In our efforts to assist our readers in bigger-picture trends that have meaning for today and tomorrow’s supply chain leaders, the Supply Chain Matters blog highlights some interesting perspectives from last week’s assembly of China’s leaders for developing the framework for the nation’s next five-year plan.
Last week, the Fifth Plenum of the 19th Communist Party of China Central Committee was held in Beijing, which will eventually lead to the formulation of the 14th five-year plan for National Economic and Social Development for the years 2021 thru 2025 which normally comes in March of 2021. Why this is important is because such planning establishes the direction for China’s longer-term economic development strategies, which often overlap with ongoing industry supply network initiatives and strategies.
An excellent go-to resource that Supply Chain Matters for interpretation of global trade tends is to turn to is the Hinrich Foundation, a unique Asia-based philanthropic organization that works to advance mutually beneficial and sustainable global trade through research and educational programs. The foundation has provided perspectives and takeaways from last week’s event from four experienced observer:
Henry Gao, Associate Professor of Law at the Singapore Management University School of Law with law degrees from three continents.
Dr. Song Gao, Co-CEO and Head of Research for PRC Macro, a Beijing and U.S. based economic advisory firm.
James McGregor, Chairman for Greater China at APCO Worldwide, and independent advisory and communications consultancy
Sitao XU, Chief Economist and Partner at Deloitte China
Our readers can certainly take in the perspectives from each of these experienced observers featured the Hinrich Foundation web site.
In this Supply Chain Matters blog commentary, we wanted to highlight what were the common themes that were brought forward from these contributors.
A takeaway message that each of these expert observers seem to be in agreement on is that China’s leaders perceive that the post COVID world will include a complex geo-political global environment, heightened distrust among nations, particularly between the United States and China. China’s leaders appear to be moving in the direction of more self-sufficiency, while eventually lessoning dependence on export-led revenues and import dependencies. That likely includes leading the world in technology-led innovation, sustainability and other innovation measures. Thus, if some C-level or supply chain executives were of the view that tensions among China and the U.S., as well as other nations were short-term, the interpretation seems to be of the opposite.
The assessment from Henry Gao begins as follows:
“The goal of China’s modernization, as announced by Deng Xiaoping in his famous statement in 1978, is to reach the level of “moderately developed country” by 2050. However, with the ambitious 2035 Vision Plan newly unveiled at the Fifth Plenum, the target has just been moved ahead by 15 years, with two important caveats.”
Those caveats were explained to be first, that most of the previous plans set specific quantitative targets for economic GDP growth. This latest plan opted for: “the vaguely worded “moderately developed country” which could range from USD 20,00 to 30,000 per capita according to different interpretations.” Second, the same wording provides flexibility in achieving the stated goal. Gao makes mention of “major breakthroughs in key core technology”, with the inference that we will see more conflicts arise on the use of subsidies along with accusations of forced technology transfer of theft of intellectual property.
The perspectives by Dr. Song Gao indicate that the notion of “Domestic circulation” will focus on import substitution in technology, supply chain upgrades and energy revolution. He cites this as the next wave of supply side reforms with “supply chains set for major “import substitution” and “new urbanization.” He interprets this to imply shifts towards higher-end manufacturing, including everything tech.
James McGregor opined: “Foreign companies doing business in China would be foolish not to pay close attention” to this latest five-year plan. McGregor places a special emphasis on “internal circulation” which he describes as:
” …Party-speak for growth built on boosting domestic consumption, stimulating domestic innovation, developing home-grown technology, and pushing toward self-sufficiency while reducing – and eventually eliminating – dependence on export earnings and imported technologies. This will be complimented by “international circulation,” a more disciplined pursuit of foreign business that serves the goals of China’s refined development model.”
Regarding “dual circulation” as an import substitution, McGregor indicates:
“In general, foreign companies that possess advanced technology, industrial processes, financial and other services that China needs – and from which China can glean knowledge to bolster its own companies – will continue to find opportunities in China.”
His specific example cites companies that can modernize China’s tangled, fragmented logistics systems. He does warn, however, that “dual circulation” is doubling down on import substitution aspirations and the foreign companies should remain focused on protecting their long-term futures in global business.
Added Comments and Perspectives
From our Supply Chain Matters lens, all of these perspectives imply an ongoing de-coupling of select industry supply networks over the coming five-year window. Industries deemed strategic, those such as semiconductor, alternative energy, telecommunication networks, manufacturing and process automation, and others will likely include strategies for added internal supply network process and component development.
While other countries may not develop formal strategic plans in five-year windows, the notions of strategic economic direction and managing technology, strategic supply and production risks are similar. Hence, pay close attention to where China’s political leaders depict each of these dimensions.
While no company can ignore China’s huge market potential, positioning the supply network for domestic vs. global-wide demand support can take on various strategies. From our lens, that is more important than ever.
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