New Emphasis on Quality, Not Quantity in Chinese Industry

Reminiscent of the mid-20th Century, China (NYSE:FXI) still uses five-year plans. The country is in its twelfth such plan (2011-15), and growth expectations for the duration are down, according to a State Council release on Wednesday. 2011 saw growth of 11.7 percent but projections are now for 8 percent through 2015. Industrial growth didn’t drop below 6 percent, even during the financial crisis.

Officials are not indicating that the drop in growth is due to lower productivity, however. The Ministry of Industry and Information Technology explained it by saying, “The Plan requires a proper balance of quality and quantity in industrial development and a greater emphasis on innovation, technological improvement and energy conservation.”. It is thought by some industry experts that setting the goal too high causes too much emphasis upon speed at the cost of quality.

The current Plan also is designed to shift the basis of growth from labor intensive to a value-added system. R & D spending will increase to 3 percent of sales in major industrial enterprises, while their number of patents held might double. Further, it is expected that emerging industries could see their output expand to 15 percent of the total by 2015.

Environmental goals are also targeted by the Plan: pollution and capacity reduction in energy-intensive industries is expected decrease energy consumption for each unit of added value in industrial output by 21 percent, water consumption by 30 percent, and carbon emissions will be “largely reduced”. Finally, companies are being encouraged to set goals that create local brands, improve product quality, and raise competitiveness with technological updating and explorations of foreign markets.

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