rate of 7.7%. To pursue sustainable growth, China will structurally transit to consumption- and services-led growth. Since taking over top leadership in 2013, President Xi Jinping has put forth a “Chinese Dream”, an all-encompassing vision of a reinvigorated China that is urbanised and moderately well-off. Last November, the Third Plenum of the 18th Communist Party of China Central Committee announced a comprehensive reform blueprint that could bring China closer to achieving the “Chinese Dream” by year 2020. In light of the new reform policies, Singapore companies can look forward to more opportunities presented by China’s move towards a market-oriented economy and a people-centric urbanisation.

INTERNATIONAL ENTERPRISE SINGAPORE

China’s Third Plenum:

Decisive Shifts towards a Market-Oriented Economy and People-Centric Urbanisation

Vol. 15_Feb 2014

IE Insights

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03Summary

04Decisive Shift towards a Market-Oriented Economy • Markettoplay“decisive”role• Openinguptofaircompetition and improving SOE management• Liberalisationofsectors

12People-Centric Urbanisation • AcceleratingHukoureforms and improving land reforms • Easingoftheone-childpolicy• Emphasisonenvironmentalpolicies

19Conclusion

20Annex: Summary of the “Decision”

Contents

DisclaimerWhile every effort is made to ensure that the information in this document is accurate, the information is provided by IE Singapore to you without any representation or warranty. Any reliance on the information in this document is at your own risk. IE Singapore does not accept any liability for any errors, omissions or misleading information. IE Singapore and its employees shall not be held responsible for any consequence arising from your reliance on any information provided by us. You are advised to consult your own professional advisors.

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// Since the late 1970s, China’s manufacturing-led economy has been characterised by rapiddouble-digitGDPgrowth.However,inthewakeoftheglobalslowdown,Chinabecame more cognisant that relying on the model of manufacturing and export-led growth is not sustainable. There is a pressing need to ensure a structural shift from an investment-led to a consumption-based growth, and the government is committed to develop a more sustainable and steady economy, albeit with slower growth.

// The 18th Communist Party of China (CPC) Central Committee Third Plenary Session (Third Plenum) that was held last November provided new growth and reform directions for the Chinese economy. It produced a reform blueprint document titled, “The Decision of the CPC Central Committee on Major Issues Concerning Comprehensively Deepening Reform” (“Decision”1,《中共中央关于全面深化改革若干重大问题的决定》).

// Two strong themes emerged as the centrepiece of the “Decision”:(i) Market-Oriented Economy: To build a competitive and vibrant economy, the Third

Plenum sets forth a range of reform policies to tackle existing market restrictions (ranging from state dominance of the market, to industrial overcapacity, as well as financial restrictions) and accelerate the opening up of China’s economy. Reform policies aim to open the Chinese economy to more private and foreign participation, consequentially allowing the Chinese economy to be more efficient and integrated with the global economy. They also seek to enhance the ease of doing business and increase market participation.

(ii) People-Centric Urbanisation: The “Chinese Dream” ideated by President Xi Jinping envisions a country that places importance on “people-oriented” urbanisation (以人

为本的城镇化). Reform policies are directed to pursue better urban-rural integration, address issues of China’s ageing population and gender ratio imbalance, as well as place stronger emphasis on environmental protection. Urban-rural integration is expected to expand urban opportunities as well as mitigate rising challenges like income disparity.

// IE Singapore examines the potential impact of the wide-ranging Third Plenum reform blueprint. Through a survey of Singapore companies about the “Decision”, we found that they echoed our views that increased opportunities in areas such as urban solutions, healthcare and pre-school education services could arise with the Third Plenum reform decisions.

Summary

1 A summary of the “Decision” can be found in Annex.

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Decisive Shift towards a Market-Oriented Economy

Market to play “decisive” role

In a bid to secure new drivers of growth, China is liberalising its economy further and allowing market forces to come into play. One of the core tenets that came out of the “Decision” is to let the market play a “decisive role” in allocating resources. Alongside, the “Decision” proposes the adoption of market-pricing mechanisms, state-owned-enterprise (SOE) reforms, as well as liberalising the financial and services sectors. This shift towards a market-oriented economy is motivated by a need to improve the efficiency and competitiveness of the economy. Singapore companies will benefit from reduced corporate operation costs due to streamlined processes as well as from lower market barriers for private and foreign participation.

Market’s “basic role” will now be “decisive” (决定性作用). Government will play a service-oriented role and a market-based pricing mechanism will be established.

