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Understanding “Made in China 2025”

Workers sort parts at an electronics company (logistopedia)
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ChinaScope

Introduction

Made in China 2025, or MIC 2025, is China’s national strategic plan to upgrade its manufacturing sector. The Chinese government announced the program in May 2015, as part of its Thirteenth (2016-2020) and Fourteenth (2021-2025) Five-year Plans. Given the heightened attention paid to the program by U.S. and European policymakers following escalation of the U.S-China trade conflict in 2018, Beijing has downplayed the phrase “MIC 2025” in its official communications, while the program remains in place. MIC 2025 continues to be the backbone of China’s industrial policy for the coming decade. In response to the plan, western governments have vowed to increase investment into advanced technology and reorient the global supply chain to meet the threat posed by China. Therefore, it is crucial to understand the rationales of decision makers in Beijing and their intentions behind MIC 2025.

Many people inside the Chinese government believe that the power balance between East and West is beginning to change, and that China is moving from the periphery to the center of the international stage. The idea is that Communist China is now able to actively participate in shaping the international order. In particular, the Chinese Communist Party (CCP) is turning its gaze to the ongoing technological shakeup occurring globally — the CCP’s General Secretary Xi Jinping once said, “the world is undergoing a great change, the likes of which has not been seen in a century.” In the midst of this change, the CCP wants to catch up with and surpass the United States, making China the new global superpower.

This article discusses the CCP’s views on the Fourth Industrial Revolution, and on China’s plan to beat the United States in the technological arena.

Attention from the CCP Leadership

At the 2019 World Economic Forum annual meeting, China’s vice president Wang Qishan said “The fourth industrial revolution, with its speed, scale and complexity and the way it shapes human society, represents a significant evolution of the globalization process. We must work together to shape the global architecture in the age of the fourth industrial revolution with the vision to create a better future for all mankind”.

The Fourth Industrial Revolution involves modern-day technology such as robotics, artificial intelligence, nanotechnology, quantum computing, biotechnology, the Internet of things, the industrial Internet of things, decentralized consensus, fifth-generation wireless technologies, 3D printing, and fully autonomous vehicles. Klaus Schwab, the Chairman of the World Economic Forum (WEF), first publicly used the phrase “Fourth Industrial Revolution” in a 2015 article published by Foreign Affairs. It is called Fourth Industrial Revolution because there were three previous waves of innovation in the industrial world: the adoption of steam and water powered machine production between 1760 and 1840, the widespread use of machinery and large-scale iron and steel production between 1871 and 1914, and the shift from mechanical technology to digital electronics, characterized by the advent of digital computers, which began in the latter half of the 20th century.

The leadership of the CCP has paid heightened attention to this profound technological shake-up. As early as September, 2013, at a study session of the CCP’s Politburo, Xi Jinping said “a new round of scientific and technological revolution and industrial transformation is emerging. Some important scientific issues and key technologies have shown signs of a revolutionary breakthrough. Material structure, the nature of consciousness, the evolution of the universe and other basic science fields have made significant progress; information technology, biology, energy, materials and marine, space and other areas of applied science continue to develop, leading to the cross-fusion of key technologies. The momentum of transformational breakthroughs is accumulating.”

Xi has also made similar remarks to international audiences. For example, in June 2014, at the International Conference on Engineering, Science and Technology (国际工程科技大会) held in Beijing, Xi said, “the interdisciplinary fusion of information technology, biotechnology, new energy technology, and new material technology is triggering a new round of scientific and technological revolution and industrial revolution. This will bring about new opportunities to the development of human society.”

Speaking to attendees at The BRICS Business Forum held in South Africa in July, 2018, Xi said “The world today is facing a major change unprecedented in a century”. “A new round of technological revolution and industrial change such as artificial intelligence, big data, quantum information, biotechnology are gaining force, giving rise to a significant number of new industries and new business models, and bringing about a sea change in global development and human production and human life.”

In his opening and closing speeches at the G20 Summit in Hangzhou in September 2016, Xi Jinping again mentioned the “New Industrial Revolution.” China even used the summit to pushed forward a G20 New Industrial Revolution Action Plan. “We are committed to strengthening communication, coordination and research in the area of the new industrial revolution, in line with the commitments made in the Action Plan, promoting SMEs to benefit from the new industrial revolution, addressing challenges in employment and labor skills, and encouraging effective protection of intellectual property rights in accordance with multilateral agreements, and new industrial infrastructure.”

