On March 14, 2011, the Eleventh National People’s Congress of the People’s Republic of China approved The 12th Five-Year Plan for National Economic and Social Development. The plan intensifies the nation’s focus on its high-technology sector as an engine for growth and industrial transformation, and it outlines goals to help the country develop science and technology as important driving forces for China’s economic and social development over the next five years.
In a new report, the Law Offices of Stewart and Stewart analyzes the new plan’s implications for China’s high-technology industries. The plan sets targets for innovation, aiming for research and development expenditures to reach 2.5 percent of GDP and to achieve 3.3 patents for every 10,000 people. The plan calls for improving enterprises’ innovation capabilities, transforming scientific achievements into practical productive forces, and supporting indigenous innovation. Among the government support policies for high-technology industries outlined in the plan are fiscal, taxation, and financial policies, as well as the development and growth of high-technology industry zones, and the promotion of industry standards with indigenous intellectual property rights.
The 12th Five-Year Plan also identifies seven strategic and emerging industries for priority government support. These seven industries all have high-technology components. They are:
1) energy saving and environmental protection;
2) next generation information technology;
3) new energy;
4) bio-technology;
5) high-end equipment manufacturing;
6) new materials; and
7) clean-energy automobiles.
The Government of China aims for these seven industries to grow from their current output of 3 percent of GDP to 8 percent in 2015 and 15 percent in 2020, a plan that would require the industries to grow by 35 percent each year between now and 2015. By 2030, China’s goal is to be a global leader in each of the seven industries. To reach this goal, China is reportedly aiming to invest $1.5 trillion in the seven industries over the next five years.
The Stewart and Stewart report uses the release of China’s 12th Five-Year Plan as a launching pad to explore China’s government support programs for its high-technology industries. The report places China’s plans for the next five years in the context of China’s support efforts for the high-technology sector under its previous five-year plan. The report examines the policies issued to implement the 11th Five-Year Plan’s goals for the high-technology sector, including:
● Tens of billions of dollars in export credits and other concessional financing provided by state-owned banks to China’s high-technology producers;
● Preferential tax treatment for producers of certain new- and high-technology goods;
● Government grants to high-technology producers, including support for research and development;
● China’s 2008 and 2009 stimulus programs for high-technology;
● China’s restraints on exports of raw materials that are essential to the production of high-technology products; and
● The use of government procurement, domestic technical standards, and indigenous innovation policies to support the development and deployment of domestic technology.
The report also provides translated excerpts of government catalogues that list the precise kinds of high-technology equipment eligible for the above subsidies. For example, the report includes excerpts from a key catalogue used to direct banks in providing preferential lending that was just updated by the Government of China for the first time in four years.
China’s efforts to support high-technology industries have fueled rapid growth in the sector and resulted in a significant increase in China’s exports and trade surplus in such goods. China’s exports of high-technology products to the world were eight times larger in 2010 than they were in 2001, when China joined the WTO. During the same period, its imports grew less than half as quickly. As a result, the small trade deficit in high-technology goods China ran in 2001 had become a large and growing surplus of more than $192 billion by 2010.
This growth has allowed China to dominate many important segments of the high-technology market. Since 2006, for example, U.S. imports of advanced communications and information technology from China have grown ten times faster than imports of the same products from the rest of the world. As a result, China now accounts for the majority of all U.S. imports in the category.
The second half of the Stewart and Stewart report provides more detailed information on five segments of China’s high-technology sector:
1) semiconductors;
2) commercial aviation;
3) high-speed rail;
4) green technology; and
5) telecommunications equipment.
The industries overlap with the seven strategic and emerging industries highlighted in China’s 12th Five-Year Plan, and thus illustrate the kinds of support that can be expected for those seven industries.
The section on each industry identifies specific government support measures for each industry, ranging from export credits and concessional bank landing to government and state-owned enterprise purchasing preferences and the deployment of unique domestic technical standards. Each section also profiles each industry’s growth under these government policies, examining the emergence of leading producers in each sector. The sections also review evidence of company-specific subsidies in corporate financial statements and other public sources, and analyze the ability of foreign investors to participate in each sector.
China’s 12th Five-Year Plan accelerates China’s aggressive support of its high-technology industries, building upon the country’s 11th Five-Year Plan and its 2008 and 2009 stimulus programs. This support has led to rising export volumes to the rest of the world and allowed China to become a global leader in many key segments of the high-technology industries. These trends are likely to continue under the 12th Five-Year Plan, and it will be important for industries and stakeholders to monitor developments under the plan as China seeks to become a world leader in high-technology over the next five years. The Stewart and Stewart report offers a valuable introduction to China’s policies in these vital industries.
A presentation summarizing the report is also now available
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