Source: 《授权发布：中共中央关于全面深化改革若干重大问题的决定》, Xinhua News Agency, 15 November 2013

What it meansAccording to the reform blueprint, a fundamental shift to a market pricing system would mean that any price that can be set by the market should be left to the market. Areas in which the Chinese government will continue to set prices will be confined to natural monopolies, such as public utilities and public services.

In this respect, the Chinese government aims to build a pro-business and pro-citizen regulatory environment, take on the role of macro supervisions and checks, making a shift from the current role of administrative approval. The government’s macro regulation, if executed well, is useful as it can reduce the vulnerability of the economy caused by cyclical fluctuations. The fundamental shift to having the market play a “decisive” role will unleash the potential of market players, making the economy more productive and competitive. It will also build a more efficient government to serve the people.

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Decisive Shift towards a

Market-Oriented Economy

Prospects With China’s push towards a market-oriented economy, there will be more scope for private sector development through price deregulation and fair competition in industries outside of the “negative list”2.

The “Decision”3 specifically listed price reforms of water, oil and natural gas, electricity, transportation as well as telecommunications. Private and foreign players, including Singapore companies, may soon be able to participate and compete for market share.

The reform policies will improve market efficiency and eventually sustain the competitive growth of the economy, which bodes well for foreign companies with strong interest in China. Increased efficiency, including simplified business registration procedures, will help make venturing into the Chinese market easier, as well as reduce corporate operation costs and create more business opportunities.

Figure 1: “Negative list” of Shanghai Pilot Free Trade Zone (SPFTZ)4

Published on 30 September 2013, the SPFTZ has adopted a “negative list” approach to foreign investment management. The first version of the “negative list” listed 18 main industry sectors and 1,069 sub-sector groups, of which 190 items were listed as restricted or prohibited. This approach deviated from the rest of China which follows regulations under the “Catalogue for Guidance of Foreign Investment Industries”. Foreign Invested Enterprises (FIEs) in the SPFTZ will be accorded national treatment at the pre-establishment phase for sectors which are not listed within the “negative list”.

For sectors not in the “negative list”, procedures for investment (including FIEs) have changed from a process of application for approval to a registration mechanism or filing process. Current procedures for incorporation of a FIE in China typically take more than 33 working days, provided all required documentation required by various bureaus are in order. Under the new regime within the SPFTZ, the filing of documentation is now handled through a single government channel at the SPFTZ’s Service Centre. Upon acceptance of the full documentation, business licenses will be approved in four working days.

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2 The “Decision” only mentioned that the “negative list” includes areas involving national and ecological security, strategicresourcedevelopmentandpublicinterest,butdidnotprovidemoredetails.However,togainsomeinsights to the list, we can refer to the “negative list” of the Shanghai Pilot Free Trade Zone (SPFTZ) in Figure 1.

3 The “Decision” refers to “The Decision of the CPC Central Committee on Major Issues Concerning Comprehensively Deepening Reform” (《中共中央关于全面深化改革若干重大问题的决》).

4 Please view following links for full “negative list” of SPFTZ: English - http://en.shftz.gov.cn/Negative%20List.pdf Chinese - www.shanghai.gov.cn/shanghai/node2314/node2319/node12344/u26ai37036.html

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The state sector will continue to play a “dominant” role in the economy. Some state assets will be diversified to public and private enterprises.


What it meansIncreased private participation could result in better SOE management through corporate governance and enhanced transparency. The Third Plenum also prescribed for SOEs to pay a higher dividend payout ratio of 30% to the public budget by 2020. The emphasis on market principle and fair competition conveys a strong message of developing market mechanisms, as well as cross shareholding between public and private enterprises. This should resolve overcapacity and remove resource allocation inefficiencies.

Shanghai was the first to release guidelines for SOE reforms. Its reform policies advocate that SOEs be state-owned but not state-directed, and the government should distance itself from the day-to-day management. Guangdong, Chongqing and Anhui are likely to see similar reform plans in 2014.

