Well, well, well. All it took was a few days of whiplash regulations followed by unprecedented draw-down to get folks interested in the Five Year Plan. (This thread also helped)

Lillian Li @lillianmli

1) Given the amount of panic I've seen on Twitter over Chinese stocks. I'm once again, asking you to consider some fundamental framings of the rules and objectives of Chinese governance. It might be interesting. But it is better than being mired in FUD. $TAL $TCHY $BABA

From the Mechanism of the Five Year Plan, we know that it's the Chinese government's wishful blueprint. It's a guidance document that's put together through rounds of discussions and buy-ins from provincial, municipal and state levels. Still, if any startup or large corporations release the OKRs, there's no guarantee they will all happen. The history of Chinese Five Year Plans (FYP) is littered with their failures as much as their successes. Goals that weren't accomplished in the prior period gets carried over and re-empathised. The actual groundwork is done by provincial and local governments who will translate these ambitious goals into local policies. To keep track of each theme’s progress, reading local governments’ policies is the safest bet.

This table summarises the high-level social and economic indicators in the 14th Five Year Plan.

Here’s a link to the Google Doc for a better view

My 2020 to 2025 Five Year Plan narrative is the period of the Great Reshuffle. Similar to how on-premise enterprise software that gets by on license sales eventually switch to the cloud and recurrent billings. From the outside, the firm will see a few years of flat or moderate growth, but internally, they are re-architecture the bones of the place, shift emphasis from one department to the next and spin up new cloud divisions that weren't there before. Theoretically, when the pivot is complete in a few years, they will be ready for more growth.

Aspects that marked a departure from prior FYP (and therefore emblematic of a reshuffle):

The lack of a concrete GDP target while others do have concrete number targets - Unlike prior years, there wasn't a concrete GDP target. This is highly unusual for China who has historically prided itself on its GDP growth (though numbers here are not always concrete) and sends a strong signal that growth at all costs is not the main objective. Conversely, other indicators that traditionally did not have numerical targets attached to them now do, indicating higher focus in these areas. These include population growth, healthcare support and growth of high tech sectors.
35% of indicators are about social welfare, indicating a rebalancing toward social factors - It seems like increasing fertility rate and providing comprehensive healthcare options are new focus areas. I've tweeted about how I view the crackdown on education providers is primarily to do with its burden on child-rearing. I think keeping a sustainable demographic is currently the number one issue in policy member’s minds and expect more here.
Paying attention to the binding targets and those with the biggest target increases - Targets that are binding carry greater significance (and harsher penalties for nonattainment) than advisory targets. Environmental and security related issues are non-negotiable here while innovation and growth rates have all been advisory. The biggest expected increase in the indicators are in areas of patents, fertility rate and reduction in emissions, which are areas that I think will receive the strongest policy pushes.
Shifting of achieving GDP via service sector to GDP via high tech industries - One of the biggest differences in comparing the 13th FYP to the 14th FYP is the focus on GDP from core industries rather than the service sector. The FYP itself is littered with passages on upgrading manufacturing and creating domestic innovation. This coupled with the binding targets of security indicators indicates a deep desire to be increasingly self-sufficient in the coming years.

Given the difference in emphasis, I think China aims to reshuffle from an export-led, light manufacturing base that prioritises unequal growth to a consumption-led, high-tech manufacturing-based, low-carbon country (with sustainable fertility rate).

The specifics of how I think about this and what I consider exciting investment themes are in the unabridged version for the premium subscribers. (You also get more bad jokes). Feel free to subscribe here.

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Appendix:

I thought the HK Legislative Council Secretariat's summary of 14th FYP was decent (copied below).

Adhering to innovation-driven development: To consolidate and optimize the allocation of technological resources; to focus efforts on the research of original and pioneering technologies; to increase the share of basic research investment to 8% or above of the total R&D investment; to support the development of Beijing, Shanghai and the Guangdong-Hong Kong-Macao Greater Bay Area ("GBA") into international innovation and technology hubs; and to encourage enterprises to increase R&D investment and nurture high-calibre talents.
Accelerating the building of a modern industrial system: To promote a high degree of integration of advanced manufacturing and modern service industry; to build a modern industrial system through coordinated development of real economy, innovation and technology, modern finance and human resources; to promote strategic emerging industries; to further open up the service industry both internally and externally; and to coordinate the development of traditional and new infrastructure and build a modern energy system.
Forming a strong domestic market: To expand domestic demand and expedite the development of a more comprehensive domestic demand system, which should be integrated with the deepening of supply-side structural reforms; to use innovation-driven development and high-quality supply to guide and create new demand; and to accelerate the establishment of a new development paradigm featuring dual circulation which takes the domestic market as the mainstay while enabling domestic and foreign markets to boost each other.
Building "Digital China": To accelerate the construction of a digital economy, a digital society and a digital government, and to drive changes in production methods, lifestyles and governance methods through digital transformation as a whole.
Enhancing the quality of urbanization development: To facilitate a coordinated and characteristic development of large, medium and small cities and small towns by optimising the use of megalopolises and metropolitan areas to enable more people to enjoy better quality of life in cities.
Upgrading regional economic planning: To accelerate the coordinated development of the Beijing-Tianjin-Hebei Region, the development of the Yangtze River Economic Zone and the construction of the Guangdong-Hong Kong-Macao GBA, etc.; further "develop the west, revitalise the northeast, promote the rise of the central and speed up the development of the east"; to support faster development of certain special regions and strike a relative balance among the different regions in the development process.
Pursuing a higher level of opening-up: To further open up the country to the world, and promote international cooperation for mutual benefits by leveraging on its edge of having a super-large market; to ensure the steadfast and successful implementation of the initiative of jointly building the Belt and Road Initiative, and to promote the building of a community with a shared future for mankind (人類命運共同體)
Promoting green development: To improve the quality and stability of the ecosystem; to continuously improve atmospheric environment, make concerted efforts to promote reduction of pollution and carbon footprint, and constantly strive for better air quality and aquatic environment as well as effective monitoring and control against the risk of land contamination; and to speed up the green transformation of the mode of development, and make concerted efforts to promote high-quality economic development and a high level of protection of the ecological environment.

The key technology areas that got call-outs in the plan which are investable:

New Generation Artificial Intelligence
Quantum Information
Integrated Circuits (or Semiconductors)
Neuroscience and Brain-Inspired Research
Genetics and Biotechnology
Clinical Medicine & Health
New energy
Autonomous vehicles
High-end medical devices
Innovative medicines
Cloud computing
Big data
Internet of things
Industrial internet
Blockchain
Virtual and augmented reality

Further readings:

Overview of the 14th Five Year Plan (Abridge…

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