“Made in China 2025” : Targets In Three Phases

14/09/2018

“Made in China 2025”, China’s plan to shake up the high-tech world,  is aimed at increasing China competitiveness, moving the country’s manufactured goods up the value chain. China wants to cut its reliance on foreign technology, is this project in line with WTO rules? Made in China 2025 stands at the heart of the trade war between the U.S. and China

 

What is “Made in China 2025”? In 2015 Chinese Premier Li Keqiang announced the “Made in China 2025” initiative, 中国制造2025 in chinese, known as “China 2025”. This economic plan was inspired by Germany’s Industry 4.0 plan for intelligent manufacturing industries, but according to recent analysis “Made in China 2025” is “far broader.”

The plan seeks to raise the domestic content of core components and materials to 40 percent by 2020 and 70 percent by 2025. In other words, it is a road map for China to boost indigenous innovation in cutting-edge industries, and it seeks to arise China’s competency in high-tech industries, move the country’s products up the value chain, and, maybe, give a hand to China escape the so-called “middle-income trap” that other developing countries have complained of.

“Made in China 2025” targets severals industries such as new advanced information technology, artificial intelligence and quantum computing, automated machine tools and robotics, aerospace, self-driving and new-energy vehicles and more.

While western countries dawdle and bicker, China is thinking long-term. Beijing has very recently toned down its publicity of “Made in China 2025”, in response to the international panic about the plan.

 

For the first couple of years, this initiative was under the radar of policymakers in Washington and elsewhere. But in western countries has grown the idea that the plan constitutes a competitive threat to European and American industries. Why?

 

China is planning a long-term program, instead of short one. Made in China 2025 has set the non-binding targets in three phases: Phase I (2015–2025), Phase II (2025–2035), and Phase III (2035–2045). The long-term ambition set off alarm bells in the West, but maybe the problem is western politics itself, while most developed countries dawdles and bickers, China is thinking long-term.

How does Made in China 2025 work? Beijing has very recently toned down its publicity of Made in China 2025, in response to the international panic about the plan. China’s main specified method for achieving Made in China 2025’s goals is to pump up its investments in critical high-tech sectors currently dominated by the United States and Europe. According to data, Beijing investments in U.S. tech startups totaled $2.3 billion in 2014, but skyrocketed to $9.9 billion in 2015, when Made in China 2025 was announced.

China’s tech titans Baidu, Alibaba, and Tencent  –  known as BAT – are at the forefront of the acquisitions around the globe. For example Pony Ma’s company is the largest China-to-U.S. tech investor, inked $11.5 billion in deals last year. Its investment projects include Uber, Tesla, and mobile gaming studio Riot Games. Markets also play a crucial role in Made in China 2025.

As mentioned by State Council, Chinese leadership has played a significant role by utilizing financial and fiscal tools supporting manufacturing innovation centers, calling for relying on market institutions, strengthening intellectual property rights protection for small- and medium-sized enterprises (SMEs), and using IP effectively in business strategy.

“Made in China 2025” also allows and encourages firms to declare new technology standards that could either fit into or replace international ones — an often overlooked area of international technology competition.

 

American officials said: “ Made in China 2025 is a threat, China is stealing the technological know-how and is violating WTO rules” Trump administration accused China of stealing hundreds of billions in IP from U.S. firms.

The document that defined current administration’s position, is a scathing 200-page report that the United States Trade Representative published on March 22, Findings of the Investigation Into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation Under Section 301 of the Trade Act of 1904, detailing a litany of abuses.

American officials accuse China of stealing trade secrets, especially the core technologies it desires, using cyber espionage to strike became increasingly convinced that the true intention of “Made in China 2025” is to use the disguise of an “open market” to steal intellectual property from foreign firms, thus, “China is not looking for a win-win in trade relations”.

Plus, according US government, China is violating WTO rules. America has criticized Made in China 2025 as violating Beijing’s pledge to the World Trade Organization to fairly engage in global competition and multilateralism. The key point of accusation – according current US administration –  is that any aspects of the plan could constitute unfair competition because China’s progress would be driven by the state’s heavy hand, rather than a free market.

 

But “China 2025” is actually opened to foreign firms. “The strategy is transparent and open, and it protects intellectual property”, said Wang Shouwen, vice-minister of commerce. China is seeking to upgrade its manufacturing sector and needs foreing know-how. Beijing decried protectionism, does this signal the dawn of a new China-led era of globalization?

