“dual circulation” development pattern
TRANSCRIPT
The 14th Five-Year Plan, Domestic and International “Dual Circulation” Development Pattern and Implications for Hong Kong Edward AuSouthern Region Managing Partner, Deloitte ChinaJuly 21, 2021
2© 2021. For information, contact Deloitte China.
Edward AuManaging Partner, Southern Region, Deloitte ChinaPhone: +852 2852 1266/ +852 9866 9539Email: [email protected]: 35/F, One Pacific Place, 88 Queensway, Admiralty
Edward Au is Deloitte China Southern Region Managing Partner. He is responsible for Deloitte China's offices in Guangdong-Hong Kong-Macao Greater Bay Area, which encompasses Hong Kong, Changsha, Guangzhou, Hainan, Macao, Shenzhen and Xiamen, with a focus on the development of the practice in the Greater Bay Area. He is committed to driving service and practice transformation, fostering talent development and advancing the Firm’s presence across the region.
He was a co-leader of the Firm’s National Public Offering Group and has been involved in various debt and equity offering activities in Hong Kong, the US, and Singapore. He is one of the firm’s spokespeople on IPOs and a frequent speaker at externalseminars.
Edward has been a partner of Deloitte China since 2003 with extensive experience in auditing multinational corporations, public companies and enterprises in Hong Kong, Singapore, the US, and the Chinese Mainland.
Edward also contributes to organizations and communities in Hong Kong and through his service to professional bodies, including the Hong Kong Institute of Certified Public Accountants (HKICPA), Hong Kong Red Cross and the Construction Industry Council of Hong Kong.
Public Appointments• Chairman of the HKICPA’s Corporate Finance Advisory Panel• Member of Registration and Practising Committee of the HKICPA• Member of Policy Research Committee of Financial Services
Development Council• Member of Audit and Risk Committee of Hong Kong Red Cross • Member of Programme Advisory Board of Bachelor of Business
Administration (Honours) in Accounting and Finance of The Hong Kong Polytechnic University
• Member of Advisory Committee of Division of Business and Management at Beijing Normal University-Hong Kong Baptist University United International College
Professional Qualifications• Certified public accountant in HK and the
State of Washington (US)• Certified Practising Accountant of CPA
Australia• Fellow member of the HKICPA • Fellow member of Association of
Chartered Certified Accountants (ACCA)• Member of American Institute of Certified
Public Accountants (AICPA)• Chartered Global Management Accountant
(CGMA)
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Hard to Achieve
Obviously Improved
Met Expectations
• Projects: More than 98% of 165 major projects met expectations.
• Coordinated Development: In 2019, the
urbanization rates of permanent residents and
registered population reached 60.6% and 44.38%. The goal of 100 million agricultural transfer population and other permanent residents settled down in cities and towns is achieved.
• Green Development: Major planning targets for energy conservation, emissions reduction, and
environmental protection were in line with expectations.
• Poverty Alleviation: Complete victory achieved
in poverty alleviation and 55.75 million rural poor population is lifted out of poverty .
• Social Security: The world’s largest social security system was built and the coverage ofbasic pension insurance in 2020 reached 91%.
• Doing Business: China ranked 31st in 2019 globally (46th in 2018).
• Scientific and Technological Innovation:
Contribution of scientific and technological
progress to GDP reached 59.5% in 2019 (55.2% in 2015).
• Open Development: The Belt and Road Initiative is progressing smoothly. The management model for national pre-establishment treatment and a
negative list has been implemented. There are now 21 Pilot Free Trade Zones.
• Supply-side Structural Reform: In 2019, the
added value of the new economy accounted for 16.3% of GDP.
• Economic Growth: It has been difficult for China’s GDP to grow
by the desired amount of 6.5%, while the GDP in 2020 was 2.3% (affected by the pandemic).
• Reform in Some Areas: SOE reform and financial reform have not advanced as expected.
• Scientific and Technological Innovation: Proportion of R&D investment in GDP in 2019 was 2.23% compared to a target of 2.5%
• Regional Coordination: The north-south divide remains. Factor flow between urban and rural areas has not been smooth. China’s Gini Coefficient has edged up from 0.462 to 0.465.
• Manufacturing Sector Upgrading: Equipment manufacturing and high-tech manufacturing remain relatively small
• Ecological Environment: Carbon emissions reduction still has a
long way to go.
