Every five years, China presents a new Five Year plan, which is the development goals the country will follow and try to reach during the next five years. This is in dramatic contrast to the United States, where one party doesn’t want to prepare for anything, other than war.

The latest five year plan (www) is a long document. It’s a difficult read, because it’s translated. If you are going to read it, give yourself plenty of time.

The latest Five Year plan is the 12th. To understand it, it’s best to start by comparing it to the previous Five Year plans.

9th Five Year Plan Goals:

GDP Growth: Target  8%, Achieved 8.3%

  • Coal: Goal ¥133 billion, Actual ¥73 billion
  • Industrial Waste: Goal Treat 83%, Actual N/A
  • Industrial Gas: Goal Treat 86%, Actual N/A
  • Urban Waste Water: Goal Treat 25%, Actual 34%

10th Five Year Plan Goals:

  • GDP Growth 7%, Achieved 9.48%
  • Major Pollutants: Goal Reduce -10%
    • COD (Chemical Oxygen Demand): Actual -7.35%
    • Ammonia: Actual -27.5%
    • Industrial Dust: Actual -17.1%
    • Smoke: Actual -6%
    • Urban Waste Water: Actual -55%

11th Five Year Plan Goals:

  • GDP Growth 7.5%, Achieved 11.2%
  • Major Pollutants
    • Urban Waste Water: Actual 75%
    • COD (Chemical Oxygen Demand): Actual -12%

Source:  http://www.circleofblue.org/waternews/2011/world/infographic-successes-and-failures-of-chinas-five-year-plans-1996-2010/

As you can see, one of the main goals of the Five Year plans is to grow GDP. For the 12th Plan, the goal is to grow GDP by around 8%, 7% annual growth of per capita income, and spend 2.2% of GDP on research and development. Even at the heights of the dot.com 90s or the housing boom 2000s, GDP in the US never grew up 8%. Yet, this is on the low side of the average for China. In China, in essence, every year is a dot.com boom. Imagine what it feels like to live in an economy that has had 8% growth for over 16 years. In America, the standard of living of the average wage earner has fallen since Reagan took office in 1980. Since 1996, the average Chinese has seen theirs grow 348%.

Understanding the Current 5-Year Plan

There are some strategic changes in the newest 5 Year plan. China wants more foreign investment in modern agriculture.  Currently China has a high demand for bulk agricultural products, Soybeans and cotton. US exports are up 80% to China. If the Chinese government pursues this new path of agricultural development, US exports would likely fall. (http://www.usda.gov/wps/portal/usda/usdahome?contentid=2012/03/0103.xml)

China also wants to move away from being the “world’s factory” to higher quality manufacturing and more research. If China does move its economy this way, that opens the door for the next world’s factory: India or Brazil; most likely India. If I were thinking about building a new factory, I would strongly look at one of the other RBICs, especially if there is some movement towards creating hubs of research and development.

Opportunities

During this explosive growth, there is much opportunity. The current trends in Chinese business, or hot industries are:

  1. Healthcare
  2. Education
  3. Cleantech/Greentech
  4. Food
  5. Software/High Tech

From: http://www.chinalawblog.com/2010/11/five_ways_to_make_money_in_china.html

In addition to the above five things, McKinsey & Associates notes that “private insurance could become cheaper and more accessible” in China, creating a $90 billion market by 2020 and that “regulatory reforms are making it easier for private hospitals to provide publicly-funded care.”

Perhaps this is why Professor Carr keeps telling us to pay attention to the insurance issue in China. China does not have a very effective legal system.  Currently, guanxi (connections) is how business is done. Going forward, guanxi is hard to maintain internationally and electronically. If you don’t have an effective legal system, you can replace guanxi with insurance. After all, what are connections? They are personal insurances. The time spent developing guanxi is mainly just a form of insurance.

Fueling this growth is China’s ravenous appetite for energy. Coal is not without its problems, just ask Al Gore. China has stated that they want to get more and more of their electricity from nuclear power. The big manufacturers of nuclear reactors are:

Keep an eye on them for any developments.

Can You Believe This?

