What is the MIC 2025 plan?

15 Apr.,2024

 

Influence of Made in China 2025

 

The Made in China objectives are referential to Germany’s “Industry 4.0” initiative. Policymakers studied this plan and created a unique plan for China. If Made in China 2025 is successful, China will enhance its reputation even further as a world superpower in manufacturing.  

Priority Sectors

 

The Made in China 2025 initiative highlights ten priority sectors, including: 

  • New generation information technology

     

  • Advanced numerical control machine tools and robotics

     

  • Aerospace technology, including aircraft engines and airborne equipment

     

  • Biopharmaceuticals

     

  • High-performance medical equipment

     

  • Electrical equipment

     

  • Farming machines

     

  • Railway equipment

     

  • Energy-saving and new energy vehicles

     

  • Ocean engineering

     

By focusing on these emerging industries, China is concentrating its development on these areas of growth so that the country has greater sustainability and less interdependence with other countries. 

Government Initiatives

 

To accomplish the goals of Made in China 2025, the government has encouraged growth in these technological and innovation-driven sectors, including clean energy, IT, and robotics. The government is providing more support for producing specialized goods and making investments in research and development.  

Additionally, China provides subsidies and finances state-owned enterprises to achieve these ambitious objectives. Historically, part of the MIC 2025 plan was to provide direct and indirect state support in hi-tech manufacturing segments.  

Controversies Surrounding MIC 2025

 

The Made in China 2025 initiative has received some global criticism because it sought to dismount world leaders from their powerful positions in certain industries. It had certain quotas that it wished to fulfill, including core components and materials manufacturing of 40% by 2020 and 70% by 2025.

The plan also provided detailed instructions based on how much of the country’s technology market would be controlled by Chinese companies and how many individual parts in products had to be manufactured in China. This was seen by some to be against free trade principles that seek to level the playing field.  

Additionally, if China becomes self-sufficient, this would enable it to become a larger provider in the global market. This has rightfully instilled fears in manufacturers in other countries since this momentum could disrupt the marketplace that other countries have had and depended on for decades.  

The MIC 2025 plan has also been a source of contention during the US-China trade war. US politicians have claimed that forced technology transfers by China is a large part of the problem. 

Some Changes under Consideration

Due to the international backlash, policy makers are considering making changes to the MIC 2025 plan that would encourage investment from other countries and would eradicate provisions that targeted certain percentages that MIC components had to meet.

Another potential change that is being considered by policymakers is delaying the anticipated timeline so that all of the goals are not expected by the year 2025. 

However, even if these changes are made, China will still continue its mission toward developing advanced technology and trying to reduce its reliance on western knowledge. Policymakers tout the important economic and strategic advantages of this model.

Additionally, new industrial goals may still be established. However, they may be more subtle in nature or not released in a public forum. For example, region-specific or sector-specific policies could attract investments while not providing the publicity of a national ambition.   

Larger areas like Beijing may embrace fair competition norms for foreign, state-owned, and private enterprises, which could attract additional financial investment from foreigners and make China more friendly when dealing with foreign companies.  

This double-pronged approach of developing technology to ease reliance on western knowledge and reform policies so that foreign investment is more accessible could allow China to maintain strong trade policies while insulating itself from additional punitive measures from the United States.  

Chinese policies are currently being adopted to advance lawmakers’ objectives, including: 

  • Reducing the burden on the social insurance system

     

  • Opening market access to foreign firms

     

  • Boosting participation by the private sector

     

  • Strengthening intellectual property protection

     

  • Facilitating foreign and domestic business capabilities

     

These new policies could have a dramatic impact on foreign investment over the next few years.  

