The Made in China (MIC) 2025, originally announced in 2015, has caught great public attention recently. The trade war between the two biggest economies have made it even more essential than ever before. Praised domestically but shunned internationally due to a range of controversies, MIC 2025 is destined to cause huge impacts on most industrialized countries in future. But what exactly is MIC? How will it affect the global economy? Let us have a closer look..

What Is MIC 2025?

In 2015, Prime Minister Li Keqiang launched “Made in China 2025”—-an initiative which sets to modernize China’s industrial capability. This 10-year strategy focuses heavily on intelligent manufacturing in 10 strategic sectors and has the aim of securing China’s position as a global powerhouse in high-tech industries such as robotics, aviation, and new energy vehicles such as electric. This research and development driven plan is seen as a critical element in China’s sustained growth and competitiveness for the coming decades as it transitions into a developed economy. It also seeks to ensure Chinese manufacturers remain competitive with emerging budget friendly producers such as Vietnam.

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The plan involves replacing China’s reliance on foreign technology imports with its own innovations and empowering Chinese companies that can compete globally. Therefore, there is a strong emphasis on its domestic manufacturing process where it aims to increase production, not only on the essential components, but on the final product as well. With a focus on quality, the investment is towards technological innovation and smart manufacturing in areas such as machine learning, where the technology that is difficult to replicate via reverse engineering. 

Smart manufacturing involves combining the internet with wireless sensors and robotics to improve its manufacturing efficiency, quality, and productivity. If successful, China would move up the value-added chain, re-positioning itself from a low-cost manufacturer to a direct competitor to nations like South Korea, Japan, and Germany.

MIC 2025 Versus Industry 4.0

MIC 2025 is inspired by Germany’s “Industry 4.0” (I40) and is broadly in line with the German and Japanese approaches for economic development and innovation. I40 is a public-driven national strategy launched in 2013 to “consolidate German technological leadership 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 information technology and the IOT to connect its small and medium-sized companies to global production networks, for making them more efficient and competitive.

China seeks to upgrade its industrial capability and smart manufacturing by ensuring that innovation, product quality, efficiency, and integration drive manufacturing across 10 key industries. Those industries include advanced information technology,automated machine tools and robotics, aerospace and aeronautical equipment, ocean engineering equipment and high-tech shipping, modern rail transport equipment, energy saving and new energy vehicles, power equipment, new materials; medicine and medical devices and agricultural equipment.

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Further aims involve developing brand awareness of companies and meeting green development targets. Green development endorses government’s strategies to combat climate change and address the health and environmental impact of China’s industrialization. The focus on branding and product quality is with a view to international expansion and competitiveness. For example, in the agriculture sector, the goal is to establish up to three recognizable brands and up to five internationally competitive companies.

The “goal of raising domestic content of core components and materials to 40 percent by 2020 and 70 percent by 2025” will contribute to self-sufficiency and the end goal of localizing the manufacturing process.

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While China is aiming to move up the value-added chain, it also sees MIC 2025 as a chance to fully integrate into the global manufacturing chain and more effectively cooperate with industrialized economies. Even if key targets are not achieved, the initiative will improve China’s “overall economic governance’” and strengthen its financial, education, healthcare, and most importantly— the manufacturing sectors.

Risks and Reactions

The main difficulty for China is the pressure its manufacturing industry faces, from two sides—-the more industrialized economies like Japan and Germany and the low-cost manufacturers such as India, Brazil, Vietnam, etc. This makes an effective strategy difficult to implement, particularly one of this scale. State officials recognize that even a successful MIC 2025 would only partially develop Chinese industry relative to Germany and Japan’s level of industrialization.

The scale of ambition could lead to market dominated by larger firms and government entities. In the pharmaceutical industry, for example, the new safety and testing standards are too costly for smaller companies meaning that mergers and acquisitions are highly likely. Fewer competitors and the proliferation of smart manufacturing may place strains on employment, potentially creating the conditions for social and political unrest.

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In any case, most of China’s companies are “not yet prepared for such a deep and sudden technological transformation”, which means that only a selective amount of companies will be able to meet the standards. Those companies will expand their international presence and competitiveness while facing less competition in China. 

Political backing in Beijing and access to billions in funding to support industrial upgrades in various sectors are likely to reduce the competitive advantages companies and sectors in developed economies. In contrast to the billions made available by Beijing, Germany, for example, has only contributed €400 million in research and development funding. edited from Backgrounder, ISDP

What Do Other Countries Say?

Numerous other developed countries have pushed back against China’s trade and investment practices. As a trade partner of China, Australia has been the second-largest recipient of Chinese investment from China since 2007, after the United States. Australia’s oversight of Chinese investment has intensified since 2016, when Canberra rejected Chinese bids to buy Australian agribusiness and electricity grid operators.

Germany is another important case, as its high-tech manufacturing economy has made it China’s top investment destination in Europe. Chinese involvement in German industrial giants, including Daimler, which is developing new battery technologies, and Kuka, the country’s largest robotics producer, has raised alarms and led Berlin to call for investment review. France, too, has increased restrictions on foreign investment to stop what it calls “looting” of sensitive technologies. However, many smaller European countries, such as Greece and Portugal, worry that restricting outside capital could hamper their economic growth.     

At the EU level, leaders have long complained about Chinese subsidies will undermine the global economy, as well as restricted market access for European firms and the lack of protection for their IP. The EU has filed complaints against China at the WTO and imposed anti-dumping measures on many products. Many of these issues are regularly aired during EU-China summits, the most recent of which, in July 2018, saw China promise improved market access and further talks for a comprehensive investment agreement.  —Edited from CFR

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Despite of the negative responses from China’s trade partners and competitors, the fact of a rising manufacturer power of China is inevitable. It is way to early to call MIC 2025 a success or a failure, but now is the time to decide if you business is in or out of this new game. China is not yet a fully transparent policy maker in the international community, however, instead of play ‘solo MIC 2015’, the engagement of international partners and the entry of foreign capitals may push the country to integrate the ‘old rules’ into its new games. 

Edited by Joreal Qian