Made in China 2025 and Self-Sufficiency in New Technologies.

Renato Balderrama Santander y Amado Trejo Romero*

Made in China 2025 and Self-Sufficiency in New Technologies.

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In May of 2015, the Chinese State Council announced the launch of Made in China 2025 (MIC 2025), a national plan to strengthen and balance China’s manufacturing industry, with a view to increase its influence in terms of international standards, global supply chains and innovation. This plan, created by the Ministry of Industry and Information Technology (MIIT) also seeks to counteract the effects of the recent economic slowdown by modernizing its productive structure and meet a series of specific objectives in a longer time frame: 2025, its reference date and 2049, the 100thanniversary of the founding of the People’s Republic of China.

 

Although MIC 2025 is thought to be inspired in the German initiative Industria 4.0, the Chinese plan has a broader perspective since it includes issues like quality, consistency in finished products, safety, protecting the environment and other strategic challenges for the country’s development. MIC 2025 is not an isolated effort, it is part of a series of interconnected policies that seek to increase local innovation through the so-called “emerging strategic industries” included in the 13thFive-Year Plan (2016-2020), in the new Science and Technology Plan, as well as in various regional development plans.[1]

 

MIC 2025 also establishes nine strategic tasks: to drive innovation; to promote the use of digital manufacturing focused on high technology; to strengthen the general base of the industry; to improve product quality and foster the creation of global Chinese brands; to join forces in implementing environmentally friendly manufacturing methods; to restructure industries in order to increase efficiency and production; to improve manufacturing service and service-oriented manufacturing industries; to globalize Chinese manufacturing companies; and to carry out technological innovations in ten activities deemed priorities and of high added value.[2]

 

Advanced marine equipment and high-tech ships, as well as advanced trains and equipment, are among the ten priority activities referred to. Also included are: agricultural machinery and technology; aviation and aerospace equipment; biopharmaceutical products and high-end medical equipment; integrated circuits and new information technologies; high-end electronic equipment; machinery for the control of high-end manufacturing and robotics; vehicles driven by alternative sources of energy, as well as new and advanced materials.[3]

 

 

MIC 2025’s proposal is one of the central government’s initiatives to foster indigenous (autochthonous or local) innovation development and self-sufficiency in sectors deemed strategic for the country’s development and leadership in the international arena. In general terms, one can say that the MIC 2025 plan pursues two main objectives. First, gradually replace foreign technology in national production processes. Second, extend the presence of Chinese technology to all regions of the globe.

 

For example, one of the main MIC 2025 goals for 2020 is to increase by 40% the participation of Chinese vendors in the domestic market of basic core components, and for important basic materials to increase to 40% by 2020 and to 70% by 2025. Similarly, concrete Chinese content goals are established for specific segments: 40% in smartphone processors by 2025; 70% for industrial robots; and 80% for equipment used in the generation of renewable energies.

 

"Made in China 2025 is a national plan to strengthen and balance the manufacturing industry in this country"

 

Economic resources committed to the implementation of MIC 2025 are substantial: the Advanced Manufacturing Fund amounts to approximately 20 billion yuan (2.7 billion euros) and the National Integrated Circuits Fund to 139 billion yuan (19 billion euros). In addition to these federal resources, provincial governments have various financial mechanisms aimed at capitalizing these industries. Just as a point of comparison, the resources contributed by the German federal government in support of its Industria 4.0 amount to 200 million euros, significantly less than the amount reported by China, only in the federal sphere.[4]

 

The contributed funds promote the innovation of Chinese companies. A portion is channeled in the form of loans and subsidies for research and development; another is destined to the establishment of 40 innovation centers that, by the latest in 2025, will be working on the development of information technologies and their integration into the productive process of manufacturing. Also considered are: a project for the construction of 1,000 green factories by 2020, equipped with the best practices in emission control; an initiative to encourage self-sufficiency and limit the import of materials to 20% of all components by 2025; and an initiative to promote indigenous (local) research and development in activities such as aircraft, vehicles powered by new sources of energy and medical equipment.[5]

 

A DISRUPTIVE DYNAMIC AT A GLOBAL LEVEL

Although MIC 2025 seeks to strengthen the capacity for modernizing and innovating national industries through the promotion of the so-called indigenous innovation and has an internal focus, it also intends to foster China’s international expansion from two dimensions.