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Chinese industrial policy

Made in China 2025 logo

Made in China 2025 (Chinese: 中国制造2025; pinyin: Zhōngguózhìzào èrlíng'èrwǔ)[1] (MIC25,[2] MIC 2025,[3] or MIC2025)[4] is a national strategic plan and industrial policy[5] of the Chinese Communist Party (CCP) to further develop the manufacturing sector of China, issued by CCP general secretary Xi Jinping and Chinese Premier Li Keqiang's cabinet in May 2015.[6] As part of the Thirteenth and Fourteenth Five-year Plans, China aims to move away from being the "world's factory"—a producer of cheap low-tech goods facilitated by lower labour costs and supply chain advantages. The industrial policy aims to upgrade the manufacturing capabilities of Chinese industries, growing from labor-intensive workshops into a more technology-intensive powerhouse.[7]

Made in China 2025's goals include increasing the Chinese-domestic content of core materials to 40 percent by 2020 and 70 percent by 2025.[8] To help achieve independence from foreign suppliers, the initiative encourages increased production in high-tech products and services, with its semiconductor industry central to the industrial plan, partly because advances in chip technology may "lead to breakthroughs in other areas of technology, handing the advantage to whoever has the best chips – an advantage that currently is out of Beijing’s reach."[4][9][10][11]

Since 2018, following a backlash from the U.S., Europe, and elsewhere, the phrase "MIC 2025" has been de-emphasized in government and other official communications,[12][13] while the program remains in place. The Chinese government continues to invest heavily in identified technologies.[12] In 2018, the Chinese government committed to investing roughly US$300 billion into achieving the industrial plan.[11] In the wake of the COVID-19 pandemic, at least an additional $1.4 trillion was also invested into MIC 2025 initiatives.[14] Given China's current middle income country status, the practicality of its disproportionate expenditure on pioneering new technologies has been called into question.[15][16]

Background and stated goals

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Since the 2010s, China has become an emerging superpower as the second largest economy and the largest one on a purchasing power parity (PPP) basis.[17] It faces manufacturing competition from countries with lower wages, like Vietnam, as well as from highly industrialized countries.[11][18] In order to maintain economic growth, standards of living, and meet the demand of its increasingly educated workforce, China undertook stimulating the potential of its economic and technological competitiveness with MIC 2025,[18] to become a "world-leading manufacturing power."[19] Alan Wheatley of British think tank Chatham House indicated, in 2018, that a broad and growing Chinese middle class is necessary for the country's economic and political stability.[20]

China believes in its industrial policy programs, which it sees as key to its economic success.[21] Its leaders hope that government investment in crucial technology sectors will lead to a strong position in the Fourth Industrial Revolution.[21] The key objective of the Made in China 2025 program is, in a world which it views as increasingly dominated by U.S.-China competition, to identify key technologies, such as AI, 5G, aerospace, semiconductors, electric vehicles and biotech, indigenize those technologies with the help of national champions, secure market share domestically within China, and ultimately capture foreign markets globally.[22]

The Center for Strategic and International Studies in Washington, D.C. described MIC 2025 as an "initiative to comprehensively upgrade Chinese industry", which is directly inspired by Germany's proposed Industry 4.0 strategy.[1] It is a comprehensive undertaking to move China's manufacturing base higher up the value chain[23] and become a major manufacturing power in direct competition with the United States.[24][25]

Policies

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In order to achieve the stated goals, a number of specific policies have been implemented, including:[26]

  • High-tech companies are subject to reduced taxation rates.
  • Incentivization of mergers and acquisitions of foreign technology companies
  • Increased R&D funding by large manufacturing enterprises
  • Direct state-funding of R&D
  • Roadmap stating specific targets for factors such as R&D spending share, productivity, digitization and environmental protection.

Policy support for Made in China 2025 has also included government guidance funds, national laboratories, and state funded incentivization for research grants.[27]: 116 

Strategic initiatives

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For better implementation of the policies the Chinese Communist Party also implemented 5 strategic initiatives[28]

  1. Building Research and Development Centers across China (40 to be built by 2025)
  2. Development of High-End Projects across all of the key industries
  3. Sustainable production and worldwide leading green manufacturing practices
  4. Smart Manufacturing incl. robotics and digitalization
  5. New materials production to be less dependent

