China’s 13th Five-Year Plan (FYP) has the potential to usher in a golden age of inbound and outbound investment activity through the implementation of an ambitious and comprehensive programme of reforms, presenting important new investment opportunities for Chinese and foreign businesses, finds a new KPMG report.
Launched earlier today at a closed-door event at the Diaoyutai State Guesthouse in Beijing, the report, titled The 13th Five-Year Plan – China’s transformation and integration with the world economy: Opportunities for Chinese and foreign businesses, is the second in the 13th FYP report series by KPMG’s Global China Practice.
Attending the launch, John Veihmeyer, Chairman, KPMG International, said: “China is important to companies and governments around the world. While still facing many challenges, China will continue to be an important engine of global economic growth and business opportunities.”
“The FYP charts an ambitious course for China’s economic and social development over the next five years,” he said. “Fostering greater understanding of the FYP is important for China to be able to attract foreign investment in new sectors where foreign capital, technology and experience is sought – as a catalyst of innovation and an enabler of China’s economic transformation. Understanding these issues is also important for foreign companies to be able to align value propositions and business strategies, and prepare for an evolving landscape of risks associated with new and existing investments.”
The scale and significance of the transformation, reform and opening up envisaged in the 13th FYP and the potential opportunities for both foreign and Chinese companies cannot be underestimated, said Honson To, Joint Chairman, KPMG China. “But what role does the Chinese Government see for foreign companies in this process? What are the opportunities for foreign companies and how should they position themselves to take advantage of them? How should foreign companies approach partnering with Chinese companies? And what steps is the Chinese Government taking to address the concerns of the foreign business community about the business environment in China?”
“In addition to continuing our discussions with senior representatives from embassies, investors from major foreign direct investment (FDI) nations, trade promotion agencies, and chambers of commerce who attended the event today, we will also be taking the report on a global roadshow to meet with companies and other important stakeholders in Asia Pacific, Europe and the US to explore new and emerging areas where cooperation between Chinese and foreign companies can help progress the development priorities that underlie the 13th FYP,” he said.
According to the report, there are seven key development priorities: developing an innovative economic structure and accelerating industrial upgrading; promoting industrial transformation; establishing a new model of coordinated regional development; advancing green development and putting ‘ecology first’; building a more inclusive society and improving quality of life; increasing openness and global integration; and deepening market-oriented reforms through progressive implementation of institutional reforms.
The report also notes that supply-side structural reform is a key focus area in the 13th FYP, around which other development-related initiatives will revolve. Supply-side structural reform has three major goals, all of which also hint at significant opportunity for investment: promoting the upgrading of industrial structures; strengthening market-oriented reforms in key sectors of the economy; and meeting the five targets of reducing industrial capacity, inventory, financial leverage and costs, and correcting structural shortcomings.
China is now in a relatively advanced stage in its move towards becoming a high-income economy, and structural adjustments are pushing China’s industry to the middle to high end of the value chain, as evidenced by increasing signs of sophistication in several sectors across the economy. This is where partnerships between foreign and domestic enterprises can assist in and benefit from China’s evolution, and progress towards a ‘new normal’ of economic development and a ‘moderately prosperous society’, said Benny Liu, Joint Chairman, KPMG China.
“Partnering between Chinese and foreign companies in new sectors and areas will be a key way to achieve the social and economic objectives laid out in the 13th FYP,” he said. “Chinese companies can ‘go out’ to acquire technology and business models for deployment in the domestic market, while foreign investors can leverage their production technologies, business models and operational experience to accelerate the pace of China’s transformation.”
China’s economic transformation is itself spurring the creation of new drivers of growth, new industries, new institutions and new opportunities, said Vaughn Barber, Global Chair of KPMG’s Global China Practice.
“As highlighted in the report, this creates a more positive environment and opens new sectors of the Chinese economy for foreign businesses to invest in. It also offers outbound Chinese investors the opportunity to acquire resources and technology abroad, and apply these to new businesses in the domestic market,” he said.
According to the report, China’s traditional monopolies, state-run utilities and public services are poised to gradually become more accessible to private and even foreign investment. This opens new potential channels for FDI into China, and provides Chinese outbound investors with the opportunity to form valuable synergies and linkages between their domestic and overseas businesses.
The report also notes that China will seek to promote broader, more bidirectional openness, and build institutions and mechanisms that encourage cooperation and are compatible with international trade and investment rules. As these measures are implemented, they will better facilitate FDI and outward direct investment, the report says.
“We hope this report will be a valuable resource for Chinese and foreign companies – global companies, niche players and emerging disruptors alike – to find ways in which they can share in the dividend generated by China’s growth, while making their own contribution to the economy’s transformation,” said Vaughn Barber.
This would represent a win-win for business and national interests as China strives to maintain medium-high growth, shift to the middle to high end of the value chain, and progress towards becoming a high-income nation, the report concludes.
KPMG China operates from 17 offices across China, with around 10,000 partners and staff. The offices include Beijing, Beijing Zhongguancun, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong SAR and Macau SAR. With a single management structure across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.
KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 155 countries and regions, and have 174,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG China was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong office can trace its origins to 1945. This early commitment to the China market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in the Chinese member firm’s appointment by some of China’s most prestigious companies.
KPMG’s Global China Practice, headquartered in Beijing, plays a leading role in ‘bringing China to the world’ and ‘bringing the world to China’. Given the increasing importance of China’s outward direct investment (ODI) to China and host countries around the world, KPMG established the Global China Practice, with dedicated teams in nearly 60 locations around the world, including countries and regions along the ‘Belt and Road’. Our experts are very proud to have worked on many of China’s landmark outbound transactions. We are also passionate about guiding and facilitating Chinese ODI in other meaningful ways, including by helping Chinese companies integrate into local business communities, and introducing them to potential partners in key overseas markets.
Equally, the Global China Practice enhances KPMG’s ability to serve foreign companies as they enter and grow in China. While many of our clients have been active in China for decades, the 13th Five-Year Plan marks a new era of potential Sino-foreign cooperation in China. The plan charts an ambitious course for China’s economic and social development over the next five years, and represents an important turning point in the Chinese Government’s attitude towards the utilisation of inward foreign direct investment (FDI). As market participants manoeuvre to succeed in the ‘new normal’ in China, foreign companies should review what contribution they can make to China’s ongoing economic transformation, align their value proposition and business strategies accordingly, and prepare for a shifting landscape of risks.
Through the Global China Practice, KPMG stands shoulder to shoulder with Chinese and foreign companies alike as they seek to understand complex and dynamic business environments, shape crucial business partnerships, and build platforms to achieve long-term and sustainable market positions. This work is underpinned by market-leading thought leadership from the Global China Practice, produced in conjunction with leading government and industry bodies in China.
So whether you are a Chinese company looking to ‘go out’ or a foreign company assessing the evolving opportunities for your business to grow in and with China, KPMG and its Global China Practice have the insights, experience and resources to support you as you chart your path to success.
The views and opinions expressed herein are the personal opinions of the interviewees and authors based on their personal experience working as Auditors in the industry and do not necessarily represent the views or opinions of KPMG International or any KPMG member firm.