I feel that Chinese culture is essentially dishonest. Given the opportunity to take advantage of someone, Chinese culture says you should. That is why they have fake eggs, contaminated milk, etc. In this culture,  can China’s economic figure be believed, or are they made up? James Chanos of Kynikos Associates (Greek for “cynic”) thinks China is the next Enron — that their reported financial figures are make believe.

Chanos was one of the early investors to doubt Enron’s figures. He made millions shorting Enron. James Chanos would be selling short China stock if it was possible. (I believe it is not possible to ‘borrow’ Chinese stock and then short sell it, the same way you can in America.)

(http://www.nytimes.com/2010/01/08/business/global/08chanos.html?_r=1)

(http://www.bloomberg.com/news/2011-05-24/chanos-says-hedge-fund-may-not-be-bearish-enough-on-chinese-real-estate.html)

Even some of the leaked classified cables from Wikileaks support this view, saying Chinese GDP figures are “man-made”. (http://wikileaks.org/cable/2007/03/07BEIJING1760.html)

The Economy: Not By the Numbers

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3. (C) Describing some of the challenges he faces as Party Secretary, Li related that despite brisk economic growth of

SIPDIS 12.8 percent in 2006, Liaoning’s income gaps remain severe. Liaoning ranks among the top 10 Chinese provinces in terms of per capita GDP, yet the number of its urban residents on welfare is among the highest in the country and average urban disposable income is below the national average. By contrast, rural disposable incomes are above the national average. Even so, incomes for Liaoning farmers are only half that of urban residents.

4. (C) GDP figures are “man-made” and therefore unreliable, Li said. When evaluating Liaoning’s economy, he focuses on three figures:

1) electricity consumption, which was up 10 percent in Liaoning last year;

2) volume of rail cargo, which is fairly accurate because fees are charged for each unit of weight; and

3) amount of loans disbursed, which also tends to be accurate given the interest fees charged. By looking at these three figures, Li said he can measure with relative accuracy the speed of economic growth. All other figures, especially GDP statistics, are “for reference only,” he said smiling.

The American Way vs China — Keith on a Soap Box

The 2012 5-year plan sets a goal of building 83,000 kilometers of highway. At one time, America did similar things.  Dwight D. Eisenhower signed the The National Interstate and Defense Highways of 1956  authorized  25 billion dollars for the construction of 41,000 miles (66,000 km) of high in America.

In our past, “We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard”. By 1973, America spent over $25 billion on the Apollo program, the legacy of John Kennedy.

The last President to attempt a long term plan was Lyndon B. Johnson and the Great Society program. He was able to spread freedom to all Americans, not just white Americans. But other than Civil Rights issues, many of the goals of the Great Society were never enacted. The rise of Barry Goldwater, and “Goldwater Republicans” spelled the end of bi-partisan support in American.

I don’t believe this level of strategic planning is currently possible in the United States. The Republicans current platform is defeat Obama. That’s it. Anything that makes him loose is what they are trying to accomplish. Any sort of planning is out of the questions — Unless it’s unlimited military spending. But that’s not a real plan.

Just look at the Republican response to Obama 2012 state of the Union:

“In three short years, an unprecedented explosion of spending, with borrowed money, has added trillions to an already unaffordable national debt. And yet the president has put us on a course to make it radically worse in the years ahead.”

(http://articles.cnn.com/2012-01-24/politics/politics_sotu-gop-response-transcript_1_mitch-daniels-union-speech-middle-class?_s=PM:POLITICS)

What the Republican’s call “an unprecedented explosion of spending” is actually the lowest growth in federal spending in more than 60 years.  Obama grew the Federal Budget 1.4%, compared to Reagan and Bush’s nearly 8%. But Republican’s don’t want to hear that. (Wall Street Journal: http://www.marketwatch.com/story/obama-spending-binge-never-happened-2012-05-22) They say it best: the “Obama spending Binge Never Happened.”

In light of the complete hostility of the Republican party to any sort of effective governance, I don’t see how any sort of planning, even short term planning could work.

China may not beat us, but we can beat ourselves.

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