Key industries

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Industries integral to MIC 2025 include aerospace, biotech, information technology, smart manufacturing, maritime engineering, advanced rail, electric vehicles, electrical equipment, new materials, biomedicine, agricultural machinery and equipment, pharmaceuticals, and robotics manufacturing, many of which have been dominated by foreign companies.[29]

MIC 2025 lists the following 10 key industries that the Chinese government targets for becoming a world leader.[30]

Premier Li has indicated advanced standards in industries are absolutely essential to foster innovation and eliminate bottlenecks in industrial development. China has a growing middle class who are demanding higher quality goods and services. Compared with overseas competition, the quality and innovation of Chinese goods have not caught up. Premier Li talks about the quality revolution. This revolves around entrepreneurship and craftsmanship. It will involve embracing a culture of continuous innovations and refinement in quality of goods produced.[31]

Some companies that have been named as leaders of the key industries are:[32][33]

Funding and evaluation

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The amount of state funding to support the MIC 2025 industries has not been publicized, but is estimated to be "in the order of hundreds of billions of dollars" of state funding, low interest loans, tax breaks and miscellaneous subsidies.[37][38] This amount includes US$2.9 billion for the Advanced Manufacturing Fund and US$20.2 billion for the National Integrated Circuit Industry Investment Fund.[26]

China's investment in 5G is seen as part of the MIC 2025 program. As of early 2020, China had around 200,000 5G towers in use; by the end of the year, it aimed to have more than 500,000, with an ultimate goal of 5 million.[14] In its 14th five-year plan, China's National People's Congress approved the spending of $1.4 trillion in 5 to 6 years to build 5G networks, "install cameras and sensors to create smart cities, and integrate this network with industry to accelerate progress in smart manufacturing."[12][14]

Barry Naughton, a professor and China expert at the University of California, San Diego, questioned whether it is sensible for China, considering it is still a middle income country, to be taking "such a disproportionate part of the risky expenditure involved in pioneering new technologies". He commented that while it does not make sense from a purely economic perspective, Chinese policymakers have "other considerations" when implementing their industrial policy such as Made in China 2025.[15]

Reactions

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European Union

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A European Commission published report calling for the European Union (EU) to increase its industrial and research performance and to "develop a trade policy that can ensure a level playing field for EU companies in China and for Chinese companies in the EU", in response to the Made in China 2025 (MIC 2025) policy. It recognizes MIC 2025 as being similar to the "German and Japanese approaches to innovation and economic development".[39]

The EU Chamber of Commerce in China said that MIC 2025 would increase Chinese protectionism favouring domestic companies.[40] In a report they have written that the MIC 2025 initiative distorts the market, and that market-based innovation provides a better way to pass through middle-income status than industrial policies. Jörg Wuttke, president of the chamber, said: "Very often these major plans, with lots of money, where government bureaucrats decide who's the winner and who's the loser, end up in tears."[16]

Japan

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Japanese commentators note that MIC 2025 has led to growing exports of Japanese high-value goods such as semiconductor manufacturing equipment and production line robotization equipment and see it as a business opportunity, but fear that China may become a strong competitor in the long run.[41][42]

South Korea

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A report by the Korea International Trade Association (KITA) sees MIC 2025 as a step towards Chinese self-sufficiency, threatening Korean exports, but also acknowledges opportunities for Korea due to changing industry demands. KITA calls for a response by improving Korean innovation, preventing brain-drain and loss of intellectual property through mergers and acquisitions, preventing unfair trade practices by China and actively playing into market opportunities that arise from MIC 2025.[43]

Taiwan

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Aggressive campaigns to recruit Taiwanese chip industry talent with lucrative offers resulted in the loss of more than 3,000 chip engineers to MIC 2025,[44] and raised concerns of a "brain drain".[45][44] Charles Kao, considered Taiwan's "Godfather of DRAM" was among those to leave Taiwan for a position in China, spending five years with Tsinghua Unigroup which, two years after Kao was hired, had also recruited Sun Shih-wei, formerly vice chairman of United Microelectronics.[46]