 

The first one refers to the accelerated incorporation of cutting-edge technology by buying it or merging, or from investment in foreign companies, mainly in Europe and the United States. Chinese parastatal and private companies that seek to shorten the time to access technological solutions—taking decades to develop on their own—participate in these operations. Some analysts argue that if this trend continues, in the long term, China would be in a position to control the most profitable segments of global supply chains and production networks. This will surely generate tensions with the more advanced countries interested in protecting their strategic sectors. The confrontation with the United States over the possible acquisition of companies in the production of microprocessors and infrastructure equipment is an indication of the scenario that could prevail in the years to come.

 

"Advanced marine equipment and high-tech vessels, as well as advanced trains and equipment, are among the ten priority activities referred to"

 

The second dimension refers to the effort by the Chinese central government to support the internationalization of its large technological conglomerates and increase its presence as global vendors of goods and services. Although this effort is not new—seen at least since the end of the last decade—it is currently having a greater impact given the growing capacity of Chinese companies to mobilize financial and technological resources, and to act as agents of change, even disruptive, in other regions of the planet.

 

The two dimensions of China’s international expansion have generated mistrust and concerns among countries and global companies seeking to enter the Chinese market as suppliers of products and services in the industries listed in MIC 2025. Frequently and as a defensive measure, they seek to impose reservations on the technology transfer clauses in their contracts with local companies. The central argument of the chambers of commerce of the United States and the European Union in China, among other international actors, is that certain MIC 2025 guidelines could contravene the rules of international trade and, ultimately, hamper its operations and growth in the Chinese market.[6]

 

 

With the implementation of MIC 2025, China places knowledge economy at the center of its development strategy and bets on its potential to move up to the more complex stages of added value and to increase the international competitiveness of its companies. Through the planning and financing of MIC 2025, the central government plays a strategic role in generating an ecosystem conducive to innovation, whose ramifications extend to various regional innovation clusters and complementary areas of the new economy, among others: the technological financial services sector (Fintech); artificial intelligence; autonomous mobility; big data; the Internet of things; and smart cities.

 

Like in China’s first wave of industrialization and economic opening almost 40 years ago, the poles of technological development have been concentrated in the coastal areas: Shenzhen, Hangzhou, Shanghai, Wuxi, Nanjing, as well as Beijing, the capital. However, important regional innovation initiatives and policies have also been generated in western China (Chengdu and Chongqing) and in the south (Hainan).

 

MIC 2025 is China’s answer to the strategic importance that new technologies have acquired in the economy of the 21stcentury. Given this scenario of abundance of capital, technology and talent on the Chinese front, it is worth asking: what public policies will introduce both developed and emerging economies to strengthen national science and technology and thus avoid, in the near future, the widening of the digital gap and, therefore, the lag in terms of economic development and competitiveness?

 

*Director of the Center for Asian Studies at the Autonomous University of Nuevo Leon and director of the Asia Bureau at the same institution, respectively.

[1]US Chamber of Commerce, Made in China 2025: Global Ambitions Build on Local Protections, 2017, p. 18.

[2]China State Council, Made in China 2025 Plan Issued, 19/05/2015.

[3]Idem

[4]Mercator Institute for China Studies, Made in China 2025: The making of a high-tech superpower and consequences for industrial countries, 2016, pp. 6-7.

[5]US Chamber of Commerce, op. cit.

[6]EU SME Center, Made in China 2025: Market Opportunities for EU SMEs, March 2018; US Chamber of Commerce, op. cit.