What China’s latest Five-Year Plan could mean for foreign investors and companies
The first details of China’s ambitious new Five-Year Plan for 2021–2025 have been revealed. According to Shushu Zhang, Vice President, Kalmar Greater China, opportunities in China will increase as the country focuses on advancing its technological capabilities, pursues green reforms and develops its domestic infrastructure.
AUTHOR: DAN RIDER
China’s Five-Year Plans (5YP) are a series of social and economic development initiatives that have been issued since 1953. At the heart of the 14th 5YP for 2021–2025 is a new dual circulation objective, which emphasises the need for China to create a more balanced relationship between its domestic market and its outside relationship with the wider world. This recently adopted policy places greater importance on the country’s domestic market and less on external commerce.
This strategy represents a fundamental policy rethink by China. Its implementation is partly due to geopolitical megatrends, such as the disruptive global impact of the COVID-19 pandemic and the implications for future globalisation trends, and the US-China trade war which has restricted Chinese companies’ access to overseas markets.
Changing attitudes towards foreign companies
Shushu Zhang, Vice President, Kalmar Greater China, is responsible for Kalmar mobile solutions’ frontline sales and services for ports and terminals, logistics, and industrial customers in Greater China. From her point of view, this latest 5YP provides investors and companies - who are looking to further consolidate their operations in the country or enter the market for the first time - with a window into the most critical opportunities and challenges facing China in the next few years.
According to Zhang, Chinese terminals believed that European and US counterparts, for example, used to have more advanced solutions. Now, however, the situation has changed. The industry realises that most of the leading, sophisticated or biggest terminals are in their own backyard. Foreign companies are being eyed in terms of what they can bring to the table to fully satisfy China’s internal logistical and technological requirements.
A new focus on the environment and climate change
With a tacit admission that China still has much work to do with regard to environmental and ecological protection, the 5YP makes climate change a central policy priority. To address this, China has set out a series of ambitious plans for green and low-carbon development. Analysing how China’s plan to cut emissions is likely to affect investments, Zhang considers the topic from two angles.
“The first is that the 5YP puts equal emphasis on dual circulation and domestic technology innovation. It links this tech development to sustainable and high-quality growth, which naturally connects to environmental initiatives or climate change issues,” she says.
On the other side is the goal to 2035 and the emphasis on improving people’s living quality, touching on social security, education and mobilisation as well as the environment. “Since climate is such an important part of the environment in general and an important part of people’s lives, it will naturally have a lot of focus on this part.”
A move towards renewable and electrical solutions
One specific example of the shift towards the sourcing of more renewable forms of energy concerns wind power. Zhang adds that the Chinese economy has traditionally used—and still uses—coal as a major source of energy. As a consequence of this new strategy, however, many leading wind power companies have decided to issue their own five-year plans in the belief that the clean energy gained from wind power will achieve a fast-growing phase in the next five years.
“This sends a very clear message to a lot of companies and suggests that a lot of clean-energy industries stand to benefit from this new plan. At the same time, we are going to see a very clear difference in terms of energy usage and emission standards due to this change,” says Zhang.
In addition, greater emphasis is now being placed on rapidly implementing electric solutions to help future-proof cargo handling and terminal infrastructure as well as boost the country’s climate-friendly credentials.
Zhang believes that in the next few years, electrification is going to significantly change the cargo handling equipment and automated terminal solutions. “Domestic companies are putting a lot of efforts into R&D in order to launch some electrical products or hybrid models first, but may not necessarily deliver a very mature total solution.”
Investing in R&D is key
Investors and companies will soon start to make new China-centric business decisions based on analysis of the latest 5YP as R&D has been given a high priority in the plan. Zhang says that Cargotec’s decision to move some of the R&D and product manufacturing over to China was a smart move in this respect.
“R&D investment is going to be encouraged and stimulated by the local government. In addition, our customers will also receive the government’s encouragement, which may include financial support to upgrade their fleet, solutions or equipment. This could be the future market where we are able to introduce a lot of green or digitalised technology at a wide scale. Some of these adoptions can actually be much faster compared to others in the market.”
Potential benefits and challenges ahead
Zhang argues that the benefits have the potential to far outweigh any negative impacts for companies and investors across the next five-year timeframe.
As a supplier, Cargotec is recognised in China as having well-established and highly advanced technology. One challenge is that companies like Cargotec will have to be really fast in terms of utilising R&D.
“We have to at least keep the pace of our competitors in China in terms of investing in and developing new technology. More positively, the Chinese are very consistent when it comes to their strategic element; being in this very predictable development environment can drive our business forward. The second point is that our industry is cargo handling. This dual circulation policy definitely helps us, not only for the terminal business but also in terms of intermodal development and distribution,” she states.
Over the past 30 years, China has built a large number of terminals, some of which have now reached the replacement phase for their diesel engine equipment. The country is also investing in the Railway network and inland transportation. For Cargotec and other groups within the cargo industry ecosystem to catch this perfect opportunity, there will be a primary need to introduce smarter or connected machines with more powerful digital solutions, leading software and comprehensive data analysis in the next few years.
“To maximise our benefits, we have to make sure that we are able to catch this ride and be really ahead of the game, or at least be one of the forerunners,” concludes Zhang.