Made In China 2025 Explained

Made in China 2025 is a national strategic plan to further develop the manufacturing sector of the People's Republic of China, issued by Premier Li in May 2015. Understanding how this particular plan is controversial helps to put the current US-China Trade war into perspectives.

A little background

  • MIC 2025 is an initiative which strives to secure China’s position a global powerhouse in high-tech industries.
  • The aim is to reduce China’s reliance on foreign technology imports and invest heavily in its own innovations in order to create Chinese companies that can compete both domestically and globally.
  • China sees MIC 2025 as a chance to fully integrate into the global manufacturing chain and more effectively cooperate with industrialized economies.
  • Chinese officials have claimed that leading economies with high-tech industries such as the EU, Germany and the United States have expressed their hostility to the initiative due to the fact that it would move China from a low-cost manufacturer to a direct added-value competitor.

Even if key targets are not achieved, the initiative will improve China’s “overall economic governance’” and strengthen its financial, education, healthcare, and manufacturing sectors. The plan involves replacing China’s reliance on foreign technology imports with its own innovations and creating Chinese companies that can compete both domestically and globally. Therefore, there is a strong emphasis on its domestic manufacturing process where it wishes to increase production, not only on the essential components, but on the final product as well. With a focus on quality, the investment is towards technological innovation and smart manufacturing in areas such as machine learning, where the technology that is difficult to replicate via reverse engineering. 

My favorite part of this plan.

So the plan focues on 10 key industries, which I believe will not only generate profits, but also greater social and enviromental return in the future. ( The 10 Industries: advanced information technology; automated machine tools and robotics; aerospace and aeronautical equipment; ocean engineering equipment and high-tech shipping; modern rail transport equipment; energy saving and new energy vehicles; power equipment; new materials; medicine and medical devices; and agricultural equipment). I have to give BIG credit to China for its recent Green development and effort to combat climate change and address the health and environmental impact of China’s industrialization. 

Will it be achieved?

I think one of the most substantial tool in MIC is the state's financial support. For example, a semiconductor fund for “Xiaomi to develop the company’s first smartphone processor”.  Funding from state banks naturally leads to preferential treatment for Chinese businesses. State-owned banks are distributing subsidies, low-interest loans, and bonds, especially for small and medium-sized enterprises. I find the state funding to be the most substaintial tool is because it can be used to facilitate more investments from private investors and agencies.

The government has also introduced various targets for companies, including an increase in research and development as a percentage of sales from 0.95 percent to 1.68 percent, a 7.5 percent labor productivity increase by 2020, and a 35 percent decline in energy and water consumption per unit of added value by 2025. Leading companies have responded to those demands, focusing on technologies of the future. Intellectual property and capacity appears to have been developed in telecommunications, “wireless-sensor networks, 3D printing, industrial e-commerce, cloud computing, and big data”. Permits and licenses are being granted to Baidu and other companies to test their self-driving vehicles, while Baidu itself launched “Project Apollo”, a platform that provides hardware and open source code for other manufacturers to develop their own vehicles. Furthermore, the government is facilitating access to materials and providing subsidies for companies pursuing electric batteries.

So what are the Risks?

The main difficulty came from two sides --- the more industrialized economies of Japan and Germany and the low-cost manufacturers in India, Brazil, and others. This makes an effective strategy difficult to implement, particularly one of this scale. State officials recognize that even a successful MIC 2025 would only partially develop Chinese industry relative to Germany and Japan’s level of industrialization.

Also I think most of China’s companies are “not prepared for such a deep and sudden technological transformation”, which means that only a select few companies will be able to meet the government’s targets. Those companies will expand their international presence and competitiveness while facing limited competition in China. Nevertheless, the increased likelihood of poor management of risk and failed ventures could result in considerable problems for those that overextend.

The Reactions

Fears over Chinese expansion and dominance in strategically important industries has inevitably led to strains between Beijing and western governments, increasing the likelihood of retaliation. Chinese officials have claimed that leading economies with high-tech industries such as the EU, Germany and the United States have expressed their hostility to the initiative due to the fact that it would move China from a low-cost manufacturer to a direct added-value competitor, while shutting out international competition in the Chinese market.

For the U.S., the fear is that American companies will lose their competitiveness because MIC 2025 provides “preferential access to capital to domestic companies in order to promote their indigenous research and development capabilities, support their ability to acquire technology from abroad, and enhance their overall competitiveness”. Washington is especially concerned with apparent advantages gained in pursuit of new energy, self-driving vehicles, and aerospace equipment.

Trump’s decision to impose tariffs on $50 billion of Chinese goods imports, and the potential targeting of an additional $100 billion is aimed at neutralizing the advantages enjoyed by Chinese companies and punishing the “unfair competition” China is engaged in, particularly as the U.S. attempts to revive its own manufacturing industries. The Trump administration is now considering expanding those sanctions to specifically target China’s 10 key industries. Imposing 25 percent tariffs would punish Chinese companies for “IP theft” and slow down IP transfers via market access and partnerships. Restrictions on Chinese investments in U.S. technology companies are also planned. As made clear in the 2018 National Security Strategy (NSS), the U.S. sees China as a revisionist state that directly threatens American security and prosperity. Under Trump, the U.S. appears willing to contain “China’s ascent in advanced industries”. In response, China is willing to grant further market access for American companies.