Target IAS

Q1: What is "Made in China 2025"?

A1: "Made in China 2025" is an initiative to comprehensively upgrade Chinese industry. The initiative draws direct inspiration from Germany's "Industry 4.0" plan, which was first discussed in 2011 and later adopted in 2013. The heart of the "Industry 4.0" idea is intelligent manufacturing, i.e., applying the tools of information technology to production. In the German context, this primarily means using the Internet of Things to connect small and medium-sized companies more efficiently in global production and innovation networks so that they could not only more efficiently engage in mass production but just as easily and efficiently customize products.

The Chinese effort is far broader, as the efficiency and quality of Chinese producers are highly uneven, and multiple challenges need to be overcome in a short amount of time if China is to avoid being squeezed by both newly emerging low-cost producers and more effectively cooperate and compete with advanced industrialized economies. The English translation of "中国制造2025" -- "Made in China 2025" -- does capture the goal of localization, but it misses the focus on the manufacturing qua manufacturing. The plan was drafted by the Ministry of Industry and Information Technology (MIIT) over two and a half years, with input from 150 experts from the China Academy of Engineering.

Q2: What are its key contents?

A2: Based on the State Council document summarizing the plan released last week, "Made in China 2025" has clear principles, goals, tools, and sector focus.

• Its guiding principles are to have manufacturing be innovation-driven, emphasize quality over quantity, achieve green development, optimize the structure of Chinese industry, and nurture human talent.
• The goal is to comprehensively upgrade Chinese industry, making it more efficient and integrated so that it can occupy the highest parts of global production chains. The plan identifies the goal of raising domestic content of core components and materials to 40% by 2020 and 70% by 2025.
• Although there is a significant role for the state in providing an overall framework, utilizing financial and fiscal tools, and supporting the creation of manufacturing innovation centers (15 by 2020 and 40 by 2025), the plan also calls for relying on market institutions, strengthening intellectual property rights protection for small and medium-sized enterprises (SMEs) and the more effective use of intellectual property (IP) in business strategy, and allowing firms to self-declare their own technology standards and help them better participate in international standards setting.
• Although the goal is to upgrade industry writ large, the plan highlights 10 priority sectors: 1) New advanced information technology; 2) Automated machine tools & robotics; 3) Aerospace and aeronautical equipment; 4) Maritime equipment and high-tech shipping; 5) Modern rail transport equipment; 6) New-energy vehicles and equipment; 7) Power equipment; 8) Agricultural equipment; 9) New materials; and 10) Biopharma and advanced medical products.

Q3: Is "Made in China 2025" an extension of the 2010 plan to support "Strategic Emerging Industries"?

A3: The unveiling of "Made in China 2025" suggests a major departure from the Hu-Wen administration's approach to innovation and technology upgrading. The heart of their approach was the Medium- and Long-Term Plan on the Development of Science & Technology. A 15-year plan issued in 2006, the plan's key concept was "indigenous innovation" (自主创新) and focused entirely on advanced technologies. The culmination of the plan was the identification in October 2010 of seven "strategic emerging industries" (战略性新兴产业) that were seen as vital for China to achieve mastery in if it was to become an advanced economy. The core of the plan focused on developed leading-edge advanced technologies through investment in R&D from state and industry sources, accumulation of intellectual property, setting of distinct technical standards, and leveraging access to the Chinese market in exchange for foreign technologies. The plan set a target of SEI-related industries to account for 8% of the economy by 2015 and 15% by 2020. The plan was developed jointly by National Development and Reform Commission (NDRC) and Ministry of Science & Technology (MOST), with supplemental input from MIIT and other ministries.

"Made in China 2025" is different in multiple respects: 1) It focuses on the entire manufacturing process and not just innovation; 2) It promotes the development of not only advanced industries, but traditional industries and modern services; 3) There is still a focus on state involvement, but market mechanisms are more prominent than in SEI. For example, instead of focusing on top-down, unique domestic technical standards, the attention is on self-declared standards and the international standards system; and 4) There are clear and specific measures for innovation, quality, intelligent manufacturing, and green production, with benchmarks identified for 2013 and 2015 and goals set for 2020 and 2025. In this regard, the proposal reads much more like a five-year plan (which I believe is intentional), even though laid out over 10 years.

The plan's language is also very different than under Hu-Wen. The term "indigenous innovation" appears only twice and "SEI" only once. There is no obvious effort to paint this as the successor to or extension of SEI, but in fact, to show that an SEI-oriented focus was too narrow and built on a misunderstanding of China's core needs and comparative advantage. In addition, the original focus on innovation took inspiration from similar innovation programs developed in the United States, Japan, and the EU during the 2000's in the wake of the information technology revolution and a common concern about technological competitiveness. As mentioned above, "Made in China 2025" is more consistent with how Germany and Japan approach their economies than the United States.

