China Regulation Plan
Five-year plan announcements are widely considered to be major social and economic developments in China. As a planned economy, the People’s Republic of China develops along strategic guidelines set by the central government, and state resources are allocated accordingly. CEO’s and entrepreneurs in both the private and state-owned sectors consider the five-year plans in detail in order to plan and adjust their business operations.
In August 2021, the State Council of the People’s Republic of China and Central Committee of the Chinese Communist Party jointly released an outline plan for economic structuring, regulatory policy and compliance frameworks over the five-year period between 2021 and 2025. The strategic regulation plan supplements the 14th Five Year Plan published in March.
The outline serves to contextualize the substantial rounds of regulations issued over the summer, which have extensively affected the technology, insurance and education sectors among others, while informing businesses and investors of the overall policy direction following the central government’s commitment to antitrust legislation, social welfare, consumer protections and domestic network integrity.
The document underscores the importance placed on modernizing governance, not only in terms of digitalizing public sector services, but also with regards to protecting consumer interests and ensuring the long-term integrity of the digital ecosystem, as the economy transits from a production-oriented system to a consumption-driven model that is increasingly driven by eCommerce, online platforms and digital service providers.
The overall effect of the regulations will dilute the extent to which entrenched monopolies control markets, while establishing more stringent standards and procedures for the use of consumer data by technology enterprises.
The outline calls for legislation to govern priority areas such as national security, public health, antitrust initiatives, risk containment, high-technology development and environmental protection. It also identifies food and medicine, natural resources, labor, transportation, financial services and education as fields which require more stringent enforcement of laws and regulations. Promoting the “healthy development of new business forms” is another major priority.
According to the Mercator Institute for China Studies (MERICS), internet platforms and information services are a key component of the PRC’s long term development strategy. The MERICS paper on the CCP’s 2021 digital governance strategy identifies digital technologies as a critical aspect of the government’s strategy to reduce poverty and ensure long term socioeconomic development, particularly with regard to urbanization, developing infrastructure in rural areas, and bringing rural populations online.
Rural digital infrastructure and literacy still notably lags behind urban areas. The government plans to expand access to internet services and e-commerce platforms as well as training in rural areas to promote economic growth and consolidate its poverty reduction achievements. Even if rural residents won’t turn into online entrepreneurs overnight, this has already provided faster and cheaper access to goods.
—- Chapter 2, MERICS Paper on China: “The CCP’s Next Century: expanding economic control, digital governance, and national security.”
Technology sector regulations can therefore be understood in the context of public welfare and long term high-quality growth of the consumer economy, which includes new platform users in developing regions. Major fintech service providers are now required to coordinate with the authorities when evaluating clients for loans, which controls against systemic risk factors during the transition to a nationwide consumption-driven economy.
The extent to which economic and social development is interlinked with the widespread use of digital platforms calls for establishing Best Practice standards across both public and private sectors. The regulation policy document states that “the people’s growing need for a better life has put forward new and higher requirements for the construction of a government under the rule of law,” which should be “based on the overall situation, [and] take a long-term view.”
The 14th Five-Year Plan released in March prioritizes the development of the following sectors:
- Quantum information science
- Cloud Computing
- Integrated circuits
- Internet of Things (IoT)
- Data analytics and management
- Augmented Reality (AR) and Virtual Reality (VR)
Enterprises which effectively develop products and services in these areas will continue to have strong prospects, so long as they maintain awareness of public welfare guidelines that take nationwide development and consumer interests into account. To this end, the government also identifies the following product applications as important areas of focus:
- Smart Transportation
- Smart Manufacturing
- Smart Natural Resources
- Smart Agriculture and Water Resources
- Smart Education (Curriculum integration and rural access)
- Smart Healthcare
- Smart Neighborhoods
- Smart Households
- Smart Public Services
The regulation plan serves to clarify the quality of development that the central government prioritizes as the nation prioritizes social welfare alongside economic development as the world recovers from the pandemic. Further regulations and enforcement actions are likely to follow, which will mainly affect enterprises with a major presence in their industry, but some enterprises and sectors are likely to benefit: for example, projects that assist the development of supply chains for key industries that can reduce the country’s reliance on imports would align with the government’s priorities. Another key consideration is the extent to which any product or service may transmit user data generated in China overseas.
We will be publishing a subsequent guide to industries likely to benefit under the new industrial policy regime in China. In the meanwhile, should you have any questions or concerns regarding the impact of legislation on your projects on investments, we are always available for a consultation.