2025, not 2525, and RE news

SCMP

“Made in China 2025” began in 2013 when the Chinese Academy of Engineering initiated nationwide research on what was then called the “Strategy of Innovation Design”. This project involved interviews with 153 firms in 32 cities, over 50 seminars with local governments and design organisations, as well as a dozen academic lectures, and culminated in a report that was a clear challenge by the academy and its partner, the Ministry of Information and Industrial Technology, to the reform programme. The report was submitted to Beijing in 2015, and then endorsed by Premier Li Keqiang.

“Made in China 2025” has two main goals. First, transform China from an assembler of hi-tech products into a manufacturer for advanced industries, such as robotics, advanced information technology, aviation and new energy vehicles. China’s share of processing exports has steadily declined from almost 50 per cent in 2009, but as of 2016 was still almost 35 per cent.

Second, by fostering indigenous innovation and subsidising state-owned enterprises to import foreign hi-tech, China hopes to move up the value chain and avoid the middle-income trap (where less developed countries rapidly reach per capita gross domestic product of between US$8,500 and US$18,500, only to see growth drop and never achieve high-income status). According to the World Bank, out of 101 middle-income economies in 1960, only 13 became high-income by 2008.

China says these goals are merely aspirational. But semi-official documents set concrete targets and funding has followed. An advanced manufacturing fund, worth 20 billion yuan, and an Integrated Circuit Industry Investment Fund, worth 138.7 billion yuan, funnel money into Chinese state-owned enterprises. Provincial funds complement these funds. While the Chinese strategy has been likened to the German government plan Industrie 4.0, the German funding of 200 million euros (US$225 million) is less than a 10th of the total Chinese investment.

The victory of “Made in China 2025” over the 2013 reform programme has significant implications. Rather than expand the market, Xi’s government has helped state-owned enterprises take over private firms by merging large state firms into even larger ones, thereby enhancing their monopolies in pillar industries. In 2015 and 2016, 11 extremely large state-owned enterprises merged, creating monopolistic national champions in the energy, railway, steel, shipping, mining and food sectors, whose technological strengths enhance their global competitiveness.

Xi may feel he has made the right choice. Upgrading China’s exports, rather than remaining the assembler of the world, should help the country avoid the middle-income trap. Reportedly, Xi never bought into the 2013 reform programme – he only asked if it would undermine the Communist Party and weaken state firms, and when told “no”, he signed off on the plan. Xi’s Chinese dream, his “Belt and Road Initiative” and his goal of making China a world power by 2049 all depend on state-owned enterprises and a powerful Communist Party, hence “Made in China 2025”.

These two visions of China’s future present stark choices and different outcomes. At the recent National People’s Congress meetings, Li insisted that banks increase lending to small companies by 30 per cent. And while China no longer discusses “Made in China 2025”, it still tries to implement it and the policy has generated pushback from the West. Chinese purchases of German firms could be a thing of the past, for one thing.

“Made in China 2025” was at or near the top of the list of complaints that the US presented to China in the current trade negotiations. It was mentioned in the United States Trade Representative’s Section 301 report on China’s unfair trade practices 116 times! In retrospect, the 2013 reform programme, which was heralded by the West and leading Chinese economists, might have prevented today’s trade and tech war.

Also if you’re looking for a new apartment: “A city in north China is offering half-price homes or two years’ free accommodation to recent graduates in a bid to attract fresh talent and breathe new life into its economy. According to a document published on Thursday by the municipal government, authorities in Hohhot, capital of the Inner Mongolia autonomous region, are planning to build a range of new flats”

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