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Illustration: Brian Wang

How ‘Made in China 2025’ became a lightning rod in ‘war over China’s national destiny’

  • Industrial modernisation programme aims to make the country a dominant player in 10 strategic industries
  • Trump labelled the programme a threat to US economic growth and an example of China’s allegedly unfair trade practices

As the US-China trade war grinds on, its focus has shifted from deficits and surpluses to more technological matters. Washington is not only demanding that Beijing end its practice of forcing foreign joint venture partners to transfer technologies to Chinese collaborators, but also wants to scrutinise the work of US-based Chinese researchers. In this final instalment in a series of reports on the trade war, we look at whether China will adjust its industrial upgrade programme that has been at the dispute’s centre. 

“Made in China 2025.” For some, this Chinese industrial modernisation programme is merely the big bone of contention in the Washington-Beijing trade battle as Chinese and American negotiators struggle to de-escalate the months-old confrontation between the world’s two largest economies.

But for others it is nothing less than the catalyst in “a war over China’s national destiny”.

What is certain is that “Made in China 2025” (MIC2025), the linchpin in Beijing’s aim to become a dominant player in 10 strategic industries, has come under increasing scrutiny ever since the administration of US President Donald Trump labelled it a threat to US economic growth and an example of China’s allegedly unfair trade practices.

China is not expected to abandon MIC2025 under any circumstances. Photo: AFP

“China, in my view, brazenly has released this China 2025 plan that basically told the rest of the world, ‘We’re going to dominate every single emerging industry of the future, and therefore your economies aren’t going to have a future,’” White House trade adviser Peter Navarro told Bloomberg Television on March 28 last year.

While Beijing has long said the plan comes out of a legitimate need to move up the value chain in global manufacturing and would remain friendly to foreign companies operating in the country, the programme has become a lightning rod in the trade war as many of the industries in which it seeks to promote Chinese excellence, including information technology and robotics, have been targeted by Trump’s punitive tariffs.

Privately, some Chinese officials have confessed they are confused by the furore the initiative has aroused, given it was inspired by similar plans in other countries, such as Japan’s “Connected Industries” strategy and Germany’s “Industry 4.0” programme.

China is not expected to abandon MIC2025 under any circumstances. But as Beijing moves to contain trade tensions with the US, Chinese officials have signalled the initiative could be adjusted, raising the idea that China actually could end up giving in to US demands and sowing even more confusion among officials.

White House trade adviser Peter Navarro says MIC2025 told the world, ‘We’re going to dominate every single emerging industry of the future, and therefore your economies aren’t going to have a future.’ Photo: Bloomberg

Chinese foreign ministry spokesman Lu Kang said in December that the world was under the misconception that MIC2025 was a “formal industrial policy” for shutting out foreign companies in China when it really was just a government guideline for industrial development.

“Countries around the world, including Japan, have their own development plans,” Lu told Japan’s state broadcaster NHK in Tokyo. “In Germany there is Industry 4.0. MIC2025 is not much different from the development plans of other countries.”

When asked if Beijing would consider revising MIC2025 to end the trade war with the US, Lu said it was “natural” for China to adjust plans that were in progress. MIC2025, however, was “not necessarily linked to the trade negotiations”, he said.

Lu’s remarks came as the tit-for-tat trade war stoked fears of a slowdown in investment and consumer spending that could harm global GDP growth.

MIC2025 is believed to be at the centre of the friction, despite Beijing’s denial of US claims that the policy is central to China’s endeavour to force foreign companies to transfer proprietary technologies to Chinese joint venture partners.

First introduced in 2015, MIC2025 was designed to break China’s reliance on foreign technology and narrow the gap with Western powers in advanced manufacturing technologies.

The 10 industrial sectors in which Chinese excellence is to be promoted under the initiative are: information technology, numerical control tools and robotics, aerospace technology, ocean engineering equipment and hi-tech ships, railway equipment, energy saving and new energy vehicles, power-generation equipment, new materials, medicine and medical devices, and agricultural machinery.

China’s leadership maintains that a well-defined plan like MIC2025 could help the country escape the middle-income trap that has plagued many developing economies. More importantly, it is seen as positioning China most advantageously for future global competition to achieve the nation’s “great rejuvenation” by 2049, according to Xinhua.

The phrase refers to President Xi Jinping’s October 2017 address that opened the 19th Communist Party congress, in which Xi promised to achieve the “great rejuvenation of the Chinese nation” and restore China to its rightful great power status by 2049 – the centenary of the founding of the People’s Republic of China.

President Xi Jinping’s 2017 address to the 19th party congress promised the ‘great rejuvenation of the Chinese nation’ by 2049 – the centenary of the founding of the People’s Republic of China. Photo: Xinhua

Chinese leaders had long bemoaned their country’s years of humiliation, which spanned China’s 1839 defeat in the opium wars to 1949.

Seeking to reduce China’s reliance on foreign technology, Xi has called on the country to double down on research, industrial development and policymaking to achieve breakthroughs in hi-tech industries.

The call comes as a US ban on selling components to China’s ZTE, the world’s fifth-largest telecom equipment maker, has exposed China’s vulnerability to such sanctions amid a US retreat into protectionism.

Prioritising an industrial upgrade to compete globally was emphasised at the Central Economic Work Conference in December, where the party leadership stressed the need to develop high-quality manufacturing technology.

“The trade war is actually targeting Made in China 2025,” said Hou Yunchun, former deputy director of the State Council’s Development Research Centre.

“There will be long-term competition between China and US in trade, technology, finance and even politics, diplomacy and security. It is a war over China’s national destiny.