Overall Completion of 13th Five-Year Plan
The 14th Five-Year Plan is a Continuation of the 13th Five-Year Plan
Source: Research Report of the NPC Financial and Economic Affairs Committee on Implementing Interim Review of the Outline of the 13th Five-Year Plan for National Economic and Social Development of the People's Republic of China, Doing Business 2020, National Bureau of Statistics
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• Composite national strength, economic aggregate, and per capita personal income will rise substantially, key core technologies will make major breakthroughs
• A new type of industrialization, IT applications, urbanization, and agricultural modernization will be achieved, creating a modern economic system
Primary driver of development
• Per capita GDP will reach the level of moderately developed countries
• Implementation of the Peaceful China initiative will advance, modernizing national defense and the armed forces
• Develop green ways of working and living, fundamentally improving the ecological environment; carbon emissions will decline steadily after reaching a peak; construction of a beautiful country will be achieved
• Form a new pattern of opening up, and gain substantial new advantages through participating in international economic cooperation and competition
• More tangible and solid progress will be made towards common prosperity for everyone
• Become a strong country in culture, education, human resources, sports, and health, taking national quality and social civilization to new heights
An inherent requirement for sustainable, healthy
development, addressing uneven development
A necessary condition for sustainable development, addressing the harmony issue of human and nature
The only way for the country to prosper and
develop through internal and external integration
The essential requirement of socialism with Chinese characteristics, focusing
on social fairness and justice
New Development Concept
Innovation
Coordination
Green
Openness
Inclusion
Long-Range Objectives Through the Year 2035 Reveal New Development Concept
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People's wellbeing will reach a new level
• Pursue innovation-driven development and shape new development advantages• Accelerate the building of a modern industrial system and upgrade the economic system• Form a strong domestic market and build new pattern of development
Six New Objectives
New steps will be taken in reform and opening up
Social civilization will be further improved
New progress will be made in ecological civilization
New progress will be made in economic development
New advances will be made in national governance efficiency
• Comprehensively deepen reform, and build high-level socialist market economy• Higher-quality opening-up to create new prospects for mutually beneficial cooperation
• Promote development of cultural undertakings and industries, and enhance China's soft power• Build a sound public cultural service system and cultural industry system
• Promote green development and harmonious coexistence between humans and nature
• Prioritize development of agriculture and rural areas, and pursue rural vitalization• Improve layout of China's land and promote coordinated regional development and new urbanization• Improve quality of people's lives and raise level of social development
• Coordinate development and security, and advance implementation of Peaceful China initiative • Speed up modernization of national defense and the military
Six New Objectives: Guided by the Long-Range Objectives
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“Dual Circulation” Development
International economic cycle
Domestic economic cycle
Supply Demand
Take domestic economic cycle as mainstay and attract global commodities and factors
Deepen supply-side structural
reform
Expand domestic demand
Strategic Arrangements for Establishment of “Dual Circulation” Development
Promote innovation-driven Development• Increase support for basic research and application-oriented research• Break through core technologies, develop supply chains advantages, and strengthen weak links• Deepen international exchange and cooperation
Upgrade industrial structure• Build a nation with strong manufacturing power, leading quality and cyber and digital capability• Transform traditional industries and develop strategic emerging industries and modern service
industries
Deepen reform and improve business environment• Enable the financial sector to better serve real economy and improve modern circulation system• A high standard of marketization, rule of law, and an international business environment
Strengthen fundamental role of consumption in economic development• Promote traditional consumption• Foster new consumption• Develop service consumption
Optimize income distribution• Expand employment and raise incomes• Promote coordinated development across regions and improve quality of new urbanization
International economic
cycle
Embrace higher-quality opening-up• Further relax market access controls• Deeply integrate into global economy
Expand domestic demand
Carry out supply-side
structural reform
Review of “Dual Circulation” Development Pattern
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-5.0
-2.5
0.0
2.5
5.0
2018-03 2018-06 2018-09 2018-12 2019-03 2019-06 2019-09 2019-12 2020-03 2020-06 2020-09
Three demands as a driver for GDP growth
最终消费支出 资本形成总额 货物和服务净出口
• The Proposal defines the development direction of domestic consumptionNew model – Enhance traditional consumption, foster new consumption, and integrate online and offline consumptionMain areas – Automobile and housing consumption, service consumptionKey principles – Focus on quality brands building, promote green, healthy, and safe consumption
Final Consumption as a Booster for GDP to be Improved
(%)
Personal Income Growth Should be in Step with Economic Growth
4
6
8
10
2011 2012 2013 2014 2015 2016 2017 2018 2019
Disposable income growth lags behind GDP growth
城镇居民人均可支配收入增长率 GDP增长率
(%)
• The expansion of consumption depends on growth in disposable incomes. The Proposal makes it clear that personal incomes will be expanded through:– Expanding the middle-income group– Better income distribution– Increasing property income through multiple channels– Improving the mechanism of redistribution– Giving priority to employmentSource: NBSPRC, Wind, Deloitte Research
Domestic Market as Mainstay, Expanding Domestic Demand as Strategic Focus of China’s New Development Pattern
Final consumption expenditure
Gross capital formation
Net exports of goods and services
Per capita disposable income growth of urban residents
GDP growth
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0
10000
20000
6
11
16
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
The Improved Lives of Rural Residents
Per capita disposable income growth of urban residents
Per capita disposable income growth of rural residents
Impoverished rural population (2010 standards)
• The per capita disposable income of rural residents is growing at a much faster rate than that of urban residents, and urban-rural income gap has narrowed further
• Consolidate progress in poverty alleviation, take solid steps to upgrade rural infrastructure, create coordinated development and common prosperity of new industry-agriculture and rural-urban system and connect poverty alleviation and rural revitalization.
