“dual circulation” development pattern

The 14th Five-Year Plan, Domestic and International “Dual Circulation” Development Pattern and Implications for Hong Kong Edward AuSouthern Region Managing Partner, Deloitte ChinaJuly 21, 2021

2© 2021. For information, contact Deloitte China.

Edward AuManaging Partner, Southern Region, Deloitte ChinaPhone: +852 2852 1266/ +852 9866 9539Email: [email protected]: 35/F, One Pacific Place, 88 Queensway, Admiralty

Edward Au is Deloitte China Southern Region Managing Partner. He is responsible for Deloitte China's offices in Guangdong-Hong Kong-Macao Greater Bay Area, which encompasses Hong Kong, Changsha, Guangzhou, Hainan, Macao, Shenzhen and Xiamen, with a focus on the development of the practice in the Greater Bay Area. He is committed to driving service and practice transformation, fostering talent development and advancing the Firm’s presence across the region.

He was a co-leader of the Firm’s National Public Offering Group and has been involved in various debt and equity offering activities in Hong Kong, the US, and Singapore. He is one of the firm’s spokespeople on IPOs and a frequent speaker at externalseminars.

Edward has been a partner of Deloitte China since 2003 with extensive experience in auditing multinational corporations, public companies and enterprises in Hong Kong, Singapore, the US, and the Chinese Mainland.

Edward also contributes to organizations and communities in Hong Kong and through his service to professional bodies, including the Hong Kong Institute of Certified Public Accountants (HKICPA), Hong Kong Red Cross and the Construction Industry Council of Hong Kong.

Public Appointments• Chairman of the HKICPA’s Corporate Finance Advisory Panel• Member of Registration and Practising Committee of the HKICPA• Member of Policy Research Committee of Financial Services

Development Council• Member of Audit and Risk Committee of Hong Kong Red Cross • Member of Programme Advisory Board of Bachelor of Business

Administration (Honours) in Accounting and Finance of The Hong Kong Polytechnic University

• Member of Advisory Committee of Division of Business and Management at Beijing Normal University-Hong Kong Baptist University United International College

Professional Qualifications• Certified public accountant in HK and the

State of Washington (US)• Certified Practising Accountant of CPA

Australia• Fellow member of the HKICPA • Fellow member of Association of

Chartered Certified Accountants (ACCA)• Member of American Institute of Certified

Public Accountants (AICPA)• Chartered Global Management Accountant

(CGMA)

mailto:[email protected]


The 14th Five-Year Plan


Hard to Achieve

Obviously Improved

Met Expectations

• Projects: More than 98% of 165 major projects met expectations.

• Coordinated Development: In 2019, the

urbanization rates of permanent residents and

registered population reached 60.6% and 44.38%. The goal of 100 million agricultural transfer population and other permanent residents settled down in cities and towns is achieved.

• Green Development: Major planning targets for energy conservation, emissions reduction, and

environmental protection were in line with expectations.

• Poverty Alleviation: Complete victory achieved

in poverty alleviation and 55.75 million rural poor population is lifted out of poverty .

• Social Security: The world’s largest social security system was built and the coverage ofbasic pension insurance in 2020 reached 91%.

• Doing Business: China ranked 31st in 2019 globally (46th in 2018).

• Scientific and Technological Innovation:

Contribution of scientific and technological

progress to GDP reached 59.5% in 2019 (55.2% in 2015).

• Open Development: The Belt and Road Initiative is progressing smoothly. The management model for national pre-establishment treatment and a

negative list has been implemented. There are now 21 Pilot Free Trade Zones.

• Supply-side Structural Reform: In 2019, the

added value of the new economy accounted for 16.3% of GDP.

• Economic Growth: It has been difficult for China’s GDP to grow

by the desired amount of 6.5%, while the GDP in 2020 was 2.3% (affected by the pandemic).

• Reform in Some Areas: SOE reform and financial reform have not advanced as expected.

• Scientific and Technological Innovation: Proportion of R&D investment in GDP in 2019 was 2.23% compared to a target of 2.5%

• Regional Coordination: The north-south divide remains. Factor flow between urban and rural areas has not been smooth. China’s Gini Coefficient has edged up from 0.462 to 0.465.

• Manufacturing Sector Upgrading: Equipment manufacturing and high-tech manufacturing remain relatively small

• Ecological Environment: Carbon emissions reduction still has a

long way to go.