Prospects With the end goal of addressing overcapacity, the Chinese government will allow private and foreign investments to participate in SOEs so as to make them more competitive. This presents new opportunities for Singapore companies in businesses that had been exclusive to Chinese SOEs. Partnership with Chinese SOEs can potentially help Singapore companies tap into valuable networks and intelligence, generating more opportunities beyond our traditional focus in China. An example is the telecommunications industry. In December 2013, China’s Ministry of Industry and Information Technology issued licenses to the first batch of domestic mobile virtual network operators, enabling private firms to purchase mobile telecommunications services from three state-owned telecommunications carriers and resell the services to consumers under their own brands. More specifically, China is allowing foreign ownership in telecommunications services in the SPFTZ. This translates into new opportunities for Singapore companies in China’s virtual network operating market, which will be worth 20 billion yuan (S$4.07 billion) by 2015. Inevitably, there will be increased demand for new technology and innovation systems that can resolve the overcapacity issue, and hence we will have more opportunities to export our solutions.

Opening up to fair competition and improving SOE management

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Singapore companies are keen to ride on the wave of favourable conditions.

“ Third Plenum aims to bridge the gap between SOEs and Private-Owned Enterprises (POEs) by building a favourable and fair regulatory environment. This will lead to more overseas investments by private companies, especially those of small and medium-sized ones. We anticipate more IPOs and M&A activities, which would provide Boardroom with opportunities to offer our accounting, restructuring, share registry, corporate advisory and related administration support services. Also, with the ongoing efforts by the Chinese authority to overcome domestic industrial and investment overcapacities, we envisage that more Chinese SOEs may look to invest overseas and establish offshore businesses to manage their global transactions. Furthermore, the recent easing of rules on overseas investments – removal of administrative procedures to just straightforward registration procedures – makes it easier for businesses to ‘go out’. Boardroom is keen to capitalise on the trend of Chinese enterprises using Singapore as a gateway to enter Southeast Asia by providing corporate services and administrative support.”

Lee Yow Fee, Managing Director, Boardroom China Limited

“ With the Chinese government encouraging private participation in SOEs to diversify their investor base, this may include SOEs ‘going out’ to leverage on international capital markets including Singapore. This presents us with listing opportunities.”Christine Lie, Chief Representative, SGX Beijing Representative Office

OtherSingaporecompanies,suchasYCH,areconfidenttotakeabiggermarketshareasChina invites more foreign participation.

“ The reform blueprint specifically mentioned that investment restrictions in logistics will be eased. We see this lower entry barrier as advantageous for us to capture more business opportunities. We are confident that our broad-based competencies spanning the entire value chain as well as outstanding track record will continue to put us in a good position.”Roger Yap, General Manager, China,YCHGroup

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What it meansThe plan to ease capital and currency controls means that Singapore enterprises may utilise cross-border loans and invest in China with greater flexibility.

More recently, China’s National Development and Reform Commission (NDRC) is revising the regulation on outbound investments, with the aim to relax approval procedures for overseas investments. The amended regulation will remove the need for approval from central authorities for any outbound investments below US$1 billion5 (S$1.25 billion) if they do not involve sensitive countries, regions or industries. Singapore financial institutes can potentially benefit from increased capital market and M&A activities.

With the Chinese government calling for more innovative financial products, SGX sees opportunities in the long term.

“ This would include our listing offering such as our REITs and Catalist platform, bond listing, derivatives, commodities and financial futures. We also have a Direct Listing Framework with the China Securities Regulatory Commission that will facilitate the listing of China incorporated companies in Singapore. We will continue to work with relevant Chinese authorities and intermediaries to achieve the best outcome for both countries.”Christine Lie, Chief Representative, SGX Beijing Representative Office

Liberalisation of sectorsFinancial sector liberalisation

There will be easing of investment and foreign exchange as well as greater convertibility of capital account. There will be more flexible use of cross-border currency transactions to reduce foreign exchange costs and risks.


5 Currently, an outbound investment of more than US$100 million (S$125.1 million) in any non-resource project required the NDRC’s approval at the central government level. For resource projects, outbound investments over US$300 million (S$375.4 million) needed approval from the NDRC at the local government level.

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What it meansAlongside the emphasis on a consumption-driven economy, China will see its industries move from being manufacturing-led to services-led. To further develop the services sector, Third Plenum focuses on the liberalisation of China’s services sector, opening doors to foreign participation. The “negative list” approach to guide investments demonstrates a shift in regulatory philosophy, showing greater openness. China is syncing and integrating with the global economy.

Prospects Companies have their hopes and expectations for the Third Plenum and its reform policies.

“ We hope to see more reforms to reduce tax as well as innovation and reform in the financial sector that could reduce our financial costs and facilitate the approval and execution of our projects.”Goh Toh Sim, Chief Representative (China), Keppel Corporation

Many reforms, be it those involving the financial sector or the services sector, will be tested in the SPFTZ and other FTZs before rolling out to the rest of the nation. Risks of reforms will be contained and reforms will be more attainable.