Rural Revitalization Cross-regional Coordinated Development
• Strive to create a new landscape of Western Development
• Make new breakthroughs in revitalization of old industrial bases in
Northeast China
• Quicken steps for central region to rise
• Support the Eastern Region in accelerating modernization
• Devote more energy to accelerating the development of old
revolutionary base areas, and regions with large ethnic minority
populations
• Strengthen construction in border areas
• Drive coordinated development of Beijing-Tianjin-Hebei region
• Facilitate development of Yangtze Economic Belt
• Develop Guangdong-Hong Kong-Macao Greater Bay Area
• Promote Integrated development of Yangtze River Delta
• Push ahead ecological protection and high-quality development of
Yellow River Basin
New People-centric Urbanization
40
45
50
55
60
65
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Urbanization rate of permanent population
Urbanization rate of household registered population
• The full implementation of above-mentioned policies, accelerating the modernization of developed regions, and promoting the development of less developed regions will be key to achieving the goal of “common prosperity for everyone”
• Work toward making basic urban public services cover all permanent urban residents
• Increase government-subsidized housing projects• Deepen reform of household registration system• Accelerate citizenship attainment of migrant
agricultural population
Source: NBSPRC, Wind, Deloitte Research
(%) (10,000 people)
(%)
0.3
0.4
0.5
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Gini Coefficient Consistently above the Alert Level
居民收入基尼系数 世界银行警戒线
Fair Development as Safety Net of China’s New Development Pattern
Gini Coefficient Warning level of the World Bank
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Major strategic opportunities
during the 14th Five-Year Plan
period
Greater openness
Improve business
environment
Coordinated cross-
regional development
Fill the gap in people's livelihoods
Innovation-driven
development
Focus on ecological
environment
Opportunities for Enterprises: Expanding Market with Higher Quality, Transformed and Upgraded Factory, and Higher Level of Development Space for Social Enterprises
• Growing consumption
• Upgraded consumption structure
• Growing consumer groups
Expanding “world market” with higher quality
• Well-planned industrial chain
• Supply chain with upgraded technologies
• Sound institutional environment
• Active cooperation in production and technology across countries and
regions
Transformed and upgraded “world factory”
• Rural vitalization, coordinated development across urban and rural
regions, drive fair development and common prosperity for everyone
• Achieve sustainability by developing green ways of production and living
Development space for “social enterprises”
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New Opportunities from Hong Kong’s Integration into Overall National Development
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Support to integrate
overall national
development
New positioning
for Hong Kong
Implement the full
governance
• Fully and faithfully implement “one country, two systems”, “Hong Kong people administering Hong Kong”
• Implement the central government’s full governance over the Hong Kong Special Administrative Region
• Help Hong Kong and Macao participate in and empower the country’s building of a fully open and modern economic system and jointly create the Belt and Road functional platform
• Deepen the cooperation between the mainland and Hong Kong and Macao in economy and trade, technology and innovation, and enhance and expand the interconnectivity between the mainland and Hong Kong and Macao
• Implement high quality construction of Guangdong-Hong Kong-Macao Greater Bay Area, extend the collaboration between Guangdong Hong Kong and Macao and Pan-Pearl-River Delta regional cooperation, and promote the building of major Guangdong-Hong-Kong-Macao cooperation platforms including Qianhai, Shenzhen, Hengqin, Zhuhai, Nansha, Guangzhou and Shenzhen-Hong Kong Hetao
• Design sound policies and measures to facilitate the development and living of Hong Kong and Macao people in the mainland
Support Hong Kong in enhancing its status as an international aviation hub
Strengthen Hong Kong’s role as a risk management center
Support Hong Kong in building into international innovation and
tech center
Support Hong Kong in building regional intellectual property
trading center
Help Hong Kong develop international cultural and arts exchanges
Hong Kong: Integrate into Overall National Development and Seize Historical Development Opportunities During the 14th Five-Year Plan Period
q Continue to support Hong Kong in consolidating its positioning during the 13th Five-Year Plan period: global offshore renminbi business hub, international centers for finance, shipping and assets management, Asia Pacific Center for legal and dispute resolution services
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Hong Kong: Integrate into Overall National Development and Seize Historical Development Opportunities During the 14th Five-Year Plan Period (cont’d)
Intersection and part of
“Dual Circulation”
International and cross-
border finance
Technological innovation
LogisticsHigh-end service
industry
Chinese and foreign art and
culture
• RMB internationalization• Cross-border wealth management, insurance,
assets and risk management• Venture capital and capital markets
International and cross-border
finance
• Guangzhou-Shenzhen-Hong Kong Science and Technology Innovation Corridor
• Shenzhen-Hong Kong River-loop innovation pole
Technological innovation
• Guangdong-Hong Kong-Macao Greater Bay Area, Hainan Free Trade Port and Regional Comprehensive Economic Partnership (RCEP)
• Aviation logistics and flow of people
Logistics
• International legal and dispute resolution • Regional intellectual property services• High-end healthcare services
High-end service industry
• International higher education • Arts and cultural exchange
Chinese and foreign art and
culture
Hong Kong can play an important role in the new economic development “Dual Circulation” pattern of China and Guangdong, Hong Kong and Macao. This is an unique intersection and part of China’s domestic economic circulation and international circulation, presenting new historical development opportunities.
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