MADE IN CHINA 2025
Key Contents
Based on the State Council document summarizing the plan released last week, "Made in China 2025" has clear principles, goals, tools, and sector focus.
Its guiding principles are to have manufacturing be innovation-driven, emphasize quality over quantity, achieve green development, optimize the structure of Chinese industry, and nurture human talent.
The goal is to comprehensively upgrade Chinese industry, making it more efficient and integrated so that it can occupy the highest parts of global production chains. The plan identifies the goal of raising domestic content of core components and materials to 40% by 2020 and 70% by 2025.
Although there is a significant role for the state in providing an overall framework, utilizing financial and fiscal tools, and supporting the creation of manufacturing innovation centers (15 by 2020 and 40 by 2025), the plan also calls for relying on market institutions, strengthening intellectual property rights protection for small and medium-sized enterprises (SMEs) and the more effective use of intellectual property (IP) in business strategy, and allowing firms to self-declare their own technology standards and help them better participate in international standards setting.
Although the goal is to upgrade industry writ large, the plan highlights 10 priority sectors: 1) New advanced information technology; 2) Automated machine tools & 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.
Possible extension of the 2010 plan to support "Strategic Emerging Industries"
The unveiling of "Made in China 2025" suggests a major departure from the Hu-Wen administration's approach to innovation and technology upgrading. The heart of their approach was the Medium- and Long-Term Plan on the Development of Science & Technology. A 15-year plan issued in 2006, the plan's key concept was "indigenous innovation" (自主创新) and focused entirely on advanced technologies. The culmination of the plan was the identification in October 2010 of seven "strategic emerging industries" (战略性新兴产业) that were seen as vital for China to achieve mastery in if it was to become an advanced economy.
The core of the plan focused on developed leading-edge advanced technologies through investment in R&D from state and industry sources, accumulation of intellectual property, setting of distinct technical standards, and leveraging access to the Chinese market in exchange for foreign technologies. The plan set a target of SEI-related industries to account for 8% of the economy by 2015 and 15% by 2020. The plan was developed jointly by National Development and Reform Commission (NDRC) and Ministry of Science & Technology (MOST), with supplemental input from MIIT and other ministries.
"Made in China 2025" is different in multiple respects: 1) It focuses on the entire manufacturing process and not just innovation; 2) It promotes the development of not only advanced industries, but traditional industries and modern services; 3) There is still a focus on state involvement, but market mechanisms are more prominent than in SEI. For example, instead of focusing on top-down, unique domestic technical standards, the attention is on self-declared standards and the international standards system; and 4) There are clear and specific measures for innovation, quality, intelligent manufacturing, and green production, with benchmarks identified for 2013 and 2015 and goals set for 2020 and 2025. In this regard, the proposal reads much more like a five-year plan (which I believe is intentional), even though laid out over 10 years.
The plan's language is also very different than under Hu-Wen. The term "indigenous innovation" appears only twice and "SEI" only once. There is no obvious effort to paint this as the successor to or extension of SEI, but in fact, to show that an SEI-oriented focus was too narrow and built on a misunderstanding of China's core needs and comparative advantage. In addition, the original focus on innovation took inspiration from similar innovation programs developed in the United States, Japan, and the EU during the 2000's in the wake of the information technology revolution and a common concern about technological competitiveness. As mentioned above, "Made in China 2025" is more consistent with how Germany and Japan approach their economies than the United States.
Although there will no doubt be problems with implementation and perhaps create new market-access challenges for multi-national companies (MNCs), from a Chinese national-interest perspective, this plan is much better conceived and more appropriate for China's situation than the "indigenous innovation" approach and SEIs. It will be more coordinated and utilize a wider array of policy tools. If a "Made in China 2025" leading group has not already been created, I expect there to be one soon.