With the establishment of a consolidated and open market, foreign companies will enjoy national treatment for market access, if investments are not in the “negative list”. The establishment of a unified and open market also makes investment policy more stable, transparent and predictable. This simplifies procedures and is beneficial to Singapore investors. The reform policies look to remove regional protection and monopolies, and companiescouldpotentiallycompeteonmorelevelterms.However,itisalsoimportantto note that competition from both local and foreign players will intensify as a result. Therefore, it is crucial for Singapore companies to differentiate ourselves with value-added services and product offerings that cater to increasingly sophisticated local partners and consumers.

Liberalisation of services sector in pilot zones

The services sector is expected to open up even further, especially in the newly-designated SPFTZ, which serves as a testing ground for new programmes that open up the country’s financial and service sectors. In line with the theme of greater market access, the finance, education, culture and healthcare sectors will gradually open up to private sector participation, while investment restrictions on nursery, elderly care, architecture design, accounting and auditing, trade and logistics, and e-commerce will be eased. More free trade zones (FTZs), like the SPFTZ, are also expected to be set up.


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Also, the “Decision” reiterates the support for the SPFTZ, which has set a good example for system innovation. Singapore banks such as DBS Bank have already ventured into the free trade zone, and more Singapore companies should explore going into the SPFTZ to benefit from the range of privileged policies. In addition to the SPFTZ, China hopes to continue building a network of high quality FTZs that reaches out to the world. So far, applications have come from places like Guangdong and Tianjin. The former is an integrated FTZcoveringHongKong,Macau,BaiyunAirportarea(Guangzhou)andthethreenewdevelopmentzonesofNansha(Guangzhou),Hengqin(Zhuhai)andQianhai(Shenzhen).

The reform blueprint mentions the liberalisation of many industries – finance, education, culture, healthcare, architecture design, accounting and auditing, trade and logistics, as well as e-commerce. There is the potential of increased opportunities in all these areas and Singapore companies can ride on our comparative advantages in urban solutions, healthcare and pre-school education services to capture a bigger scope of collaboration.

Ms Kwan Peck Leng, Managing Director of Crestar Education Group, believes the reform policies will make the market for education services more attractive, but has her reservations.

“ Size of opportunities will greatly depend on the extent of the liberalisation. Often, the actual compliance on the ground varies in different regions. We will observe further. Moreover, a freer market will also imply greater competition due to the entry of more foreign players.”Kwan Peck Leng, Managing Director, Crestar Education Group

Henceforth,entrystrategiesfortheeducationindustrycouldincludeaconsortiumofsmaller and niche companies that offer complementary programmes. An example is the education consortium in Shenyang that involves eight enrichment players who came together to leverage Singapore’s strong branding of high quality services. Moreover, by means of a cluster approach, companies are not only able to mitigate business risks but also increase the entry barriers for other competitors.



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In the healthcare industry, private investors will be allowed to set up new clinics, especially not-for-profit medical institutions, and to participate in the restructuring of public hospitals. This presents favourable conditions for our Singapore healthcare players to participate in the industry.

“Withtheproposedopeningupofthehealthcaresector,Q&Mis well-positioned to expand our presence in China, especially with our track record and experience in dental healthcare and management. With the Chinese becoming more exposed and expecting better quality healthcare, we see a rise in demand for a larger scope of services, and at the same time, higher quality care. We look forward to implementation details of the opening up, to see how it can dovetail with our expansion plans in the next few years.”Cheah Kim Fee, CEO,Q&MDentalHoldings(China)PteLtd

Singapore has a strong track record in the services sector. IE Singapore will continue to facilitate the entry of Singapore companies that provide financial, healthcare and education services into China and help them gain a stronger foothold in the market.



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People-Centric UrbanisationUrbanisation is a trend to observe closely as it is a key engine driving China’s economic growth. The goal of “people-centric” urbanisation (以人为本的城镇化) puts people first, seeks to lift standards of living for rural residents by focusing more on social safety nets and promotes sustainable development through a series of environmental policies. The rate of urbanisation is expected to be gradual with an increased focusonqualityandsustainability.Henceforth,implicationswill be more medium term. Nonetheless, there may still be quick-wins by plugging the gaps of short-term needs.

