Special Report

Plan B: Reshaping Made in China 2025

by David Murphy / Jan 16, 2019


Xi Jinping’s “Made in China 2025” (MIC2025) policy is the keystone of an audacious effort by the world’s most populous nation to avoid the middle-income trap and undertake a great leap up the value chain to become the leader in a range of new and old industries and technologies. There are three major rationales underpinning MIC2025: to sustain GDP and income growth, to avoid the de-industrialisation that some western nations have seen, and to reduce reliance on foreign technology. We look at how China may reshape its plan in the face of international opposition.

MIC2025 and the trade war
The USA has taken aim at MIC2025 in the escalating trade war, but it is at the top of Xi Jinping’s economic agenda and we see almost no chance of him abandoning it. However, if events lead multinationals to relocate, this would threaten the “upgrading” policy. This suggests that China may adjust the goals by toning down the self-sufficiency elements and improving IP protection and a level playing field for foreign companies versus SOEs. Beijing may also publish a new national strategy without using “Made in China”. We show that the country is already behind its targets for self-sufficiency and that MIC2025 may present more opportunities for MNCs than challenges.

MIC2025: Background, goals, context
While MIC2025 is intended to achieve a broad upgrading of the Chinese economy, it is also riding a wave already in motion. China’s investment in the “new economy” has been remarkably outpacing the “old economy” over the past few years.

Ten priority industries
MIC2025’s success would see the emergence of world-leading industrial giants across several sectors, competitive threats to many now-dominant players, and an increase in China’s per-capita GDP from US$9,400 today to US$14,000 in 2025, with a huge knock-on effect on consumption. The primary 2025 policy document highlights 10 key sectors, with dozens of technology priorities and hundreds of specific high-tech products ranging from AI equipment and robotics to smart-home appliances, all with development targets.

Funding and talent supply
Banks have been encouraged or ordered to provide easier and cheaper credit to MIC2025 initiatives. The State Development Bank plans to extend more than Rmb300bn over 2016-20. The Agricultural Bank of China announced in early-2018 that MIC would make up 5% of its loan book by end-2020, so its Rmb10.7tn December 2017 figure implies Rmb535bn in ABC lending to MIC2025 projects in two years. As well as deep pockets, China’s “talent dividend” is a key strength, with large numbers of capable and still-cheap engineers. CLSA’s research reveals that this advantage will continue for a long time, despite the tight labour supply and rapidly rising labour costs.