In addition to speaking generally on the new industrial revolution, the CCP’s top leadership organized a study session on a specific technology — blockchain. On October 24, 2019, in a CCP Politburo study session on blockchain technology, Xi said that the application of blockchain technology plays an important role in new technological innovations. “We should take blockchain as an important breakthrough in independent innovation of core technology, ……, and focus on making breakthroughs in a number of key technologies.” The CCP’s Politburo is composed of the 25 most powerful officials in China. It’s hard to imagine that, in any other country of the world, national leaders at that level would show such a high interest in a specific new technology.

“Rise of the East and Decline of the West”: An Opportunity to Lead

To China, the new technological revolution provides an opportunity to catch up with and finally surpass Western countries, particularly the United States. Li Donghong, the deputy head of The Institute for Global Industry at Tsinghua University, explained this view very well: “For the vast majority of developing countries, including China, their goal and efforts to catch up with the world’s leading developed countries have never wavered. In fact, new technological revolutions often significantly change the trajectory of industrial and social progress. In many areas, the accumulation of previous generation of technologies and talents will lose their importance and value due to the great changes in technology. The emerging world and the developed countries often, therefore, stand on the same starting line in many areas.” “Furthermore, some of the previously-leading countries will find it difficult to grasp some of the new opportunities because of path dependency. The emerging powers, however, may be more able to get ahead of the game because they travel light.”

The CCP’s nationalistic narrative about the “Century of Humiliation” is an emotional driver of China’s eagerness to take advantage of the new industrial revolution. “Century of Humiliation” describes the period of intervention and subjugation of the Qing dynasty and the Republic of China by Western powers and Japan from 1839 to 1949. The Chinese believe that for thousands of years before the First Industrial Revolution, China was among the world’s top rank in terms of economy, technology and culture. Starting from the mid nineteen century, the Qing Dynasty’s policy of closing the country off from the outside world caused China to lag behind the West. Between 1839 and 1949, China experienced a number of military defeats by foreign powers. During that period, China suffered major internal fragmentation, lost almost all of the wars that it fought, and was often forced to give major concessions to other nations. In many cases, China was forced to pay large amounts of reparations, open up ports for trade, lease or cede territories and make various other concessions of sovereignty to foreign “spheres of influence” after military defeats.

This “Century of Humiliation” shapes Chinese views of the international system — many believe that the well-being of a nation is tied to its ability to compete in the international arena. There is a famous saying in China — “lagging behind leaves one vulnerable to attacks.” From this perspective, a country’s level of achievement in science and technology is a mark of whether it is “lagging behind.”

Following Xi Jinping’s use of the phrase “Rise of the East and decline of the West” in early 2021, the term has been frequently heard in official discourse; this reflects the CCP’s assessment regarding change in global balance of power. As explained by Jin Canrong, a professor at Renmin University of China who is famous for his anti-West views, “For the past several hundred years, the international landscape has been dominated by the West. Now, the Western-dominated structure has changed. The West has begun to age and its own problems have multiplied. …… At a time when Western power is turning relatively weak, non-Western countries, represented by China, are rising. The world is bound to move toward an East-West balance.”

“The ‘Western model’ is no longer the only model of modernization, and the socialist road with Chinese characteristics may offer a new alternative. …… China has achieved preliminary success in modernization in recent years, while the development model is different from the Western model and has its own characteristics. The ‘China model’ and the socialist path with Chinese characteristics is original. The success of ‘China model’ means that the uniqueness of the ‘Western model’ has been broken.”

From the perspective that the global power landscape has turned in favor of the East, the fourth industrial revolution is seen as the greatest historical opportunity for the East to overtake the West. Jin Canrong speculated that “After the Fourth Industrial Revolution, it is possible that the productivity of the East will be ahead of the West, or at least neck and neck with the West. This is the most important change unprecedented in a century.” “… if China seizes the opportunity, it means that the best technology and the best industry for mankind will be in China thereafter. Therefore, we must seize the opportunity.”

Xi Jinping also expressed the idea of overtaking the developed world, although not as straightforwardly as Jin. At the 2014 conference of China’s two top government think tanks, the Chinese Academy of Sciences (CAS) and the Chinese Academy of Engineering (CAE), Xi Jinping said, “whether a country is strong cannot be determined by the size of the economy, nor can the strength of a nation be measured by its population or the area of its territory. In modern history, one of the roots of China’s falling behind and defeat is backwardness in science and technology.” In September 2017, at the Dialogue of Emerging Market and Developing Countries (新兴市场国家与发展中国家对话会), Xi said, “A new round of technological and industrial revolution has generated new growth drivers and brought to us development opportunities like never before. Seizing the opportunities, emerging market and developing countries may even get ahead in the game. If the opportunities are missed, the North-South gap and development imbalance will grow even wider.” The term “North-South gap” here refers to the economic gap between the developed world and less-developed countries (including China).