Accelerating Hukou6 reforms and improving land reforms

Further relaxation of the Hukou system in small- and medium-sized cities makes it easier for migrant workers to obtain urban resident status which increases their access to more job opportunities and better social benefits. Rural residents will be accorded land lease rights, which can be monetised with greater ease.


6 AHukouisarecordinthesystemofhouseholdregistrationrequiredbylawinChina.

What it meansWhile urbanisation continues to be an engine of economic growth, it will incorporate social elements going forward. “People-oriented urbanisation” emerged from the reform blueprint as a core concept. It puts the interests of people first, seeks to lift standards of living for rural residents by focusing on social safety nets and promotes sustainable development through a series of environmental policies.

The two-day urbanisation work conference in December 2013, attended by the seven Politburomembers,furtherelaboratesthatHukourestrictionswillbefullyremoved in towns and small cities to allow integration of migrant workers. Restrictions in medium-sized cities will be gradually eased while relaxation policies in big cities were notspecified.Incontrast,Hukouswillbestrictlycontrolledinmegacitiessuchas Beijing and Shanghai, to even out development across the country. There is an apparent focus on a “people-oriented urbanisation. In terms of geographical focus, three metropolitan areas will be developed in the next steps of China’s urbanisation.

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People-Centric Urbanisation

They are the Pearl River Delta with Guangzhou at its centre, the Yangtze River Delta with Shanghai at its centre, and the Bohai Economic Rim with Beijing and Tianjin at its centre. Moving forward, urbanisation will be market-led, according to the movement of the people rather than government officials’ attempts to direct it in the pursuit of GDP growth so as to avoid the emergence of uninhabited towns.

Ultimately, the “Decision” seeks a reasonable and orderly improvement of income distribution. China hopes to increase the income of low-wage earners and bridge the income gap between urban and rural areas. The same policies are aimed at reducing income differences between regions. Access to more job opportunities and better social benefits, as well as generating income from land lease rights, are various means to the end.

7 “Sustainable and Liveable Cities: Toward Ecological Civilisation”, United Nations Development Programme, June 2013

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Figure 2: Absolute and relative gaps of urban and rural residents’ per capita incomes in China. Income disparity between urban and rural residents is narrowing. China will continue to push policies in this direction7.

Yuan

0

5,000

10,000

15,000

25,000

30,000

20,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

3.4

3.3

3.2

3.1

3.0

2.9

2.8

2.7

2.6

2.5

Urban

Rural

Relative gap (right)

Source:China Development Foundation, 2012, “The Turning Period of China’s Income Distribution,” Beijing Development Press, Beijing, pp. 13-14. Updated according to “China Statistical Yearbook 2011,” and “Statistical Communiqué of the People’s Republic of China on the 2012 National Economic and Social Development.”

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Prospects Reforms are likely to be gradual in tandem with an increased focus on quality and sustainability.Hence,therearenewwindowsofopportunitiesinareassuchasintegratedurban solutions, real estate developments, as well as architectural and planning services arising from expanded land supplies. These opportunities are likely available only in the medium term.

TheHukoureformpolicieswillspurmigrantstoresettleintosmallerandmedium-sizedsecond and third tier cities. We encourage Singapore companies to take advantage of this momentum and expand their project efforts in these places.

Singapore companies are aware of the geographical shift in focus.

“ We will continue to position our presence in strategic locations where urbanisation and population growth are expected to take place.”Kwan Peck Leng, Managing Director, Crestar Education Group

Access to quality job opportunities and better social benefits, as well as easier monetisation of land lease rights, will boost income and consumption of rural and migrant population. This represents an increased pool of consumers, increasing demand and opportunities for Singapore companies in the lifestyle, food and retail sectors. With the rural residents having land lease rights, Singapore developers will have to engage additional stakeholders beyond just local governments in securing projects. In line with the government’s drive towards people-centric urbanisation, Singapore private developers should integrate Singapore’s holistic suite of community (such as education) and environmental services (such as waste management) as part of their project development. Township development projects should also place priority on enhancing skills and creating jobs for the local communities so as to facilitate better urban-rural integration. Project proposals with these features will likely be more palatable to the Chinese government going forward.

Mr Goh Toh Sim, Chief Representative (China) of Keppel Corporation sees opportunities for his company.

“ Land reforms can effectively increase the supply of land and housing. The urbanisation trend will provide opportunities for Keppel to explore more township developments. Our strength in infrastructure for waste-to-energy will continue to be a major area for us to explore both in terms of the emphasis in urbanisation and environmental protection.”Goh Toh Sim, Chief Representative (China), Keppel Corporation

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Increased demand for connectivity and solutions to congestion will lead to opportunities for smart transportation projects that our transport players can tap into.

