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China’s strategies for industrial upgrading and digitization

More than 450 Chinese and European economic leaders and senior politicians will gather at the 8th “Hamburg Summit: China meets Europe“ on November 26th and 27th. At a time of worsening trade conflict between the United States and China, their discussions will matter more than ever. Key notes and panels will discuss how to rebalance trade relations between China, Europe and the US. China has clearly set out its intention to become a world leader in digitization and innovation.

MERICS Head of Program for Economic Research Max J. Zenglein explains what is at stake:

In 2015, Premier Li Keqiang launched “Made in China 2025,” an ambitious policy drive to thoroughly modernize China’s industrial base, which proposes replacing foreign technology with local innovation. How far has China gotten on this path?

By February 2017, the top-level policy design for Made in China 2025 was fully in place. Now, implementation is gaining momentum as authorities are putting words into action, though policies are still being fine-tuned for greater efficiency. Not all of the 10 core industries identified in the plan – among them robotics, energy-saving vehicles and IT, to name just a few – are being pursued with the same intensity. However, Chinese companies have already secured leading positions in emerging sectors, including Artificial Intelligence, the 5G telecommunications standard, and EV batteries. Backed by strong industrial policies, Chinese companies can quickly move into these areas and are already having a visible impact on global trends in innovation.

 

What are the most remarkable effects of the plan?

China has already begun to turn the tables in some emerging industries, including e-vehicles and EV batteries. Western companies are beginning to struggle to close technological gaps, not the other way around. But China is also well aware that it remains heavily reliant on foreign know-how and is taking this into account in setting priorities. This is the case particularly in the sector of enabling technologies such as semiconductors, which are crucial if China wants to be sustainably successful in emerging fields like autonomous driving or the build-up of smart city infrastructures.

 

With escalating trade conflict with the United States and growing pushback against ambitious industrial policies, China has, in recent months, toned down its assertive rhetoric about becoming the world’s future tech leader. Is China giving in to foreign pressure?

The fact that they no longer mention Made in China 2025 prominently has no practical implications. Currently there is no indication that China has any intention of scaling back the implementation of its industrial policy. The goal of becoming less reliant on foreign technology and becoming a technological leader itself remains a national strategic target. Exposed vulnerabilities such as the threat by the United States to cut off ZTE, the Chinese telecommunications giant, from vital semiconductors have definitely strengthened China’s resolve to become more self-reliant. There are strong indications that China is, in fact, doubling down on indigenous innovation.

 

The United States is taking a tough stance on China’s innovation strategy. Just recently, the US Department of Commerce announced a review of export rules for vital components specific to, and needed for, emerging technologies. What does this mean for China?

The proposed export restrictions under consideration specifically aim at China’s Achilles heel. Chinese high-tech industry remains highly dependent on core components such as advanced semiconductors, new materials, or sensors. Restrictions on access to key foreign technology would be a major obstacle to China’s capacity to innovate. The timeline for building up competitive domestic companies in advanced sectors would be set back, and become costlier.

 

What should European businesses make of growing US-China trade tensions? Should they seek to cooperate more closely with China? Or become more cautious about preventing unwanted technology transfer to a country that is becoming a serious competitor, especially in innovative fields?

Many European companies share US concerns over technology transfers or even theft. This does not mean that all cooperation is a potential threat. But in fundamental areas such as basic research and the most advanced parts of the economy essential precautions to preserve long-term competitiveness must be taken. There is a serious risk that European companies get caught in the crossfire should the trade conflict between China and the United States escalate further.

You are welcome to use this interview or individual answers by stating the source.

 

MERICS at the Hamburg Summit:

The 8th “Hamburg Summit: China meets Europe” will take place on November 26 and 27, 2018, at the Hamburg Chamber of Commerce. MERICS will be present at the conference:

  • Monday, November 26 at 4:30 pm, (location: “Albert-Schäfer-Saal”): Mikko Huotari, Deputy Director of MERICS, will participate in a panel discussion on "EU-China investment cooperation – from record flows to reciprocity?" He will discuss with Reinhard Bütikofer (Member of the European Parliament), Sun Yi (Head of China Business Services Germany, Switzerland and Austria; Ernst and Young, Germany), Zhou Yubo (Chairman of the China Reform Holdings Corporation) and Wang Jimin (Assistant to the General Manager of Ningbo Jifeng Auto Parts). The panel will be moderated by Knut Engelmann of Kekst CNC.

 

  • Tuesday, November 27, 10 am, (location: “Plenarsaal”): Max J. Zenglein, Senior Economist at MERICS, and Junior Research Associate Anna Holzmann, will present their findings on the evolution of the "Made in China 2025" industrial strategy, to be published later as an in-depth study by MERICS. With the launch of Made in China 2025, the CCP set out to turn China into an innovative “manufacturing superpower,” to gain greater independence from foreign high-tech products and to become a global leader in future technologies. The progress of “Made in China 2025” has begun to affect key technology developments and emerging industries globally. Europe is already feeling the heat of China's push for innovation.

During the Hamburg Summit, MERICS Director Frank N. Pieke, Deputy Director Mikko Huotari, Senior Economist Max J. Zenglein and Research Associate Anna Holzmann are available for interviews. For interview requests, please contact:

Claudia Wessling, Head of Publications

claudia.wessling(at)merics.de
Mob.: +49 171 8347704

Johannes Heller, Trainee Communications

johannes.heller(at)merics.de
Mob. +49 171 917-5828