At the 2014 conference of the CAS and CAE, Xi also spelled out the strategy of competition: “To seize the major opportunity of the new round of scientific and technological revolution and industrial transformation is to participate in the new playing fields at the beginning of their construction, and even to dominate some of them, so that we can become an important rule maker of the new competition, and an important dominant player in the new playing fields. …… Whether our country can take the lead in the future mainly depends on whether we can take real steps in innovation-driven development.”

Optimism in China’s Strength

Why is China confident in its ability to surpass its rivals in the technological arena? Many scholars in China have voiced confidence in China’s ability to compete with the West.

Some mention China’s leap forward in scientific research and innovation. Xue Lan, a professor at Tsinghua University, wrote, “In terms of investment in R&D, statistics from 1990 to 2016 show that Chinese investment has been growing at a high rate and is now approaching that of the United States, which has been the top country in investment for many years. China is ranked No. 2 in the world. In addition, in terms of output, Chinese scholars have published a large number of articles in English language international academic journals. Since 2007, Chinese scholars have published more papers in these journals than any other country except the United States. …… Around 2011, the number of papers published in high level academic journals by China also exceeded that of other countries except the United States. …… China is now a global leader in the number of patents granted each year. Many of the patents here are created by our internationally renowned companies, like Huawei, Baidu, Alibaba, Tencent, BGI Group, and traditional manufacturers include Weichai Power, Sany Heavy Industry, and Geely. …… The knowledge purchased by Chinese enterprises from the international market, that is, the fees paid for the use of international innovation patents, is also huge. China is now second only to the United States in terms of the expense of purchasing patent rights.”

Some are optimistic about China’s manufacturing capacity. “Today, China’s industrialization has reached the advanced stage. …… China’s industrial scale is exceptionally large. Its total manufacturing output exceeded that of the United States in 2010, the sum of the United States and Japan in 2016, and the sum of the United States, Japan, and Germany in 2018. In 2018, the growth rate of China’s manufacturing was 6.1 percent, the slowest in the past 15 years. However, the average growth rate of the United States, Japan, and Germany is 0.4%. At this rate, by 2030, China’s manufacturing sector will account for more than 50% of the world.” Professor Jin Canrong bragged that “in 2030, from the perspective of manufacturing, there will be two countries in this world, one is called China and the other is called ‘foreign countries’.”

And some boast about brutal efficiency, claiming that an authoritarian regime is in a better position to get things done than a democracy. Tsinghua University’s Li Donghong said, “Compared with Europe, America, Japan and other developed countries, China has its own institutional advantages. It is able to do big things by collecting all resources under a clear top-level design, so as to achieve high efficiency across the country when promoting specific projects around a common goal. To this end, while adhering to the leading role of the market in resource allocation, we should make the best use of our strength in this regard.”

Jin Canrong also wrote about a specific weakness of the United States in this competition: “The advantage of the U.S. is its unparalleled ability to innovate, and its disadvantage is the hollowing out of industry and the inability of many high technologies to access the market. From the market’s point of view, no matter how good your technology is, if it cannot be turned into a product and be accepted by the market, it is a piece of trash paper. China’s advantage is its ability to turn technology into market-acceptable products, and this advantage is unique in the world.”

Whole-of-government Approach

At the advent of the new industrial revolution, the world’s major economies are actively implementing innovation-driven development strategies, and have each come up with their own plan: the U.S. National Strategic Plan for Advanced Manufacturing, Germany’s High-Tech Strategy 2020, Japan’s Alliance for Science, Technology and Industry, the United Kingdom’s Industrial Strategy 2050, France’s the Industry of the Future, and South Korea’s Engine for Future Growth Plan.

It was against this backdrop that the Chinese Academy of Engineering invited a group of more than one hundred academicians and experts in 2013 to study the development trend of world manufacturing, the strategies of developed countries, and the status quo of China’s manufacturing industry. Two years later, in May 2015, the group completed its work and released a blueprint for Made in China 2025.

