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Analysing the impact of China’s 12th five year plan on 33 industries

July 15, 2011

The research powerhouse McKinsey, recently released a report on the impact of China’s 12th Five year plan effective 2011-2015 on 33 chosen industries (see chart). The industries covering real estate to retail, shipping to power and telecommunications to automotive were split across two axis points – profit pool and competitive landscape. The plan’s likely impact on profit pools was categorized as either favorable (for example, sensitive to an increase in domestic demand or specifically targeted for special treatment), unfavorable (subject to restrictive policies), or neutral. For the effect on the competitive landscape, McKinsey looked at the intensity of regulation.

Five groups emerged from the analysis. New strategic industries were singled out for global leadership, these include industries such as new energy sources – renewables and biotechnology. The industries are moderately open and have a positive profit pool according to the McKiney report.  The government has helped incubate such companies by providing them with leading technologies and capital. There is a clear government mandate to push these industries to excel and foreign investment as well as capital will be warmly welcomed.

Domestic-consumption engines – Analysed as having a positive impact on the profit pool and being most market driven, these drive domestic consumer growth and include consumer facing industries like airlines, FMCG’s, food, tourism pharmaceuticals and shipping – these are expected to benefit from the governments focus on social harmony and green development.

Restructurers are under government mandate to change. These include only two industries – Real Estate and Commercial banking for which analysts have already rung the death toll. McKiney says that they are moderately regulated but have a negative impact on the profit pool. While fundamental to the economies economic and social well-being, they follow significant structural risks and face shaky business models. The government has given them a mandate to clean up their act.

Reinventors are mature industries that must innovate and reinvest to close the gap with global leaders. Ranked highly to moderately regulated, they have a neutral impact on the profit pool.  This segment predominantly includes manufacturers that lag behind their global competitors in technology, suffer from over-capacity, low efficiency and high pollution. Beijing is desperately  pushing them to innovate and move up the value chain.

Social utilities are large state-owned enterprises managing significant components of the national infrastructure including power grids, telecommunications and railways. These industries ranked highly regulated yet with a positive profit pool are expected to grow steadily thanks to urbanization and government support. With no real competition, these industries are well poised to scale at global standards of quality and cost.

For further details and an in depth analysis on the impact on each industry, please subscribe to McKinsey & Co.

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