Made in China 2025: Beijing's manufacturing blueprint and why the world is concerned

[Nergal]

 

As the trade tensions between the US and China roll on, one particular Chinese policy is appearing in news reports more frequently.

Made in China 2025 is a 10-year industrial development plan, but businesses and governments around the world are concerned it will have a dramatic effect on global trade.

Chinese state media has even accused the United States of trying to provoke a trade war in order to undermine the policy.

Ambitious, long-term policy documents don't always attract this much attention, so let's have a look at why this one is different.

What's the plan?
Announced in October 2015, the Made in China 2025 plan is a roadmap for the future of the country's manufacturing sector.

It intends to turn China into a manufacturing super power, and Beijing is keen to pour somewhere in the order of $US300 billion into that lofty goal.

The plan looks to target emerging industries like robotics, the manufacturing of autonomous and electric cars, artificial intelligence, biotech and aviation.

Those industries will be subsidised, handed low-interest loans, rent-free land and tax breaks in order to beat global competitors in the field.

Neale O'Connor, an expert on Chinese technology and manufacturing innovation at Monash University's Malaysia Campus, said China hoped to turn itself into a high-end manufacturer with global trade links.

"There are bold plans not just to dominate the domestic market in China, but actually to be dominant in the world," he said.

"The focus is to help China move from being dependent on international companies and providing low-cost labour to actually becoming an independent and technology-driven economy."

Why is everyone angry about it?
Well, it has been suggested that some aspects of the policy may veer dangerously close to violating World Trade Organisation rules.

For instance, the policy features self-sufficiency quotas in certain hi-tech components, which would make it unnecessary for China to trade with other nations to gain access to that technology.

According to the Council on Foreign Relations (CFR), this would be a nightmare for countries like South Korea and Germany, since hi-tech exports are so central to their economies.

There's also the question of how China plans to gain the know-how required to make those hi-tech components.

China has been repeatedly accused of stealing the trade secrets it desires, using cyberespionage to strike "US commercial networks in line with Chinese industrial policy goals," according to the Office of the United States Trade Representative.

It has also been accused of using its strict market access rules in order to obtain intellectual property from foreign competitors.

China requires foreign firms to start joint ventures with local companies in order to gain access to its lucrative market. Those companies are also often required to share their intellectual property with the local Chinese company they partner with.

In the end, Chinese firms end up gaining the advanced technology of foreign companies without needing to compete with them in the Chinese market, thanks to heavy government subsidies.

Why is Beijing pushing for this?
China has been the world's factory for years, but it has mainly produced low-end products. "Made in China" is associated with cheap wares and low quality.

The policy aims to fundamentally change that negative perception.

At the same time, China is facing a number of bottlenecks in its economic growth, such as increased labour costs, high staff turnover and low manufacturing efficiency compared to global standards.

China fears countries with lower labour costs like Vietnam could pull the rug out from under it.

ANZ's senior economist for Greater China Betty Wang said turning to smart manufacturing had become increasingly necessary.

"In terms of the export structure of China and the United States, currently Made in China products only have 65 per cent added value, while Made in US products have 85 per cent," Ms Wang said.

"If China wants to maintain its competitiveness in the global supply chain, it must improve its capabilities in this area."