ST Electronics’ President, Mr Lee Fook Sun, expects the continued push for urbanisation to bring opportunities for the company.

“ Leveraging our project experiences and employing the latest technologies, we have developed products and solutions that will help growing cities address the challenges of urbanisation and eco-sustainability. Also, the company remains relevant as China continues to build MRT lines, and seek smart solutions to address the traffic congestion problems in big cities.”Lee Fook Sun, President, ST Electronics


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Easing of the one-child policy

Couples are allowed to have two children if one parent is a single child. Source: 《授权发布：中共中央关于全面深化改革若干重大问题的决定》, Xinhua News Agency, 15 November 2013 What it means

China’s family planning policy is not ending but undergoing some “fine-tuning”. The aim of this “fine-tuning” is to tackle the problems of gender imbalance as well as an ageing population. It hopes to arrest the declining birth rate and better balance the demographics.

Meanwhile, the easing of the one-child policy will consider local conditions. The timetable for implementing the new policy is left to the local governments.


Figure 3: Gender imbalance in the Chinese population, with 51.9% males and 48.1% females in 2011.

Source:United Nations Development Programme

China’s gender gulf (hundred millions)

4

5

6

7

8

1980 1990 2000 2005 2006 2007 2008 2009 2011 2020

5.07

4.76

7.00

6.48

7.20

6.68

2011 Chinese population

51.9%male

48.1%female

3.8%gap

3.8%gap

3.2%gap

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Prospects The easing of the one-child policy would result in an estimated 15 to 20 million couples eligible for a second child. While rising costs of living is a possible impediment to having morethanonechild,arecentpollbytheNationalHealthandFamilyPlanningCommissionshowed that 50% to 60% of the eligible couples are willing to have a second child. This presents both short- and long-term opportunities for Singapore companies in all related areas.

As China strives to adapt to this change, Singapore companies can cater to its short-term needs in maternity wards, baby infrastructure and supplies. The change will boost demand in healthcare related services such as obstetrics and gynaecology, maternity medicines and treatment, medical testing facilities and baby care. There will be a bigger market for infant formula, toys and clothing. Foreign brands have a comparative advantage because of milk powder scandals as well as product quality scandals in China. China’s domestic baby formula industry was hit hard in 2008, when melamine was found to have been added to formula. Also, the recent announcement released by the China Food and Drug Administration sets stringent requirements in areas that include production equipment, safety, product tracking, and the purchase of raw materials. With the increased focus on product quality, Singapore food brands reputed for quality and safety, have a competitive edge over local brands.

In the medium term, more newborns will lead to a stronger demand for pre-school education and enrichment classes.

In the long term, the easing of one-child policy will help sustain China’s consumption-led growth. Businesses riding on China’s growth in domestic consumption can remain hopeful that this policy will rebalance and maintain China’s population growth.

Figure 4: Population who are over 65 years of age as a portion of the total population. Proportion is increasing and the Chinese population is ageing as seen from the increasing proportion.

Source:National Bureau of Statistics, “China Statistical Yearbook 2012”

Total population

Population over 65

Proportion (right)

Billion

0

0.5

1

1.5

2

1982

10

8

6

4

2

0

%

1990 1995 2000 2005 2006 2007 2008 2009 2010 2011

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A market mechanism to encourage environmental protection will be built. The pricing of natural resources will reflect market supply and demand, rarity of resources, and costs of environmental damage. China’s environment authority will also tighten monitoring of all pollutants and set up an environmental protection and pollution control system that integrates both land and water areas and coordinates efforts of multiple regions.


What it meansUrbanisation and development have to be sustainable and environmental policies are crucial. While driving economic growth, China’s pollution has worsened as a result of aggressive industrialisation. In view of these problems, the “Decision” puts preserving the ecological system as one of the focal areas of the “Decision”, establishing systems to drive environmental sustainability, resource efficiency and pollution mitigation.

Prospects The emphasis on environmental protection may see subsidies being extended to lower tiered cities for sustainable water and waste management projects. Singapore companies can tap the momentum of long-term sustainability and quality as well as favourable conditions to explore innovative Public-Private-Partnership models with local governments. This includes joint ventures, strategic partnerships and Design-Build-Finance-Operate approach to deliver the best valued services to the public through market mechanisms.