Although there will no doubt be problems with implementation and perhaps create new market-access challenges for multi-national companies (MNCs), from a Chinese national-interest perspective, this plan is much better conceived and more appropriate for China's situation than the "indigenous innovation" approach and SEIs. It will be more coordinated and utilize a wider array of policy tools. If a "Made in China 2025" leading group has not already been created, I expect there to be one soon.

Q4: What are the implications for MNCs?

A4: MNCs face new challenges and opportunities with this plan. In terms of challenges, a clear goal is to make Chinese companies more competitive across the board, to localize production of components and final products, and to have Chinese firms move up the value-added chain in production and innovation networks, and to achieve much greater international brand recognition. In addition, the plan calls for Chinese firms to ramp up their efforts to invest abroad, and to do so by becoming more familiar with overseas cultures and markets, and to strengthen investment and operation risk management. (The drafters are clearly sensitive to the high proportion of failed overseas investments.) It specifies focus on the countries that together make up the Silk Road initiative, but it is meant to apply everywhere. Government measures and market incentives will be used to pursue these goals. In some ways, this represents a frontal challenge to advanced manufacturing in the US, Europe, and East Asia.

At the same time, MNCs and other countries can benefit in three ways. First, there will be greater investment and attention to the ten industries, and MNCs that align themselves with these sectors and the general goals of this plan can benefit from its focus. In some ways, there will be greater competition from Chinese companies and a buy-local push, but it's a guarantee that MNCs will be needed to provide critical components, technology, and management for this plan is to work. Second, to the extent China genuinely embraces intelligent manufacturing, it will be much easier for Chinese companies and MNCs to collaborate, both in China and elsewhere. This is a big 'if', but it is potentially a way to reduce the zero-sum elements of the business relationship. And third, most broadly, if China successfully upgrades its manufacturing capacity, that will have meant it has also likely improved its overall economic governance, including its financial and fiscal systems, strengthened the education system, and increased access to varied sources of information. These should all be of general benefit to the global economy and MNCs.

Q5: How is Premier Li Keqiang's recent tour of Latin America related to this plan?

A5: Strengthening relations with Latin America has been a priority for China's leadership. In early 2014 Beijing announced the creation of the China-Community of Latin American and Caribbean States (CELAC) Forum, which met for the first time this January. Xi Jinping has made two trips to the region, and Li Keqiang just completed a 9-day tour of Brazil, Columbia, Peru, and Chile. Li signed dozens of agreements promoting economic cooperation, worth over $100 billion. Although Premier Li didn't specifically tout "Made in China 2025," he emphasized that China's renewed focus on advanced manufacturing would be beneficial to Latin America's economy, moving the commercial relationship's focus away from natural resources toward basic infrastructure, industry, and information technology. Li stressed that expanded Chinese investment in everything from high-speed rail to telecom should also help Latin America upgrade its manufacturing capacity and industrial structure as well. We can expect that the Chinese leadership will continue to carry a similar message wherever their travels take them.

written by:-Scott Kennedy
Deputy director of the Freeman Chair in China Studies and director of the Project on Chinese Business and Political Economy at the Center for Strategic and International Studies (CSIS) in Washington, D.C. 

Article 2:-

China to invest big in ‘Made in China 2025’ strategy

BEIJING — China will step up financial support for major projects of its “Made in China 2025” strategy, a blueprint for upgrading the country’s manufacturing sector.

Sectors that boost manufacturing innovation, including the Internet of Things, smart appliances and high-end consumer electronics, are the major priority for funding, according to the Ministry of Industry and Information Technology (MIIT).

The total funding is likely to exceed 10 billion yuan ($1.5 billion), Xinhua-run Economic Information Daily reported.

Aside from central-level funding, local authorities will also increase financial support for “Made in China 2025” projects with over 10 billion yuan expected to be invested by local governments nationwide from 2016 to 2020.

The MIIT will also cooperate with China Development Bank to provide financial services including loans, bonds, leasing to support major projects, with an estimated 300 billion yuan of financing in place in the 2016-2020 period.

“The financial support gives a clear direction for future development in China’s manufacturing innovation and boosts social confidence in economic restructuring and upgrades,” said Wu Hequan, academician of Chinese Academy of Engineering.

The “Made in China 2025” strategy, a roadmap released by the State Council in 2015 to guide the country’s advanced industrial manufacturing, has seen steady progress in industrial capability, smart manufacturing, innovation, as well as product quality and branding.

Average productivity was up by 38 percent for China’s first 109 pilot projects in smart manufacturing, while operating costs dropped by 21 percent, according to the MIIT.