MIC 2025, a 30-year-long program, aims to transform and upgrade China’s manufacturing industry and enhance competitiveness, so as to move into the top echelon of the world’s manufacturing power. The plan to achieve this goal involves reducing consumption of raw materials, improving labor productivity, diminishing impact on the environment, enhancing technological innovation, optimizing industrial structure, accelerating the integration of information technology, and expanding international cooperation.

MIC 2025 is a whole-of-government approach.

On June 16, 2015, China’s cabinet State Council issued a notice to establish a national overarching office – The Leading Group for Creating a Strong Manufacturing Country. Ma Kai, the Vice Premier of the State Council, was appointed as the head of the group; other members come from various cabinet ministries and agencies. The main responsibilities of the Leading Group include review and approval of policies and major projects as well as guidance of cabinet bodies and local governments.

In addition to The Leading Group, there is also The Strategic Advisory Committee for Creating a Strong Manufacturing Country, a government think tank that provides consultation and evaluation of major decisions in the manufacturing industry.

MIC 2025 is composed of five major platforms: the manufacturing innovation center, the intelligent manufacturing platform, the industrial foundation platform, the green manufacturing platform and the high-end equipment manufacturing innovation platform. Each platform is identified with an array of projects.

In addition to the top-level design of MIC 2025, there are 11 supporting policy documents. These include documents providing guidelines on each of the above five platforms, development guides covering topics of talent recruitment, the information industry, new material, and the pharmaceutical industry, as well as action plans for developing service-oriented manufacturing and for promoting quality improvement in equipment manufacturing.

China has approved some 30 pilot cities to lead the implementation of MIC 2025’s platforms and projects. The central government has worked with provincial and city governments to create provincial and municipal guidelines for MIC 2025, so that each locality can make the best use of its comparative advantages in certain industry.

MIC 2025 aims to make breakthroughs in ten key areas: 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.

It is difficult to estimate how much money is being poured into MIC 2025. According to a 2017 report by state media, China planned to support the key MIC 2025 projects with special funds. A 2017 budget guidance issued by Ministry of Industry and Information Technology (MIIT), the key cabinet ministry that carry out MIC 2025, listed over 100 “key tasks,” each of which was expected to receive funding between 30 – 50 million yuan (US$4.7 – 7.8 million). It was estimated that MIC’s total funding support from central government may exceed 10 billion yuan (US$1.6 billion).

In addition to the central government’s financial support, local governments have also promised to lend financial support to MIC 2025. For example, as of 2017, Guangdong province has invested over 1 billion yuan (US$.16 billion) in the program. The total amount of local support for MIC 2025 during the 13th Five-Year Plan period (2016 -2020) was estimated to exceed 10 billion yuan (US$1.6 billion). {24}

The Ministry of Finance and the Banking Regulatory Commission have also coordinated financial institutions to provide an array of financial services including loans, investments, bonds, and leases. For example, China Development Bank was supposed to provide not less than 300 billion yuan (US$47 billion) of financing for MIC 2025 between 2016 and 2020.

Conclusion

State media and government documents make clear that the Chinese Communist Party has always seen the West, in particular United States, as its competitor in the ongoing industrial revolution. Despite the CCP’s confidence and optimism, many questions remain about the viability of its plans.

Are claims that China’s technological progress can catch up to the West realistic?

Does China really have so-called advantages in terms of R&D growth rate, manufacturing capacity, efficient authoritarian control and top-down allocation of resources, and ability of industry to bring products to market? Do these advantages persist in the face of global supply chain restructuring and economic devastation (including within the Chinese economy) induced by the COVID pandemic?

Is China’s able to continue growing its economy? How will the country be impacted by its looming population and energy crises, as well as by Xi Jinping’s heavyweight restrictive measures on the private sector (including on the real estate industry) that began in 2021?

Can the state-driven whole-of-government approach give a significant boost to indigenous scientific research?

Today’s China is facing a very different international environment than it did ten years ago. Following intensification of the U.S.-China relationship in 2018, at which point the West started to pay closer attention to China’s technological ambition, the Chinese government and state-run media began to avoid using the phrase “Made in China 2025” in official documents and communication. This does not mean, however, that the program has been abandoned. While U.S. sanctions on Chinese firms such as Huawei may have disrupted the original plan, we have every reason to believe that China continues its implementation of the MIC 2025 framework developed in 2015. The CCP will change its tactics and adapt to a new global political and economic landscape; we should not underestimate its persistence in achieving its ultimate goal.

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