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Want To Know China's Business Future? Check Out Its Five-Year Plan

If you want a better idea of what motivates China on its economy, just read its Five-Year Plan.

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In a recent New York Times piece entitled “Converting the Ayatollahs,” David Brooks accuses the Obama administration of misunderstanding Iran. Brooks sees President Obama as one in a long line of Western leaders who have wrongly projected pragmatism onto their ideological opponents:

They have often assumed that our enemies are driven by the same sort of national interest calculations that motivate most regimes. They have assumed that economic interests would trump ideology and religion — that prudent calculation and statecraft would trump megalomania.

They assumed that the world leaders before 1914 would not be stupid enough to allow nationalist passion to plunge them into a World War; that Hitler would not be crazy enough to start a second one; that Islamic radicals could not really want to send their region back into the 12th century; that Sunnis and Shiites would never let their sectarian feud turn into a cataclysmic confrontation in places like Iraq.

Whether Brooks is right about President Obama goes well beyond the focus of this article, but his “projecting” argument applies to how American businesspeople view China. American businesspeople tend to view the world as a capitalistic playground where money and jobs are the chief motivators, and often (wrongly) view China through this same prism.

Though the Chinese government would like to see its economy thrive and create more good jobs, it has other more important priorities. Its primary goal is to stay in power and for that, above all else, the government requires social harmony.

It is, in fact, relatively easy to discern China’s economic priorities because it explicitly sets them out in its Five-Year Plans and then invariably follows those plans.

China’s current Five-Year Plan (the 12th such plan) sets out the following economic priorities:

Steady and sustainable economic development. China wants to see high growth, but without bubbles. The plan talks about balancing the needs of growth with the needs of sustainability. Accordingly, the next five years will be good for companies with products or services that are good for the environment. Conversely, companies doing high pollution, low wage work should expect things to get tougher in China.

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Growing annual GDP growth by seven percent while creating 45 million urban jobs, and promoting the service sector. China’s goal of creating 45 million urban jobs means that we should expect China’s cities to continue to grow rapidly in population. No surprise here, but good news for companies involved with housing and urban transportation and whatever else city dwellers consume in greater per capita numbers than rural dwellers. The service part is also no surprise, as China has explicitly been going in this direction for many years.

Keeping prices stable and increasing domestic consumption. China’s goal is a 7% annual increase in urban disposable income. This one is interesting in that it proposes a one-to-one correlation between the rise in GDP growth and disposable income, at least for urbanites. This is good news if you are in the consumer goods business or something related, but bad news if you want to use your market leverage to raise prices.

Achieving breakthroughs in strategic emerging industries like bio-tech, clean-tech, IT, high-end equipment, new energy, new materials, and green vehicles. If you are in one of these industries, consider yourself lucky. But make sure that you do everything possible to protect your intellectual property from China.

Developing China’s inland regions. This has been a governmental goal for a long time. Those in high-polluting businesses should couple this goal with the first one listed above when contemplating the best place to locate.

Increasing the minimum wage by 13% annually. I am constantly surprised by American companies that both express surprise at China’s ever-rising wages and predict that those wage increases will end soon. If you are counting on China’s wages rising less than 13% a year, you probably should re-formulate your business plan and/or consider leaving China. China wants to see wages rise so as to keep its citizens happy and avoid an uprising.

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Improving public services and social management to achieve social harmony. This means that opportunities for healthcare and education companies in China will keep rising.

If you want a better idea of what motivates China on its economy, just read its Five-Year Plan.

Dan Harris is a founding member of Harris Moure, an international law firm with lawyers in Seattle, Chicago, Beijing, and Qingdao. He is also a co-editor of the China Law Blog. You can reach him by email at firm@harrismoure.com.

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