United States

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At the start of the 2010 decade, United States policy makers began to make defensive adjustments against China's growing position in the digital world. These adjustments consisted of regulating the amount of imports and exports, regulating financial investments, creating financial sanctions and visa bans.[47] In recent years, the United States has taken a more offensive strategy to compete against China. The United States has inserted themselves into the digital world by increasing their own investments in their research and development fields and also banning the use of certain Chinese-made technology inside universities and other sites of academia. The offensive measures to compete with China have been proven to be more effective in slowing Chinese influence over the technology sector. However, they take more time to have a sufficient influence unlike their defensive counterparts. Researchers believe the defensive measures being taken are meant to yield the rapid growth of China in order to allow time for the United States strategy to take place.[47]

The growth of the Made in China 2025 initiative is seen by the United States as a threat to national security. U.S. officials believe that if Beijing continues to create a significant gap throughout the technology sector officials in Washington should be concerned about breaches inside government departments and agencies. This has fostered the creation of a process by the United States government called “technological decoupling". The United States is strategically finding different means of separation away from technology originating in the borders of China. This is implemented through establishing restrictions on Chinese goods and services or the creation of Made in USA corporations to compete domestically.[47]

Throughout the 2010's, the rise in popularity of the technological decoupling theory has come because of the United States shifted view of China and the Xi Jinping ran regime. In previous decades, U.S. policy makers saw the growth and benefits in China as mutual gains in their own borders as well. However, the unique intensity around Chinese policy decisions in recent years have proven to give a voice to a growing wariness about their future agenda. The United States and China continue to sustain a healthy amount of economic interaction, but how they view one another has shifted to a more competitive level.[47]

In 2018, the Council on Foreign Relations, an American think tank, stated that MIC 2025, with its government-sponsored subsidies, is a "threat to U.S. technological leadership".[48] The Li Keqiang government maintained that MIC 2025 aligns with the country's World Trade Organization obligations.[49] On 15 June 2018, the Trump administration imposed higher tariffs on Chinese goods, escalating trade tensions between China and the U.S. The tariffs primarily apply to manufactured goods included in the Made In China 2025 plan, such as those integral to IT and robotics industries.[50][51]

The U.S. began individual investigations over Chinese companies participating in the MIC 2025 plan, such as Fujian Jinhua Integrated Circuit, based on concerns over technology theft and national security.[36]

In August 2018, the U.S. President signed into law the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) to strengthen the national security review of foreign direct investment transactions by the Committee on Foreign Investment in the United States (CFIUS).[52][53]

In June 2021, the U.S. and the EU entered into an agreement restricting the transfer of aerospace technology from the U.S. and the EU to China.[54][55]

In August 2022, the U.S. Congress passed the CHIPS and Science Act which authorized $280 billion funding to expand U.S. capabilities in semiconductors and other technologies.

On November 14, 2022, U.S. President Joe Biden and Chinese President Xi Jinping met in person for the first time during the 2022 G20 Bali summit to discuss future relations between the two nations. The meeting touched on improving bilateral relations between the two nations. Chinese media reported that President Biden promised that the U.S. does not seek to start a cold war with China and does not intend to contain Chinese development in the technology or financial sectors.[56] According to the White House readout as reported, President Biden explained during the meeting that the U.S. will continue to "compete vigorously with the PRC, including by investing in sources of strength at home and aligning efforts with allies and partners around the world," but that “this competition should not veer into conflict” and “the United States and China must manage the competition responsibly and maintain open lines of communication.”[56]

See also

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Further reading

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  • Boris Lee (2019). Assessing Made in China 2025: The US - China Trade War and Ways Going Forward. Claremont Colleges Library.

  • Edward Alden, Nicholas Burns, Ash Carter, Jack Clark (2019). Technology and National Security: Maintaining America's Edge. The Aspen Institute. ISBN 978-0578427959.

  • BBC (2019) China: A New World Order [57]
  • Shaun Rein (2012). The End of Cheap China: Economic and Cultural Trends That Will Disrupt the World. John Wiley & Sons.

References

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What is the MIC 2025 plan?

Made in China 2025