It is clear that the initiative is geared towards letting Chinese manufacturing move up the value chain in production and innovation during Xi Jinping’s ‘New Era’.

 

Why did a simple domestic economic strategy rolled out by Chinese Premier Li Keqiang in May 2015 to upgrade the Chinese industry face such a backlash from the West, culminating into the US-China trade war? If we go through the full text of the “Made in China 2025” released by the State Council on 8 May 2015 and the “Made in China 2025” Green Paper on Technological Innovations in Key Areas, it becomes clear that the initiative is geared towards letting Chinese manufacturing move up the value chain in production and innovation during Xi Jinping’s “New Era”, from the labour intensive and low end manufacturing of the reform era (1978-2012).

One of the most ambitious goals it has identified is to achieve 40% “self-sufficiency” by 2020, and 70% “self-sufficiency” by 2025 in core components and critical materials in a wide range of industries, including aerospace equipment and telecommunications equipment and achieve international recognition for Chinese brands. The 10 core areas the strategy has identified are: 1. New advanced information technology, including artificial intelligence and quantum computing; 2. automated machine tools and robotics; 3. aerospace and aeronautical equipment; 4. maritime equipment and high-tech shipping; 5. modern rail transport equipment; 6. self-driving and new-energy vehicles; 7. power equipment; 8. agricultural equipment; 9. new materials; and 10. biopharma and advanced medical products. Of these, China has already made huge inroads in artificial intelligence (AI), robotics, high-speed rail and aerospace. Chinese ambitions have been pronounced “bad for America” by US officials, and the Donald Trump administration has justified the need for a US military space force by 2020.

In China, people argue that even though it has become the world’s largest manufacturer, however, it cannot be considered as a “manufacturing power” (zhizaoqiangguo), for it lags behind developed countries especially in areas such as innovation, efficiency, efficacy, quality, IT level and overall industrial structure. “Made in China 2025” addresses these concerns by following a “Three-Step Strategy” (sanbuzou), with a decade attributed to each phase from 2015 to 2045. The strategy roughly is in sync with President Xi’s economic development plan in two phases for China, i.e. by 2035, China will basically realise the socialist modernisation, and by middle of the 21st century, “China will develop into a great modern socialist country that is prosperous, strong, democratic, culturally advanced, harmonious and beautiful”, to quote from Xi Jinping’s 19th Party Congress Report. Though China has tried to convince the developed nations that its “Made in China 2025” strategy is open, inclusive, transparent, conforms to WTO norms, and above all is devised to turn China from a “world factory” to a “manufacturing power” so as to avoid the “middle income trap”, however, it appears that the West, especially the US, is not buying the Chinese argument. China believes the hawks in the US are hell bent to prevent the rise of China. Therefore, even if there are no talks of direct military conflict, but the war over trade, technology, IPR, cyberspace etc., is increasingly becoming intense and leading to an unpronounced cold war.

As regards the progress made by “Made in China 2025” in the last three years, various innovation centres with massive capital have been established across China. According to Lai Ning of the Strategic Planning & Management Office, Shanghai Branch, Hitachi (China) Research & Development Corporation, by 2020, national innovation centres would be established in 15 locations; besides, 19 provincial-level innovation centres have also been approved. For example, the National Power Battery Innovation Centre, China’s first national manufacturing innovation centre was established in Beijing on 30 June 2016, with the National Additive Manufacturing and New Material Innovation Centre in Xi’an in 2017. Some other innovation centres established since 2017 include National Manufacturing Innovation Centre, High-end Equipment Manufacturing Innovation Project, New Materials Industry Innovation Project, etc. Various cities across China have submitted applications to be pilot cities for the “Made in China 2025” strategy. It is estimated that around 30 cities would be designated as pilot cities for the strategy. Ningbo was the first to be designated followed by Guangdong, Chengdu, a cluster of five cities in the south Jiangsu province, six in the west coast of Zhujiang river, Wuhan in central China, Shenyang and Changchun in the northeast, and Qingdao in Shandong, among others in the line-up. What is interesting is that these would be integrated with the pivot cities designated for the Belt and Road Initiative.

In order to bridge the technological gap, China has promoted foreign acquisitions and transfer of technology agreements. However, these have been dubbed as coercive and predatory economics by the US and its allies. China’s tech giants such as Baidu, Alibaba, Tencent, Huawei and ZTE are facing backlash and resistance in the US and Europe. “Findings of the investigation into China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation under Section 301 of the trade act of 1974”, a report prepared by the Office of the United States Trade Representative executive office of the President, or the so called “Section 301” report released in March 2018, has accused China of stealing trade secrets and forced acquisition and transfer of technologies and intellectual property to Chinese companies. The Trump administration is convinced that by way of “Made in China 2025” China desires to penetrate deep into the open economies, while denying similar access to the Chinese market to foreign companies. It desires to assume leadership in the above-mentioned core sectors and replace the established giants, the US and other players like Germany, Japan and South Korea.

Therefore, the US-China trade war is not about the $375 US trade deficit with China alone, but a future hegemonic contest between the two rivals, in which the hi-tech leadership is just one of the fields. Early in June, when President Trump announced that the US would increase the scope of tariffs on Chinese goods from $50 billion to $250 and ultimately to $500, “Made in China 2025” was in the back of his mind. It is also perhaps for this reason that the Chinese government has lowered its pitch on “Made in China 2025”, but the strategy is being unfolded uninterrupted. Essentially, it remains a blueprint for transforming China’s labour intensive manufacturing to high end products, which has threatened the technological leadership of the West and hence an attempt to stop China’s rise by initiating a trade war.

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