Ecological targets will be included in officials’ appraisal and there will be increased focus on environmental preservation. This will boost demand for energy-efficient equipment and buildings. Singapore companies offering energy-efficient or eco-friendly products and services can potentially benefit from such demands.

Emphasis on environmental policies

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ConclusionThe lack of full implementation details with respect to the timeline and sequencing of reforms makes it difficult to gauge the likelihood of reform success at this juncture. While we are hopeful about the possibilities the reform maybring,wecannotbedefinitiveatthispoint.However,momentum is picking up for a comprehensive range of economic reforms. We will be able to deduce more concrete implications when more details are announced at the “Two Sessions”8 (两会) in March 2014.

The Chinese leadership demonstrates strong commitment to push forward the reforms with the commissioning of the “Leading Group for Comprehensive and Deepening Reforms” (Leading Group, 深化改革领导小组). The Leading Group is led by President Xi Jinping, with Premier Li Keqiang, Vice Premier Zhang Gaoli and First Secretary of the Central Secretariat of the CPC Liu Yunshan as deputy group leaders. It will steer the overall design of reforms as well as unified planning and coordination, pushing reforms as a whole.

As China works to direct its economy onto a sustainable consumption-led trajectory, its challenge is to balance growth and the pace of reforms.

Most importantly, Third Plenum’s momentum for change is likely to support China’s stable and sustainable economic growth. This is beneficial for Singapore given that Singapore is China’s largest investor country9 and China is our largest trading partner10.

8 The “Two Sessions” refers to the National People’s Congress and the Chinese People’s Political Consultative Conference.9 Ministry of Commerce of the People’s Republic of China, January 201410 International Enterprise Singapore, February 2014

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Reform Areas

Guiding thoughts for reform

Basic economic system

Modern market system

Government functions

Fiscal and taxation system

Urban-rural integration

1

2

3

4

5

6

Reform Plans

1 – 4

4 – 8

9 – 13

14 – 16

17 – 19

20 – 23

General Proposals

• Reaffirms“socialismwithChinesecharacteristics” and ideological continuity with past leaders

• PresidentXi’s“ChineseDream”asavisionofareinvigorated China that is urbanised and moderately well-off

• Reformsarecomprehensive,encompassing (i) economy, (ii) politics, (iii) culture, (iv) society, and (v) environment

• Developa“diversifiedownership”economybyreducing and marketising public sector, as well as encouraging non-public sector participation through lower market entry barriers into SOEs

• Reduceredtapeforenterprises• Pricereforms• Landreforms• Liberalisationoffinancialsystemandcapitalaccount

• ImprovecoordinationofChina’sfiscal,monetary, and industrial policy to avoid wasteful investment

• Guardagainstcyclicalvolatility• Empoweringlowergovernmentlevels• Minimisegovernment’sinterferenceofbusinesses,

especially on unnecessary administrative approvals

• Morebudgettransparency• Clarifywhichtypesofspendingarecentralandwhich

are local• Providetaxincentivestoensureanequitabletaxburden

• Keepcollectivelandownershipsystembutprovidefarmers with broader rights of land use beyond farming including land lease rights

• Promoteequalisationofurbanandruralbasicpublicservices

The domain and magnitude of reform is unprecedented as compared to the past third plenary sessions (third plenums). It spans six focal areas, covers 15 reform areas and pans out 60 reform plans. It adopts the “five-in-one” (五位一体) guideline, and emphasises the need to jointly reform the structure in five areas: (i) economy, (ii) politics, (iii) culture, (iv) society and (v) environment.

11 Modified from “Third Plenum Economic Reform Proposals: A Scorecard”, US-China Economic and Security Review Commission, 19 November 2013

Annex: Summary of the “Decision”11

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Reform Areas

Further opening up

Political system

Rule of law

Restraining the use of power

Cultural system

Social services

Social management

Environmental regulation

Defense and military

Party leadership over reform

7

8

9

10

11

12

13

14

15

16

Reform Plans

24 – 26

27 – 29

30 – 34

35 – 37

38 – 41

42 – 46

47 – 50

51 – 54

55 – 57

58 – 60

General Proposals

• Relaxinvestmentaccessforforeignenterprises, with Shanghai Free Trade Zone as pilot

• Speedupbuildingoffreetradezones• Expandopeningupofinlandregionsthroughtrade,

investment and shipping routes

• ModernisetheroleofNationalPeople’sCongress as a supervisory body for examining and supervising fiscal budgets and state-owned assets

