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December 2014 • SMT Magazine 15 2014: YeAr-eNd revIeW continues SMT proSpECTS & pErSpECTivES have stayed out of the labor force, and some young people are staying in school for a longer period. In other parts of the world, the Eurozone's recovery has been sluggish and Japan's Aben- omics is still a work-in-progress, despite the stimulus programs. As expected, trouble spots with the standoff between China and Japan over territorial disputes in South China Sea did not blow up. Nonetheless, geopolitical risk has risen in 2014, especially with the resurgence of the Islamic State of Iraq and Syria (ISIS) and the escalating complexity of the Middle East poli- tics vis-a-vis U.S. foreign policies. Commodity prices, tightly linked with the supply and demand dynamics, have declined, also as predicted. In corporate America, a rising tide (stimu- lus coupled with low interest rate) has raised all boats in market capitalization although stock prices have fluctuated far more than logic can justify. Companies that have not ridden the tide to take a hard look at their business strat- egy and to execute on enhancing operation ef- ficiency and profitability are losing a precious opportunity. New evolving events toward the later part of the year (e.g., stronger dollar and lower oil prices) are expected to generate mixed forces in driving the corporate earnings in the fourth quarter. For 2014, with lower energy prices and de- clining commodity prices, the impact of BRICS countries is largely supported by one country— as well said, for year 2014, the "brick" was China. cHINA FAcTOr From January 2014 Outlook: "China is gaining traction in global trade. The country has just hit another milestone as the use of the yuan (renminbi) in trade finance overtook the euro and the yen, although the yuan is still far behind the U.S. dollar. This is not to say that China's banking and financial systems are well established. However, this milestone indicates that foreign (non-Chinese) companies are getting more comfortable trad- ing in yuan, in addition to garnering some pric- ing advantages. It is crucial for China's new leadership to implement structural reforms in 2014. Within the context of "planned reform," the timing happens to be good from the standpoint of the state of the world economy. With all three of its largest trading partners in a slow-growth mode, China has more a rea- son to gear up its consumption-oriented econ- omy to spur long-term growth, sustainability and social stability. Its government increasingly recognizes the market role in economy in order to move to a sustainable path that will depend more on domestic demand and less on exports and government spending. The country has just formed the National Development and Reform Commission to de- sign and coordinate its reform. The new leading group's duties, apart from economic reforms, are to plan and carry out reform on modernizing China's "governance system" and "governance capability." The core issue of the reform is "to better handle the relationship between govern- ment and the market" [3] . With the formidable task in hand, the country's stability is the new leaders' number one "wants and needs." Conse- quently, the official growth target is not expect- ed to be higher than 7%. However, take note that in practice, China has always exceeded its target in recent years. China's twelfth Five-Year Plan is the national master blueprint to achieve medium term economic and social objectives. The country must stay on its course to develop seven strategic priority industries: new energy (e.g., nuclear, solar, wind); energy conservation and environmental protection (e.g., energy reduction target); biotechnology (e.g., drugs, medical devices); new materials (e.g., high-end semiconductors, rare earth); new IT (e.g., broad- band network); high-end equipment manufac- turing (e.g., aerospace, telecom equipment); clean energy vehicles. China plans to provide fi- nancial and tax support to these industries over the next decade in hopes of making these sec- tors account for around 8% of China's GDP by 2015 and 15% by 2020. The broad-based goals to be achieved are: sustainable growth; moving up the value chain; reducing disparities; scien- tific innovation with R&D spending increase to 2.2% of GDP; environmental protection; energy efficiency; and domestic consumption.