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16 SMT Magazine • January 2016 Leveraging on the power of the Internet to boost the productivity of traditional sectors such as manufacturing and to garner smarter processes and better technology is another pri- ority. The government will continue its effort in modernizing its underdeveloped capital mar- ket. As committed, it will allow market forces to play a more important role in setting the yuan exchange rate in the 13th Five-Year Plan and continue reforms in its financial system. The inclusion of the yuan in the IMF reserved currencies, effective October 2016, reflects the recognition of China's place in global finance. But it imposes challenges in managing the yuan and in communicating with investors with clarity and transparency. Its central bank is ex- pected to continue facing market pressure by al- lowing modest depreciation of the currency in the coming year. However, keeping the yuan's stability should be the number one priority. To achieve Beijing's goal to make the yuan a con- vertible and freely usable global currency, do- mestic pushback and significant challenges are in sight. Innovation as an Emblem Spurring innovation will need to be front and center to move China's economy up the value chain. China has made heavy investments in R&D in recent years; China ranks number two glob- ally in overall R&D spending (OECD 2014)— $350B (2.1% GDP) vs. U.S. $465B (2.8% GDP). Considering the spending growth rate, China's R&D spending is expected to surpass that of the U.S. by the early 2020s. Heightened emphasis on innovation and technology is embedded throughout the Plan. The government intends to encourage innova- tion by supporting scientific research and cor- porate R&D and continue to encourage mass entrepreneurship through major scientific and technological projects. Building national labo- ratories in the hope that it will lead to new tech- nology is also part of the plan. Over a million science and engineering graduates each year are helping to establish important beachheads in science- and engineering-based innovation. Anticipated Economic Landscape Contributing to approximately 38% of the global growth (2014) and more than 15% of the global GDP, China's stability and stabilizing growth will be essential to the world economy. The inclusion as the third largest component of the IMF lending basket elevates the yuan's status, an uplift to China's economic leverage. In response, its central bank has announced to accelerate efforts to overhaul the country's fi- nancial system, further opening its market and keeping the yuan stable. China's economy with double-digit growth rates as demonstrated in last two decades is the way of the past. However, even slowing down, China is expected to continue to grow at a pace that other major economies envy. A higher per- centage does not necessarily translate into a more robust and stable economy. Maintaining the growth in the range of 6–7% (6.5% plus or minus 0.5%) over the next few years is a prag- matic target. In the event that the target lands below 6.5%, the fear factor may rule the market. The market could view it unfavorably, which would especially weigh on commodities. To foreign companies, the new FYP bears a plethora of business implications. I see specific opportunities in individual areas and industry sectors. China continues to be the world's big- gest consumer of semiconductor products, mo- NEw YEAr OutLOOk: ChINA's fIvE YEAr pLAN smt prospects & perspectives " the government will con- tinue its effort in modernizing its underdeveloped capital market. As committed, it will allow market forces to play a more important role in setting the yuan exchange rate in the 13th Five-Year plan and continue reforms in its financial system. "

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