A Chinese worker assembles a new energy car on the assembly line at an auto plant in Zouping county, East China's Shandong province, Dec 16, 2014. [Photo/IC]

The 5th Plenum and the proposals for the new Five-Year Plan (2016-20) stated that "development is still the number one priority" and called for maintaining "medium rapid" growth. Since it is officially estimated that doubling the 2010 GDP by 2020 requires a 6.5 percent annual average growth in the next five years, it is likely that the new plan will set a target around 6.5 percent.

To help achieve such an ambitious growth target against a challenging global and domestic environment, the government plans to promote innovation, upgrade manufacturing sector, increase R&D spending, rely more on Internet, modernize agriculture and integrate regional development. We expect the share of R&D spending in GDP to continue rising in the coming years, and business registration, a reflection of mass entrepreneurship, to increase as well.

The proposal recognized the importance to deepen economic reforms including in SOE, fiscal and financial areas. It also called for intensified "targeted" macro policy management while also announced full liberalization of goods and services prices in competitive sectors.

Consistent with the ongoing theme, the new five-year plan will target an increase in the consumption share of GDP, supported by policies to promote employment and wage growth, expand social welfare, and further develop the services sector. On the latter, lowering entry barriers and liberalizing services prices can help attract more private sector investment in related sectors. We expect the share of services in GDP to continue to rise beyond 50 percent in the next few years.

Go "green"

Green development is listed as a key development objective in the 13th Five-Year Plan for the first time. Along this line, the government had earlier already committed to cut 2020 CO2 emission intensity by 40-45 percent from the level in 2005, and the share of non-fossil energy in primary energy consumption is set to increase from 11.4 percent in 2015 to 15 percent in 2020.

The proposal called for the establishment of distribution systems of the rights to use energy and resources, and for pollution and CO2 emission. It also plans to implement prevention and clean up programs for air, water and soil pollutions.

The new plan will likely finalize environmental tax legislation, expand resource tax reform, support for various "Green finance" channels, and provide incentives for environmental-friendly technologies and products.

Industries that are set to receive continued policy support from the new plan include new energy technology and application, new energy car, third-party environment protection services, new construction materials, and trading market of pollution rights & quotas.

Poverty reduction and social welfare

The new plan places more focus on equality, poverty reduction and social welfare. The government plans to eliminate poverty by end 2020, to pull the 70 million people under the current poverty line (annual income below 2,300 yuan at 2010 price, roughly equivalent to international poverty threshold of $1.9 per day at 2011 price PPP) out of poverty by the end of the five year period.

To help achieve a systematic poverty reduction, the government plans to provide free high school and middle-level vocational education to students from pool families, promote flexible employment and enhance minimum wage system, and improve social safety net. On the latter, the government targets full pension participation and full serious illness insurance coverage nationwide by 2020, and national pooling for basic pension.

To help finance such expansions, a portion of State-owned capital will be transferred to social security funds. The latter is also a part of the SOE reform that aims to separate state capital management from state enterprise management.

Opening up

The government plans to open up the economy further in the next five years. Foreign investment will be subject to pre-established national treatment and negative list system nationwide in the future, with services sectors opened further with simplified business procedures.

China's "go global" strategy is set to be prioritized around the "One Belt One Road" and deepening of global integration. The country's overseas investment is expected to continue growing rapidly in the next 5 years. China also wants to more pro-actively participate in international cooperation and global economic governance.

This includes the likely inclusion of the RMB in the IMF's SDR, the recent establishment of the Asia Infrastructure Investment Bank, and China's likely promotion of more bilateral and regional free-trade agreements, and establishment of more domestic free trade zones.

Relaxation of "one-child" policy

After three decades of implementation of the one-child policy, the government finally announced the removal of all restrictions on families having a second child nationwide. This come after decades of strict family planning led to the decline of working age population starting recently, a host of social issues, and a fast aging population. The partial relaxation of the one-child policy in urban areas since 2014 has led to a small but visible pick up in the birth of second child.

The relaxation will undoubtedly increase birth rate in China given that a portion of the population has not been able to have a second child. While increased child births may boost spending related to child-raising in the next few years, the impact will likely be relatively limited in the short-term.

Moreover, demographic changes tend to be very gradual, and Chinese women's current fertility intention is low. Given that birth rates in neighbouring East Asia economies are among the lowest in the world, it is possible that China's birth rate does not show a significant increase even after the relaxation of the one-child policy.

If one assumes that birth rate increases from the current 1.2 percent to 1.4 percent a year and be sustained at that rate, China's population aging process will be slowed significantly, with the population peaking at close to 1.6 billion people around 2050 rather than 1.4 billion around 2025-2030.