• Encouragemoreinteractionwithgrassrootorganisations, for instance, through forums and formal soliciting of opinions from civil organisations

• Morelegaladvisoryservicestoinformpeopleoftheirbasic rights

• Settingupofjudicialcourts• Tougherenforcementforfood,drug,andproductsafety,

environmental protection, labour and social security • Prohibitabuseofcorporalpunishment

• Combatcorruptionbyreportingcasesofhigher-leveldiscipline inspection commissions and stationing the Central Discipline Inspection Commission at all central organs

• Buildupmodernpublicculturalservicesystemforinstance, cultural service centres and non-public cultural enterprises

• Reformtheeducationsystemtonarrowopportunitygaps, for instance, through vocational schools and more diverse tests of aptitude

• Supportbusinessstartups,especiallyforcollegegraduates• Easingoftheone-childpolicy• Reformmedicalandhealthstructure• Moreequitablesocialsecuritysystem• Bettermechanismtodetermineincomedistribution

• Encouragemoresocialorganisations,forinstancevolunteering services

• Improvepublicsafety,especiallyproductsafety• CommissioningoftheNationalSecurityCommittee

• Strengthennaturalresourcepropertyrightsystems• WeakenGDP’sweightageforassessmentsofthe

local governments• Developenvironmentalprotectionmarkets

• Increaseintegrationamongmilitaryunits• Promotemilitary-civilianintegration,especiallywith

regard to allowing private enterprises to participate in research and innovation

• Establish“LeadingGroupforComprehensiveandDeepening Reforms”

• GetcadresinPartyinlinewiththenewreformagenda

Annex: Summary of

the “Decision”

22

International Enterprise SingaporeInternational Enterprise (IE) Singapore is the government agency driving Singapore’s external economy. We spearhead the overseas growth of Singapore-based companies and promote international trade. Our vision is a thriving business hub in Singapore with Globally Competitive Companies (GCCs) and leading international traders.

Trade has always been the backbone of Singapore’s economy. In addition to promoting export of goods and services, IE Singapore also attracts global commodities traders to establish their global or Asian home base in Singapore. Today, Singapore is a thriving trading hub with a complete ecosystem for the energy, agri-commodities and metals & minerals trading clusters.

GCCs are a critical growth engine for the next phase of Singapore’s development. GCCs compete on the global stage against the very best in their industries. They contribute to Singapore’s economic resilience, develop Singaporeans into global business leaders and strengthen the Singapore brand. Through our Global Company Partnership, we work with Singapore-based companies in their various stages of growth towards being globally competitive. We customise total solutions in capability building, market access and financing for these companies as they internationalise.

Our global network of overseas centres in over 35 locations provides the necessary connections in many developed and emerging markets. In China, we are present in nine locations namelyBeijing,Chengdu,Chongqing,Dalian,Guangzhou,Qingdao,Shanghai, Wuhan and Xi’an.

Visit www.iesingapore.com for more information.

23

Our Past Issues// Vol.1_Jul 2012 China’s Twin Paradigm Shifts - Beacons in a Sea of Change// Vol.2_Jul 2012 Myanmar: Opportunities in Asia’s Last Frontier Economy// Vol.3_Sep 2012 Thailand: Resilience and Economic Revival// Vol.4_Oct 2012 A Win-Wind Situation: Opportunities in the European Offshore Wind Industry// Vol.5_Nov 2012 Indonesia: Partnering the Private Sector for Growth// Vol.6_Jan 2013 Malaysia: State of Transformation// Vol.7_Mar 2013 Forging Ahead in China: A Survey of Singapore Companies// Vol.8_Apr 2013 Japan: Opportunities Amid Change and Recovery// Vol.9_Jun 2013 Central China: A Growth Story// Vol.10_Sep 2013 Driving Singapore’s External Economy Beyond 30 Years// Vol.11_Sep 2013 Vietnam: Prospects Amidst Challenges// Vol.12_Oct 2013 Brazil: Beyond the World Cup and Olympics // Vol.13_Nov 2013 Indonesia’s Consumer Sector: Tapping the Consumer Dollar in Food and Retail// Vol.14_Jan 2014 Myanmar: Navigating the Risks and Opportunities

BeijingInternational Enterprise Singaporec/o Embassy of the Republic of Singapore - China (Beijing)Unit 3101 Level 31China World Tower 1 No. 1 Jian Guo Men Wai AvenueBeijing 100004People’s Republic of ChinaT +86 10 6505 9393F +86 10 6505 5340

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