Avatar
Roberto Leumann
14 August 2015 0 Comments

The National People’s Congress (NPC) gets together as a full committee twice a year for its plenary session. These meetings are called 两会 (Lianghui) and are the most watched political events in China. During the meetings, China’s premier leads the discussion of the main economic, social and political topics of the year, sets important targets and releases an annual report containing the main statistics, figures and economic indicators regarding growth and development. If you did not have the chance to follow this year’s March Lianghui, the following list of buzzwords is a great opportunity to catch up!

Made In China 2025 – 中国制造2025

MC25

Being one of the central issues covered during the Lianghui, “Made in China 2025” (MC25) is a comprehensive campaign that aims at upgrading the Chinese manufacturing industry. Even though the first drafts of this project were presented in 2013, the subject is still really fluid. The central focus of Lianghui 2015 was using technology for manufacturing to increase productivity and automation.

During the last couple of decades, China has based its fortune on cheap labor and low cost manufacturing. However, as the country has rapidly developed, macroeconomic conditions have put upward pressure on labour costs. The MC25 campaign is a way to address various issues altogether. First of all, the focus on innovation in manufacturing is a way to keep China competitive in this field, making the country able to maintain its cost advantage even with surging labor costs. Furthermore, MC25 is a response to the main drawback of the China low cost strategy, namely the huge impoverishment of the “Made in China” brand which is nowadays associated with poor quality and labor exploitation.

Increasing incentives, subsidies and investment in the field of manufacturing is also a way to climb up the global value chain thus concentrating on higher-value-added activities. China’s plan is to increase the percentage of Made-in-China materials and components of final goods to 40% in 2020 and 70% in 2025.

The role of the state will be crucial for the successful implementation of MC25, providing an overall framework, utilising financial and fiscal tools and supporting the creation of manufacturing innovation centers (15 by 2020 and 40 by 2025). However, the plan will also strongly rely on the market, strengthening intellectual property rights protection for small and medium-sized enterprises and making the use of intellectual property (IP) more effective in business strategy. This campaign will directly affect Chinese consumers. Given the low perception of the “Made in China” brand, Western companies have enjoyed over the past decade an “ex-ante competitive advantage”, meaning that, especially in some fields like luxury and automotive, Chinese brands were not taken into consideration by Chinese consumers.

MC25, by attempting to revamp Chinese manufacturing, will increase the level of competition in some fields, making marketing strategy more important for non-Chinese companies to maintain market share.

Maker Culture: 创客 chuangke

maker

The maker culture is a contemporary urban subculture originated in the United States that represents an extension of the DIY (Do It Yourself) culture, with a particular focus on technology and engineering. The Lianghui has refered to this as 创客 chuangke (the maker), a term that features the Chinese character chuang, meaning “to generate” and emphasises a creative and passionate approach to making things. As part of a greater plan of rekindling the “Made in China Brand”, the Lianghui underlined the importance of fostering this kind of approach in order to move away from the common stereotype of Chinese people as “cheap copycats” and reach a status where products are not only made but created in China.

In order to incentivise a more creative and proactive way of life, the Chinese government has directed investment into two main areas. On the one hand, since 2013 the government has started financing “innovation-houses”, spaces in community centres set aside for teaching people to use post-digital tools. There are now more than 75 innovation-houses concentrated in the areas of Shanghai and Beijing. On the other hand, a more ambitious campaign involved the 2013 construction of a 16,000 square metre “makerspace” in China’s most famous engineering school, Tsinghua University in which students are allowed to make experiments with open hardware as part of their degree.

Anti-Corruption

Re

Since 2013, when the Chinese President Xi Jinping came to power, a massive anti-corruption campaign has been initiated with the aim of netting hundreds of corrupted government officials and company executives. The central concern of 2014 Lianghui was the “Operation Foxhunt” by which the NPC decided to start the negotiations for an extradition policy with the United States to punish rich Chinese suspected to have fled abroad to launder money earned illegally in China. This problem has been underlined also at this year’s meeting, with particular emphasis on “smash the tigers and the flies” concern (要坚持老虎苍蝇一起打) stressing the importance of eradicating corruption both from high level members and lower level ones. This campaign is reinvigorating Xi’s reputation as a strong but fair leader among Chinese electors even though international observers point out that the targets of the campaign might be political enemies and opponents.

Regarding the Chinese Market, the anti-corruption crackdown has had profound consequences on markets which were mostly attractive for high net worth individuals. The gambling market has suffered the most, with gaming’s share of revenue in Macau dropping 17.4% in January, extending the run of consecutive monthly falls to eight. Obviously the Chinese luxury market has been strongly affected, experiencing a slow down for the first time in 2014 (-1% growth), a loss of approximately RMB ¥115 billion. Tourism, exotic markets and real estate have all experienced a slow down given the higher prudence of Chinese consumers coming from the fear of becoming suspects.

5-year Plan

5yearplan

The Lianghui received extra attention as 2015 is the last year of the 12th Five-Year Plan and the government meeting was a chance for the government to unveil the new 13th Five-Year Plan. Even though the actual 13th Five-Year Plan has not been released yet, the main concerns were obviously economic factors, employment and environment.

Regarding general Chinese economy, the GDP target has been set at around 7%. Furthermore, policies for the implementation of the new normal policy have been spelled out, including relaxation of the fixed exchange rate policy, the removal of some tariffs and the critical reduction of the industries in which foreign investment is restricted.

With respect to employment, the Lianghui has declared the will to create 10 million additional jobs in urban areas and to avoid an unemployment rate above 4.5%. With the same purpose, the budget allocated to military spending will be increased by 10%.

In conclusion, Lianghui’s considerations regarding environmental issues concentrated on cutting energy intensity by 3.1%, bringing coal consumption to a zero-growth equilibrium and replacing the “green charges” with actual “green taxes” and “green tariffs” in order to further incentivise energy saving habits.

Marketing strategies in China will be mainly affected by environmental considerations. These policies will push Chinese consumers to be more environmentally aware and perceive companies that are “more green” as more valuable. This is a great chance for companies to increase corporate social and environmental responsibility in their marketing schemes.