Overall Completion of 13th Five-Year Plan

The 14th Five-Year Plan is a Continuation of the 13th Five-Year Plan

Source: Research Report of the NPC Financial and Economic Affairs Committee on Implementing Interim Review of the Outline of the 13th Five-Year Plan for National Economic and Social Development of the People's Republic of China, Doing Business 2020, National Bureau of Statistics


• Composite national strength, economic aggregate, and per capita personal income will rise substantially, key core technologies will make major breakthroughs

• A new type of industrialization, IT applications, urbanization, and agricultural modernization will be achieved, creating a modern economic system

Primary driver of development

• Per capita GDP will reach the level of moderately developed countries

• Implementation of the Peaceful China initiative will advance, modernizing national defense and the armed forces

• Develop green ways of working and living, fundamentally improving the ecological environment; carbon emissions will decline steadily after reaching a peak; construction of a beautiful country will be achieved

• Form a new pattern of opening up, and gain substantial new advantages through participating in international economic cooperation and competition

• More tangible and solid progress will be made towards common prosperity for everyone

• Become a strong country in culture, education, human resources, sports, and health, taking national quality and social civilization to new heights

An inherent requirement for sustainable, healthy

development, addressing uneven development

A necessary condition for sustainable development, addressing the harmony issue of human and nature

The only way for the country to prosper and

develop through internal and external integration

The essential requirement of socialism with Chinese characteristics, focusing

on social fairness and justice

New Development Concept

Innovation

Coordination

Green

Openness

Inclusion

Long-Range Objectives Through the Year 2035 Reveal New Development Concept


People's wellbeing will reach a new level

• Pursue innovation-driven development and shape new development advantages• Accelerate the building of a modern industrial system and upgrade the economic system• Form a strong domestic market and build new pattern of development

Six New Objectives

New steps will be taken in reform and opening up

Social civilization will be further improved

New progress will be made in ecological civilization

New progress will be made in economic development

New advances will be made in national governance efficiency

• Comprehensively deepen reform, and build high-level socialist market economy• Higher-quality opening-up to create new prospects for mutually beneficial cooperation

• Promote development of cultural undertakings and industries, and enhance China's soft power• Build a sound public cultural service system and cultural industry system

• Promote green development and harmonious coexistence between humans and nature

• Prioritize development of agriculture and rural areas, and pursue rural vitalization• Improve layout of China's land and promote coordinated regional development and new urbanization• Improve quality of people's lives and raise level of social development

• Coordinate development and security, and advance implementation of Peaceful China initiative • Speed up modernization of national defense and the military

Six New Objectives: Guided by the Long-Range Objectives


“Dual Circulation” Development Pattern


“Dual Circulation” Development

International economic cycle

Domestic economic cycle

Supply Demand

Take domestic economic cycle as mainstay and attract global commodities and factors

Deepen supply-side structural

reform

Expand domestic demand

Strategic Arrangements for Establishment of “Dual Circulation” Development

Promote innovation-driven Development• Increase support for basic research and application-oriented research• Break through core technologies, develop supply chains advantages, and strengthen weak links• Deepen international exchange and cooperation

Upgrade industrial structure• Build a nation with strong manufacturing power, leading quality and cyber and digital capability• Transform traditional industries and develop strategic emerging industries and modern service

industries

Deepen reform and improve business environment• Enable the financial sector to better serve real economy and improve modern circulation system• A high standard of marketization, rule of law, and an international business environment

Strengthen fundamental role of consumption in economic development• Promote traditional consumption• Foster new consumption• Develop service consumption

Optimize income distribution• Expand employment and raise incomes• Promote coordinated development across regions and improve quality of new urbanization

International economic

cycle

Embrace higher-quality opening-up• Further relax market access controls• Deeply integrate into global economy

Expand domestic demand

Carry out supply-side

structural reform

Review of “Dual Circulation” Development Pattern


-5.0

-2.5

0.0

2.5

5.0

2018-03 2018-06 2018-09 2018-12 2019-03 2019-06 2019-09 2019-12 2020-03 2020-06 2020-09

Three demands as a driver for GDP growth

最终消费支出资本形成总额货物和服务净出口

• The Proposal defines the development direction of domestic consumptionNew model – Enhance traditional consumption, foster new consumption, and integrate online and offline consumptionMain areas – Automobile and housing consumption, service consumptionKey principles – Focus on quality brands building, promote green, healthy, and safe consumption

