By Renato Balderrama and Amado Trejo
“Made in China 2025” (MIC 2025) is a national strategy announced by the Chinese State Council in 2015 to develop and consolidate China’s manufacturing industry to convert it into a world power with the capability of influencing international standards and supply chains. It also plans to become a leader in innovation at an international level. Likewise, through the modernization of its productive structure, the central government plans to put the brakes on a slowdown in the economy in the medium term. This plan, drawn up by the Ministry of Industry and Information Technologies (MIIT, after its English acronym), has very specific goals, projected not only until 2025, as its name would indicate, but until 2049, the 100th year anniversary of the founding of the People’s Republic of China.
In just a few years, China has not only become “the world’s factory,” but also the best ecosystem for entrepreneurship and innovation at the global level, competing neck and neck with the United States—the two most important epicenters of startups and spinoffs in the world. And it’s important to understand where Latin America stands in all this. What is the region doing to avoid being left out of Revolution 4.0 [referring to cyberphysics systems]? Latin America is experiencing a process of deindustrialization, above all in countries like Peru, Chile, Argentina and Colombia. Those countries decided to strengthen their raw materials sector, primarily for exports to Asia, however, in general, they did not bet on designing strategies for the use of technology to make those exports more profitable and with added value.
Mario Castillo, head of the United Nations Economic Commission for Latin American and the Carribean (ECLAC) Office for Innovation and New Technologies, comments, “The region didn’t do its catching up during the third revolution [referring to automation and the Internet] and because of that the debate has become about the public policies necessary to put in place to take advantage of the new wave of development.” According to the latest 2018 Bloomberg global index for innovation, in the ranking of the fifty most innovative countries in the world, there is not a single Latin American country. And it is not only highly developed countries on the list: South Africa, Tunisia and Morocco all made the list.
Most Latin American countries, especially in the private sector, continue to see China as a market for our raw materials and, perhaps in some cases, a way of attracting investment in infrastructure. However, no country as yet is designing strategies to take advantage of the entreneurship ecosystems that have been developed in cities such as Beijing, Shanghai and Hangzhou, where an enormous number of successful entrepreneurs are concentrated. What Latin America does not seem to understand about MIC 2015 is the opportunity cost of not taking advantage of the technology and capital for entrepreneurship China has at its disposal and, as I will explain, is its priority for the next decades. It is now not a matter of seeing how much we can export to China, but how we create patents in China to later manufacture in the Southeast and South of Asia through Chinese business networks and from there to market to the entire world.
MIC 2025 draws its inspiration from Germany’s “Industry 4.0” blueprint, but the Chinese version is broader because it focuses on issues of quality, consistency in finished products, security and enviromental protection, among others, that are considered strategic for the country’s development. The plan is not an isolated effort, but was developed in the context of interconnected policies that seek to increase local innovation through so called “emerging strategic industries,” which include the 13th Fifteen-Year Plan (2016–2020), a new plan for science and technology and several for the development of regional strategies, according to the U.S. Chamber of Commerce report, Made in China 2025: Global Ambitions Build on Local Protections, 2017.
The MIC 2025 has nine strategic goals: to foment innovation; promote integrated manufacturing with the use of digital and high technology; strengthen the general industrial base; improve product quality and create Chinese global brands; concentrate efforts on ecological means of manufacturing; restructure industries for greater efficiency and production; improve service industries; globalize Chinese manufacturing industries; carry out technological innovations in ten priority sectors with high value-added.
The ten sectors designated as priorities for development include advanced marine equipment and high-technology ships; trains and related advanced commitment; aviation and aerospace equipment; agricultural machinery and technology; biopharmaceutical products and high-level medical equipment; integrated circuits and new information technologies; manufacturing control and robotic equipment; vehicles using new energy technology; and new and advanced materials.
The Chinese government seeks through MIC 2025 to provide incentives for local innovations and self-sufficiency in strategic sectors for the country’s development and leadership at an international level. It seeks to gradually provide a substitute for foreign technology in Chinese industry and to create a decisive presence for Chinese technology at an international level. The implementation of the program has been provided with substantial funding.
The funds destined to coordinate financial support for domestic firms to innovate are generally in the form of loans and subsidies for research and development. The goal is to set up 40 innnovation centers by 2025 to develop integration mechanisms for information technology in manufacturing; to construct 1,000 green factories by 2020 to determine the best emission practices; to move toward self-sufficiency by importing no more than 20% of raw materials by 2025; and to promote research and local development, particularly in the areas of airplanes, alternative-energy vehicles and medical equipment, according to the U.S. Chamber of Commerce China report.
Industrial Disruption at the International Level
If MIC 2025 has a strongly internal focus in the sense of strengthening China’s capacity for modernization and innovation through its national industries through the stimulation of so-called local innovation, at the same time it seeks to expand internationally in two directions.
First, technology must grow the accelerated acquisition through purchase and fusion, as well as investment in foreign firms, primarily in the United States and Europe, with the participation of quasi-state firms, as well as private Chinese companies, which seek technological solutions that would take years to develop themselves. Some analysts sustain that in the long run China could obtain control of the majority of profitable supply chains and production networks. This could produce tensions between China and technologically highly developed countries because of the need to protect their national industries from fusions and adquisitions that are considered strategic for each country, as has been evidenced in the recent tension between China and the United States over the possible acquisitions of U.S. companies dedicated to the manufacture of micro-computers and infrastructure equipment by finance groups of Chinese origin.
Second, through the efforts of the central government to support its large technological conglomerates in the global market as major providers of goods and services, they compete with other international and regional firms. This effort is not new, given that, since the end of the last decade, the Chinese government has made an effort to internationalize its businesses. What is different now is its capacity for mobilization both in terms of financial resources as well as the exponential growth Chinese technology firms can have as change agents, including as disruptors, in other latitudes.
Both factors are worrying several countries and global corporations who are looking for more access to the Chinese market as suppliers of the products and services spelled out in MIC 2025, as well as having reservations about the clauses concerning technology transfer to local firms who seek to establish operations in that country. The primary argument of the Chambers of Commerce of the United States and the European Union, as well as other international actors, is that this plan could have a degree of protectionist connotations that could generate obtacles for the norms of international trade and would prevent them from expanding in a just and competitive form in the Chinese market. Thus, President Donald Trump’s tariff barriers made under the argument of national security ccould be interpreted in this context.
In the face of this abundance of capital, technology and talent on the Chinese side, what will be the strategies of developed economies—and developing countries—to generate public policies to strengthen national science and technology, to avoid the increasing digital gap and, as a result, a lag in economic development and competitiveness in the near future?
Renato Balderrama is the director of the Center for Asian Studies at Universidad Autonóma de Nuevo León (UANL), México.
Amado Trejo is the coordinator of the UANL’s representative office in Asia.