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What is “Made in China 2025” and how would this impact foreign businesses active in China?

December 19, 2017

Amidst geopolitical and global economic uncertainties, China continues to further develop its domestic market, previously revealing a ten-year roadmap called the “Made in China 2025” (MIC 2025). MIC 2025 plans to elevate the manufacturing capabilities of Chinese firms and aims to promote innovation, self-sufficiency in critical high-end materials, higher quality standards, and  “earth-friendly” technology.

 

 

 

Background

Initially disclosed by the State Council back in 2015, Made in China 2025’s goal is to support Chinese manufacturing firms in their bid to “upgrade” their core competencies and transition into more value-added and higher technological capabilities.

 

According to economic information, a Xinhua-run publication, the initial investment was pegged at 100 Billion yuan (approximately 1.5 Billion US Dollars). There are around 25 projects that have been selected to be recipients of financial support ranging from 30 to 50 million yuan each. Key projects, on the other hand, will receive a heftier sum of 100 million yuan.

 

The Ministry of Industry and Information Technology (MIIT), in cooperation with the National Development Bank (NDB), plans to roll-out a 300 Billion yuan financing facility that will be made available to local firms participating in select priority sectors. The financing may be in the form of loans, bonds, and leasing, among others.  

 

The ten priority sectors are as follows: 1) New advanced information technology; 2) Automated machine tools and 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.

 

Chinese SME's will be in particular both the beneficiaries and contributors to MIC 2025, with a goal for higher integration and efficiency among all participants. The plan has a lofty target of 40% and 75% increase in domestic output of critical core components by 2020 and 2025 respectively. Currently, domestic output for high-tech components is low, with more than 50% still accounted for by foreign products.

 

Early Efforts

Guangzhou, with the support of MIIT, will be in the forefront as they step-up their efforts to develop new generation artificial intelligence (automated robotics) and biological medicine, collective known as IAB. This is expected to improve quality standards and achieve economies of scale. Guangzhou was dubbed as a “demonstration city” for MIC 2025 last April of this year. In 2019, the city is expected to be a source of innovation for high-end equipment manufacturing.

 

Impact to Foreign businesses?

Given the focus on domestic capabilities, it also raises the question: how will this impact foreign businesses, both presently in China and those who wish to enter into the Chinese market?  

 

Intuitively, we can expect Chinese firms to move-up the value chain of production and innovation, shifting from low-technology output to high-value and high technology offerings. The market, in turn, will naturally be more competitive and interlinked.  

 

Foreign businesses can still expect to reap benefits and participate in many of the plans that are currently in place. For one, the state’s unwavering support will just intensify the focus on the several industries that most foreign businesses participate in. The ones with the capability to produce critical artificial components, possessing innovative technology and with experienced management team, are still crucial players in various levels of the supply chains. A collaborative environment between local and foreign companies will be necessary and more crucial than ever.

Elevating the manufacturing sector will likewise raise overall governance standards, fiscal policies, and the educational system; thus, benefiting both foreign and local SME's alike.

 

In the previous National People’s Congress, Premier Li Keqiang addressed the concerns of MNC's pertaining to Made in China 2025 by stating that foreign firms would receive the same access to license applications, standards, and government procurement as their domestic counterparts.

Further, the Chinese government will encourage foreign firms to be publicly listed, and will be allowed to issue corporate bonds in China. The government, in turn, will allow them to participate in nationwide science and technology projects. 

 

High level barriers of entry remain in several of the highlighted industries. Preferential treatment for financing of domestic firms have also been observed in previous occasions. In a report by the U.S. Chamber of Commerce, a semiconductor government fund set-up in Beijing’s Zhongguancun District extended subsidies to Xiaomi (a local mobile phone manufacturer) to develop its own smart phone processor.  

 

Foreign companies must ensure that they are prepared with valuable market information, protect their intellectual property rights and heighten data security, and continue to strive for innovation and differentiation.  

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