Final Consumption as a Booster for GDP to be Improved

（%）

Personal Income Growth Should be in Step with Economic Growth

4

6

8

10

2011 2012 2013 2014 2015 2016 2017 2018 2019

Disposable income growth lags behind GDP growth

城镇居民人均可支配收入增长率 GDP增长率

（%）

• The expansion of consumption depends on growth in disposable incomes. The Proposal makes it clear that personal incomes will be expanded through:– Expanding the middle-income group– Better income distribution– Increasing property income through multiple channels– Improving the mechanism of redistribution– Giving priority to employmentSource: NBSPRC, Wind, Deloitte Research

Domestic Market as Mainstay, Expanding Domestic Demand as Strategic Focus of China’s New Development Pattern

Final consumption expenditure

Gross capital formation

Net exports of goods and services

Per capita disposable income growth of urban residents

GDP growth


0

10000

20000

6

11

16

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

The Improved Lives of Rural Residents

Per capita disposable income growth of urban residents

Per capita disposable income growth of rural residents

Impoverished rural population (2010 standards)

• The per capita disposable income of rural residents is growing at a much faster rate than that of urban residents, and urban-rural income gap has narrowed further

• Consolidate progress in poverty alleviation, take solid steps to upgrade rural infrastructure, create coordinated development and common prosperity of new industry-agriculture and rural-urban system and connect poverty alleviation and rural revitalization.

Rural Revitalization Cross-regional Coordinated Development

• Strive to create a new landscape of Western Development

• Make new breakthroughs in revitalization of old industrial bases in

Northeast China

• Quicken steps for central region to rise

• Support the Eastern Region in accelerating modernization

• Devote more energy to accelerating the development of old

revolutionary base areas, and regions with large ethnic minority

populations

• Strengthen construction in border areas

• Drive coordinated development of Beijing-Tianjin-Hebei region

• Facilitate development of Yangtze Economic Belt

• Develop Guangdong-Hong Kong-Macao Greater Bay Area

• Promote Integrated development of Yangtze River Delta

• Push ahead ecological protection and high-quality development of

Yellow River Basin

New People-centric Urbanization

40

45

50

55

60

65

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Urbanization rate of permanent population

Urbanization rate of household registered population

• The full implementation of above-mentioned policies, accelerating the modernization of developed regions, and promoting the development of less developed regions will be key to achieving the goal of “common prosperity for everyone”

• Work toward making basic urban public services cover all permanent urban residents

• Increase government-subsidized housing projects• Deepen reform of household registration system• Accelerate citizenship attainment of migrant

agricultural population

Source: NBSPRC, Wind, Deloitte Research

（%） (10,000 people)

（%）

0.3

0.4

0.5

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Gini Coefficient Consistently above the Alert Level

居民收入基尼系数世界银行警戒线

Fair Development as Safety Net of China’s New Development Pattern

Gini Coefficient Warning level of the World Bank


Major strategic opportunities

during the 14th Five-Year Plan

period

Greater openness

Improve business

environment

Coordinated cross-

regional development

Fill the gap in people's livelihoods

Innovation-driven

development

Focus on ecological

environment

Opportunities for Enterprises: Expanding Market with Higher Quality, Transformed and Upgraded Factory, and Higher Level of Development Space for Social Enterprises

• Growing consumption

• Upgraded consumption structure

• Growing consumer groups

Expanding “world market” with higher quality

• Well-planned industrial chain

• Supply chain with upgraded technologies

• Sound institutional environment

• Active cooperation in production and technology across countries and

regions

Transformed and upgraded “world factory”

• Rural vitalization, coordinated development across urban and rural

regions, drive fair development and common prosperity for everyone

• Achieve sustainability by developing green ways of production and living

Development space for “social enterprises”


New Opportunities from Hong Kong’s Integration into Overall National Development


Support to integrate

overall national

development

New positioning

for Hong Kong

Implement the full

governance

• Fully and faithfully implement “one country, two systems”, “Hong Kong people administering Hong Kong”

• Implement the central government’s full governance over the Hong Kong Special Administrative Region

• Help Hong Kong and Macao participate in and empower the country’s building of a fully open and modern economic system and jointly create the Belt and Road functional platform