 

Chinese state media Xinhua claimed “Made in China 2025” is strictly in line with WTO regulation. Wang Shouwen, the vice Minister of Commerce, states that Made in China 2025 is “transparent, open, and non-discriminatory,” and that “not only Chinese companies but also foreign firms can participate in it.”

Plus, vice Finance Minister Zhu Guangyao, stated how China is “formulating a timetable and road map for financial sector reform and opening up.” He added that China had made big strides in the field of intellectual property with a focus on talent and innovation, instead of achieving dominant and hegemon status”.

Since President Trump came into office, he has led the United States in stepping back from its traditional role at the head of global institutions like the WTO, creating a vacuum in leadership and throwing their future into question.

But those rules that Reagan and Bush senior administrations wanted to create it, officially, has a new champion: China.  Xi Jinping himself and Chinese leadership praised international trade and decried protectionism. Does this signal the dawn of a new China-led era of globalization?

 

“China 2025” is chinese way of escaping the “middle-income trap” and is a open path for every player. The key point is understand how to enter and be part of this new revolutionary project and this is a valuable lessons for policy evaluation and innovation elsewhere.

 

Why ‘Made in China’ products need transformation and upgrading?  According to the PRC State Council, China is seeking to upgrade its manufacturing sector to meet increasing demand from domestic consumers. According to chinese leadership, “the initiative aims to achieve breakthroughs in the manufacturing sector and boost the country’s competitiveness from a ‘world factory’ to a true manufacturing power, encompassing design to production.”

The Chinese government has carried out a package of measures, such as supply-side structural reform, which focuses on increasing high-tech production while reducing low-end capacity, along with support for innovation and sustainable development.

The argument is China 2025 is no more than a domestic policy to elevate Chinese manufacturing to global levels, not one based on achieving market dominance, and that therefore U.S. hand-wringing over the issue is unwarranted.

Richard Kozul-Wright and Daniel Poon, two senior UN officials, defend “Made in China 2025” on these grounds, and argue that the claims of China being an “old-school top-down mercantilist” in its “practices and import-substitution policies” have overlooked the reality of the country’s active experimentation with industrial and financial policies. Instead of China posing a threat, they believe it “may hold valuable lessons for policy evaluation and innovation elsewhere.”

“In 2015 Lou Jiwei, then China’s finance minister, said that his country had a 50% chance of falling into the “middle-income trap in the next five to ten years.” That’s why Increasing domestic innovation is essential for China’s future, and China is investing outboards. 

 

China’s economic “architect” and new vice premier, Liu He, before his first visit to the United States in early May, argued that “China will not back down on industrial policy, especially Made in China 2025”. The Chinese Ministry of Commerce has also underlined how it sees foreign pushback on Made in China 2025 as “attempts to curb China’s development”.

 

Chinese government, nevertheless is facing this nonsense trade war started by US, is pursuing straight away on its path and it’s becoming a model to follow. For example “Arabia Vision 2030”, the economic initiatives to diversify and modernize the Gulf country economy have more in common than meets the eye.

The goal of Arabia Vision 2030 is to transform Saudi Arabia into a financial power in the Middle East while reducing its dependence on oil revenues. The project was presented by King Salman, but the plan is, in fact, a result of the Crown Prince Mohammed Bin Salman, the intellectual force behind the Riyadh’s recent economic reforms and technology push.

Saudi Arabia’s oil revenues currently account for 90% of its GDP. In an effort to diversify the economy, Prince Mohammed Bin Salman is looking to new economic sectors, following in the footsteps of the UAE. Incentives and priority will be given to private capital and tech research, alternative and renewable resources, and an efficient extraction of mineral resources such as gold and uranium.

But Saudi Arabia is an opportunity and China a threat, following an utopist and anachronistic point of view.  According to McKinsey, China has one of the most active digital investment ecosystems in the world. Beijing’s hallmark “Internet Plus, 互联网 +” program meshes mobile 5G internet, cloud computing, big data and Internet of Things with traditional sectors including manufacturing, finance, healthcare, government, and agriculture. What about Europe or US? The so called “Old World” is facing internal political challenges and US administration is now no more the light of international development. The future? Is speaking chinese.

 

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