China’s government launched its “Made in China 2025” program last week.
With its 10 priority industries and milestones for creativity, quality, digitization and greenness, there is a lot for anyone operating in these industries in China or elsewhere to look at.
We can be certain that behind these priorities will be a wave of cash and incentives to manufacturers and to consumers. We can be sure that many Chinese companies, private and state-owned, are revising their strategies to align with the government’s priorities and that local capacity will rise exponentially.
And while experience reminds us that success will be elusive in some sectors, in several it is likely that Chinese companies will become much, much stronger global leaders by the end of this period as a result of very Darwinian competition.
Customers may be the biggest beneficiaries in the decade ahead as the government’s strategy drives companies down the experience curve much faster than would otherwise have been the case.
What are these industries where China will be “promoting breakthroughs in 10 key sectors?” Many of them are familiar from earlier priority lists.
Information technology: Especially where Beijing has emphasized the need to wean China off foreign technology, and for China to become a “cyber power” in its own right. Expect lots more investment in semiconductors and acquisitions of international technology companies by Chinese companies.
Numerical control tools and robotics: China is already becoming a leader in low and mid-range numerical control machines. An increased emphasis on robotics will help drive productivity increases and also increase required skills for the remaining jobs in factories. Expect lots of exports by 2025, if not much earlier.
Aerospace equipment: China seeks to become a leader in satellite technology and is hoping to move beyond its first domestically made passenger jet, which is heavily dependent on foreign technology.
Ocean engineering equipment and high-tech ships: Some of this links to ongoing investment in infrastructure in the South China Sea. China is hoping to be able to grow a strong export sector in this space.
Railway equipment: China is already exporting its high speed rail products to countries from Malaysia to Russia. Beijing clearly wants to grow its competitiveness in this area, including through infrastructure projects in the “One Belt, One Road” initiative.
Energy saving and new energy vehicles: Combines the priority to clean up air in Chinese cities with the long-standing (and long unmet) ambition to win international recognition for Chinese-made cars.
Power equipment: Energy efficiency is the key goal here also. Smart grid and smart city technology are the central priorities.
New materials: The government views this as a key area for true research driven “invention”. If China can become a leader in inventing and commercializing new materials we will have fewer conversations on “does China innovate”.
Medicine and medical devices: Chinese medical device manufacturers have been growing very rapidly in recent years and are already starting to export. With further government support, this may accelerate.
Agricultural machinery: Yet another sector where China is looking to enhance efficiency and create a platform for exports. Yet as we have seen with the auto sector, it may not be easy.
A few examples of the milestones to go with this
- Increase R&D spend as a percentage of sales from 0.95% to 1.68%
- Increase labor productivity annually by 7.5% to 2020 and by 6.5% annually thereafter
- Reduce energy consumption per unit of added value by 35% by 2025
- Reduce water consumption per unit of added value by 35% by 2025
A broad and far-reaching set of priorities that will expand domestic demand, grow local manufacturing – and in multiple sectors – increase exports significantly by 2025.
In a future post, I will look into the implications for foreign companies of these initiatives.