China’s new industrial policy resembles ‘Made in China 2025’
November 26, 2019 Category Macro-economy, Weekly
China has formulated a new industrial policy, but critics say it looks a lot like the “Made in China 2025” strategy, which was de-emphasized after it was criticized by the U.S. government.
The Chinese government announced a policy to upgrade and integrate China’s manufacturing sector with a “modern” service sector to respond to rapidly changing demand. The new plan will single out a group of companies to become “sector champions” by 2025. That echoes the “Made in China 2025” plan to upgrade the industrial economy, which has been quietly dropped from official communiqués, but which analysts say is alive and well on the ground. The document provides further evidence that U.S. President Donald Trump’s trade war has done little to change China’s drive to dominate new technology with state support. “Made in China 2025” was attacked by officials in the U.S. and the European Union, who said it was merely a conduit to use government funds to gain competitive advantages, often flouting global trading rules in the process.
The new policy guidance contains many of the same goals as the so-called “Made in China 2025” strategy that Beijing launched in 2015 to achieve global dominance in 10 sectors including robotics, aircraft, pharmaceuticals and other industries. “A key part of China’s technology drive involves the acquisition of foreign technologies through acts, policies, and practices by the Chinese government that are unreasonable or discriminatory, and burden or restrict U.S. commerce,” the U.S. Trade Representative’s Office (USTR) said in its original inquiry into China’s industrial practices.
In the ongoing trade talks, the Trump administration is continuing to press China to cut back on most Chinese government subsidies to state-owned or state-controlled enterprises. “At one point they gave up talking about Made in China 2025,” said Huang Yasheng, who heads the China Lab at the MIT Sloan School of Management, at a forum organized by the National Committee on U.S.-China Relations in Washington. “Now China 2025 has come back,” he said. “I think they made a calculation that it was not terribly useful to continue with the conversations with President Trump – they just give up on that.”
Companies including Huawei, NetEase and Xiaomi would play the main roles in implementing the new plan. The latest policy document doesn’t mention the same 10 sectors the Made in China initiative targeted but puts the same 2025 deadline for forming a group of “deeply-integrated” enterprises focused on “smart factories” with better connectivity through the internet and supply chain optimization. The new plan would “form a group of enterprises, platforms and pilot zones that deeply integrate” the manufacturing and service sectors. Instead of using direct government cash subsidies, it calls for support to come from long-term bank loans as well as grants of land by local governments, the South China Morning Post reports.
Based on new data from the National Bureau of Statistics (NBS) for the 2013-18 period, China’s emerging strategic and high-tech industries made significant progress and its R&D input growth in those industries was at a high level, according to Su Jian, Economist at Peking University’s School of Economics. China’s ratio of R&D expenditures to business revenues was 2.27% during that period, which is quite high but still lower than many other major economies. “It means there’s still much room for China to further increase its R&D expenditures,” Su added.
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