“Integrating the manufacturing sector with the internet, pushing the transformation from ‘Made in China’ to ‘Intelligent Manufacturing in China’, are crucial for our country to win the race and cross the middle-income trap successfully.”

Observers said that while MIC2025 had become one of Trump’s most visible targets in his tariff war, China’s industrial and technology policies, which encourage state-led support and subsidising of local firms to allow them to catch or even surpass Western technology, were the real factor behind rising US-China trade tensions.

A well-orchestrated industrial plan like MIC2025 could conceivably help Chinese companies squeeze their Western rivals out of the Chinese marketplace and even the global market once they absorb key technologies and core know-how.

A notable difference between Beijing’s industrial modernisation push and earlier global tech miracles, such as those by Germany and Japan, is the degree to which the Chinese government is throwing its support behind its industrial and technological policies, according to Shinichi Seki, deputy senior economist at the Japan Research Institute in Tokyo.

“The excessive support from the Chinese government has helped some of the Chinese hi-tech companies to surpass their Western counterparts,” Seki said. “This is why Western leaders have been critical about Chinese government’s role in the industrial policies because to them, state-led support such as subsidies or low-interest loans are a threat to fair competition.”

Beijing had always spent generously to support its own industrial plans, state-owned Economic Information Daily reported.

By 2020, about 10 billion yuan (US$1.47 billion) of support would be allocated for industries involved in MIC2025, the newspaper reported in October 2017. Projects concerning core technologies would receive more than 100 million yuan, it said.

Under the Technology Road Map for Made in China 2025 released in January, by 2025 China is expected to produce 40 per cent of the chips used in mobile devices on the domestic market and 20 per cent of the world’s mobile device chips. By that time, China’s home-grown telecommunication facilities are to have a 60 per cent share of the world market.

“The funding and related policies are highly discriminatory, not just for foreign companies but for China’s private sector,” said Scott Kennedy of the Centre for Strategic and International Studies.

Kennedy said state-led industrial policies such as MIC2025 minimises opportunities for foreign businesses and hampered the confidence of foreign players in China.

While Beijing has said it will not give in to US demands, there is a growing belief that the two sides could reach a peace deal before the 90-day truce reached on December 1 expires in March, as the impact of the trade dispute weighs on their respective economies.

A US ban on sales of components to ZTE, the world’s fifth-largest telecoms equipment maker, has exposed China’s vulnerability to sanctions amid a US retreat into protectionism. Photo: Bloomberg

In the meantime, Chinese policymakers have quietly shifted tactics.

Since the Trump administration publicly called the plan evidence that China unfairly privileges its own companies over foreign competitors in the Chinese market, Beijing has reduced the mentions of “Made in China 2025” in its government documents and now refers to it as a “manufacturing upgrading plan”.

References to MIC2025 were also dropped from official guidance last month when the central government updated its working priorities for local governments. Industrial modernisation was not mentioned as the State Council called for more effort to attract foreign investment and promote exports.

Ma She, former deputy director general at the Ministry of Commerce’s European affairs department, seemed to look past MIC2025 when he told a forum on Saturday that reform of the World Trade Organisation would focus on reining in industrial subsidies, ensuring fair competition between private-sector and state-owned enterprises and protecting intellectual property, all of which would hugely challenge China’s industrial system.

“We must actually implement the policy of opening up wider to the outside world [first], then force domestic reforms [to accomplish the needed transformation and upgrading of China’s manufacturing],” Ma said.

Chinese foreign ministry spokesman Lu Kang says MIC2025 is a government guideline for industrial development. Photo: Kyodo

Ma also called on Beijing to strengthen its cooperation with European countries, since the European view of MIC2025 differed from that of the US.

“European countries see threats and challenges from the 2025 strategy, but also see opportunities, so they do want to cooperate,” he said. “And they also have made their own plans for industrial upgrading.”

Wei Jianguo, former deputy minister of commerce, said Beijing was unlikely to postpone the industrial plan.

“The timeline and the road map designed for China’s industrial development are in line with China’s development,” he said.

But Wei called for more communication between China and the US “to avoid misunderstanding and miscalculation” over plans like MIC2025. He also said Beijing should expand market access for foreign companies and improve its efforts to protect intellectual property rights, saying the move would benefit China while easing concerns about MIC2025.

Beijing has reduced the mentions of ‘Made in China 2025’ in its government documents. Photo: Shutterstock

Anna Holzmann, an expert with Berlin-based think-tank Merics, who has focused on China’s industrial policies, said that while China might seek to adjust its policy priorities amid its challenges, its strategic plan to develop its own manufacturing ability would not change.

“The wording and overall Chinese discourse on Made in China 2025 was toned down, and more emphasis was put on fields of strategic importance,” Holzmann said, referring to areas where China was dependent on foreign components, such as semiconductors, and emerging technologies such as artificial intelligence.

Chengxin Pan, an associate professor with Australia’s Deakin University, said that while Beijing might lower barriers to foreign investment, it was unlikely to voluntarily give up or curtail its ambition to become a more technologically advanced economy.

“So long as technology is seen as part of a larger zero-sum geopolitical struggle between the US and China, I doubt that the kind of adjustment Beijing is willing to make will be sufficient to ease Western concerns about China’s rise,” he said.

Julia Coym, a senior analyst at Control Risk, said MIC2025 and its core objectives were likely to continue to be a priority for the Chinese government.

“The US will continue to put pressure on China to revise parts of its MIC policy that Washington views as disadvantageous to US interests,” she said. “But a sustainable compromise will be difficult to achieve given the wide gap between the demands of [Washington] DC and the priorities of Beijing.”



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