• Deepen the cooperation between the mainland and Hong Kong and Macao in economy and trade, technology and innovation, and enhance and expand the interconnectivity between the mainland and Hong Kong and Macao

• Implement high quality construction of Guangdong-Hong Kong-Macao Greater Bay Area, extend the collaboration between Guangdong Hong Kong and Macao and Pan-Pearl-River Delta regional cooperation, and promote the building of major Guangdong-Hong-Kong-Macao cooperation platforms including Qianhai, Shenzhen, Hengqin, Zhuhai, Nansha, Guangzhou and Shenzhen-Hong Kong Hetao

• Design sound policies and measures to facilitate the development and living of Hong Kong and Macao people in the mainland

Support Hong Kong in enhancing its status as an international aviation hub

Strengthen Hong Kong’s role as a risk management center

Support Hong Kong in building into international innovation and

tech center

Support Hong Kong in building regional intellectual property

trading center

Help Hong Kong develop international cultural and arts exchanges

Hong Kong: Integrate into Overall National Development and Seize Historical Development Opportunities During the 14th Five-Year Plan Period

q Continue to support Hong Kong in consolidating its positioning during the 13th Five-Year Plan period: global offshore renminbi business hub, international centers for finance, shipping and assets management, Asia Pacific Center for legal and dispute resolution services


Hong Kong: Integrate into Overall National Development and Seize Historical Development Opportunities During the 14th Five-Year Plan Period (cont’d)

Intersection and part of

“Dual Circulation”

International and cross-

border finance

Technological innovation

LogisticsHigh-end service

industry

Chinese and foreign art and

culture

• RMB internationalization• Cross-border wealth management, insurance,

assets and risk management• Venture capital and capital markets

International and cross-border

finance

• Guangzhou-Shenzhen-Hong Kong Science and Technology Innovation Corridor

• Shenzhen-Hong Kong River-loop innovation pole

Technological innovation

• Guangdong-Hong Kong-Macao Greater Bay Area, Hainan Free Trade Port and Regional Comprehensive Economic Partnership (RCEP)

• Aviation logistics and flow of people

Logistics

• International legal and dispute resolution • Regional intellectual property services• High-end healthcare services

High-end service industry

• International higher education • Arts and cultural exchange

Chinese and foreign art and

culture

Hong Kong can play an important role in the new economic development “Dual Circulation” pattern of China and Guangdong, Hong Kong and Macao. This is an unique intersection and part of China’s domestic economic circulation and international circulation, presenting new historical development opportunities.

About DeloitteDeloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more.

Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and related services. Our global network of member firms and related entities in more than 150 countries and territories (collectively, the “Deloitte organization”) serves four out of five Fortune Global 500® companies. Learn how Deloitte’s approximately 330,000 people make an impact that matters at www.deloitte.com.

Deloitte Asia Pacific Limited is a company limited by guarantee and a member firm of DTTL. Members of Deloitte Asia Pacific Limited and their related entities, each of which are separate and independent legal entities, provide services from more than 100 cities across the region, including Auckland, Bangkok, Beijing, Hanoi, Hong Kong, Jakarta, Kuala Lumpur, Manila, Melbourne, Osaka, Seoul, Shanghai, Singapore, Sydney, Taipei and Tokyo.

The Deloitte brand entered the China market in 1917 with the opening of an office in Shanghai. Today, Deloitte China delivers a comprehensive range of audit & assurance, consulting, financial advisory, risk advisory and tax services to local, multinational and growth enterprise clients in China. Deloitte China has also made—and continues to make—substantial contributions to the development of China's accounting standards, taxation system and professional expertise. Deloitte China is a locally incorporated professional services organization, owned by its partners in China. To learn more about how Deloitte makes an Impact that Matters in China, please connect with our social media platforms at www2.deloitte.com\cn\en\social-media.

This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms or their related entities (collectively, the “Deloitte organization”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser.

No representations, warranties or undertakings (express or implied) are given as to the accuracy or completeness of the information in this communication, and none of DTTL, its member firms, related entities, employees or agents shall be liable or responsible for any loss or damage whatsoever arising directly or indirectly in connection with any person relying on this communication. DTTL and each of its member firms, and their related entities, are legally separate and independent entities.

© 2021. For information, contact Deloitte China.

http://www.deloitte.com/about

http://www.deloitte.com/

http://www2.deloitte.com/cn/en/social-media

“dual circulation” development pattern

Documents