Made in China 2025 BACKGROUNDER - June 2018 Introduction Summary Made in China (MIC) 2025, originally an- • MIC 2025 is an initiative which strives nounced back in 2015, has shot back into focus to secure China's position a global pow- recently. Trade wars and U.S. tariffs on China erhouse in high-tech industries. have made it even more important three years later. Praised domestically but shunned inter- • The aim is to reduce China’s reliance on nationally due to perceived intellectual prop- foreign technology imports and invest erty abuses, and discrimination against foreign heavily in its own innovations in order to companies, MIC will have huge consequences create Chinese companies that can com- for most industrialized countries going forward. pete both domestically and globally. But what exactly is MIC and how will it affect the global economy? This backgrounder discuss- • China sees MIC 2025 as a chance to ful- es these issues and more. ly integrate into the global manufactur- ing chain and more effectively cooperate What is it? with industrialized economies. In 2015, Prime Minister Li Keqiang launched • Chinese officials have claimed that lead- “Made in China”, (MIC 2025) an initiative ing economies with high-tech industries which sets to modernize China’s industrial capa- such as the EU, Germany and the Unit- bility. This 10-year, comprehensive strategy fo- ed States have expressed their hostility cuses heavily on intelligent manufacturing in 10 to the initiative due to the fact that it strategic sectors (see Figure 1) and has the aim of would move China from a low-cost securing China’s position as a global powerhouse manufacturer to a direct added-value in high-tech industries such as robotics, aviation, competitor. and new energy vehicles such as electric and bio- gas. This research and development driven plan Institute for Security & Development Policy – www.isdp.eu 1 is seen as a critical element in China’s sustained where the technology that is difficult to replicate growth and competitiveness for the coming de- via reverse engineering. Smart manufacturing cades as it transitions into a developed economy. involves combining the internet with wireless It also seeks to ensure Chinese manufacturers re- sensors and robotics to improve its manufactur- main competitive with emerging low-cost pro- ing efficiency, quality, and productivity. If suc- ducers such as Vietnam. cessful, China would move up the value-added The plan involves replacing China’s reliance on chain, repositioning itself from a low-cost man- foreign technology imports with its own inno- ufacturer to a direct competitor to nations like vations and creating Chinese companies that South Korea, Japan, and Germany. can compete both domestically and globally. Therefore, there is a strong emphasis on its do- MIC 2025 & Germany’s mestic manufacturing process where it wishes to Industry 4.0 increase production, not only on the essential MIC 2025 is inspired by Germany’s “Indus- components, but on the final product as well. try 4.0” (I40) and is broadly in line with the With a focus on quality, the investment is to- German and Japanese approaches to economic wards technological innovation and smart man- development and innovation. I40 is a pub- ufacturing in areas such as machine learning, lic-driven national strategy launched in 2013 to “consolidate German technological leadership MIC 2025 - The Four Advantages in mechanical engineering”. I40 is based on the German government’s High Tech 2020 Strategy and is one of 10 key projects within the 2020 Strategy. Over a 10 to 15-year period, the plan is to “drive digital manufacturing forward by increasing digitization and the interconnection of products.” This involves adopting informa- tion technology and the internet of things to The Ten Key Sectors connect its small and medium-sized companies to global production networks, in turn making them more efficient and competitive. How did MIC 2025 Come About? MIC 2025 is a departure from the 2006 ini- tiative “Strategic Emerging Industries” (SEI), which is smaller in scope, centered on upgrading advanced technologies to secure the position of strategic emerging industries such as renewables and alternative fuels and with those industries Figure 1: The key sectors that will initially expected to make up 8 percent of the benefit from MIC 2025 Chinese economy by 2015 and 15 percent by Institute for Security & Development Policy – www.isdp.eu 2 2020. Both public and private research and de- velopment initiatives would allow Chinese com- panies to develop cutting-edge technologies in key sectors, accumulate intellectual property and gain access to foreign intellectual property in exchange for access to the Chinese market. China has separately maintained the “SEI Cata- logue”, identifying next-generation information technology as its priority. Such technology in- cludes artificial intelligence, cybersecurity ser- Figure 4: The city of Schenzhen in the Guang- vices, integrated circuits and network equipment dong Province, often hailed as China's Silicon and software. Other SEI’s include biotechnolo- Valley gy, energy efficient and environmental technol- ogies and high-end equipment manufacturing. self-sufficiency, reaching a secure and control- The SEI is a narrower in scope, state-driven ini- lable standard, and expanding the state’s role tiative, featuring regulatory scrutiny over foreign in the market.” Further, China’s “Strategy Out- investments in the strategic industries, mergers, line” also corresponds to MIC, with the goal of joint ventures, access to foreign IP, and agree- achieving self-sufficiency in critical high-end ments between the government and foreign en- materials, high-end medical devices, and pat- tities for “strategic assets to remain in China or ented pharmaceuticals. under the control of a Chinese company.” MIC 2025 Goals MIC 2025 is broader in scope, targeting the entire manufacturing process rather than only China seeks to end its reliance on international technical innovations, promoting traditional technology and upgrade its industrial capabil- industries and services and introducing “specif- ity and smart manufacturing by ensuring that ic measures for innovation, quality, intelligent innovation, product quality, efficiency, and manufacturing, and green production”. Despite integration drive manufacturing across 10 key public involvement, the project ultimately re- industries. Those industries include advanced quires market forces to achieve the desired up- information technology; automated machine grades and adopt international technical stan- tools and robotics; aerospace and aeronauti- dards and benchmarks. cal equipment; ocean engineering equipment and high-tech shipping; modern rail transport Although there is an overall departure from the equipment; energy saving and new energy vehi- SEI initiative, MIC does fall in line with Chi- cles; power equipment; new materials; medicine na’s 13th Five-Year Plan (FYP) by seeking “to and medical devices; and agricultural equip- advance indigenous innovation and build global ment. champions through linkages with other plans”. There is an overlap between MIC and FYP in Further aims involve developing brand aware- industry focus and overarching policy direction, ness of companies and meeting green develop- with FYP highlighting the “critical importance ment targets. Green development will prove to the government’s leadership in advancing in- important to the government’s strategies to digenous innovation, achieving technological combat climate change and address the health Institute for Security & Development Policy – www.isdp.eu 3 Made in China 2025 Industry Aims Figure 3: % Figure 2: Semi-official targets for the domestic market share of Chinese products and environmental impact of China’s industri- fully integrate into the global manufacturing alization. The focus on branding and product chain and more effectively cooperate with in- quality is with a view to international expansion dustrialized economies. Even if key targets are and competitiveness. For example, in the agri- not achieved, the initiative will improve China’s culture sector, the goal is to establish up to three “overall economic governance’” and strengthen recognizable brands and up to five internation- its financial, education, healthcare, and manu- ally competitive companies. facturing sectors. Reducing reliance on foreign technologies in- How will MIC 2025 be volves creating and developing companies that achieved? can innovate through research and develop- ment, dominate domestically, and produce com- Beijing is implementing regulatory changes and petitive exports. The “goal of raising domestic introducing standards for key industries while content of core components and materials to 40 setting a policy direction to pursue innovation percent by 2020 and 70 percent by 2025” will and development. These standards potentially contribute to self-sufficiency and the end goal of restrict foreign competition in China and pro- localizing the manufacturing process; however, vide access to technology from abroad by, for such targets violate WTO rules. example, requiring banks to reveal their source code and use domestic IP and encryption to While China is aiming to move up the value-add- meet Beijing’s “secure and controllable” stan- ed chain, it also sees MIC 2025 as a chance to Institute for Security & Development Policy – www.isdp.eu 4 dards. Standardizing practices across entire in- Leading companies have responded to those dustries is