Trade war, day 160: Is Beijing softening Made in China 2025? | Politics News | SupChina

Trade war, day 160: Is Beijing softening Made in China 2025?

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Since March, when the U.S. Trade Representative (USTR) released its “Section 301” report on Chinese trade practices, the Made in China 2025 initiative has been in focus as what SupChina called the “true heart of the U.S.-China trade war.”

The initiative sets a number of ambitious but non-binding goals to reduce China’s reliance on foreign technology, and directs investment into ten strategic areas, including robotics, artificial intelligence, aerospace equipment, and quantum computing. American officials railed against the policy because, to them, it represented a declaration that China’s cutthroat practices to achieve technological power — including market protectionism and state subsidization, as well as what the USTR said was a massive amount of intellectual property theft and forced technology transfer — would never change.

The Wall Street Journal reports today (paywall) that Beijing is now working on a new, less aggressive “replacement” for Made in China 2025:

  • Broadly, the new plan “would play down China’s bid to dominate manufacturing and be more open to participation by foreign companies,” the Journal reports.
  • It could be announced early next year, or about halfway through the current 90-day negotiating period.
  • “Odds are long that the new plan will go far enough in addressing U.S. complaints…some U.S. officials are likely to see the changes as more cosmetic than real.” And Jeremie Waterman, president of the China Center at the U.S. Chamber of Commerce, said that it should be judged “not against new slogans and broad formulations,” but based on “very detailed concerns regarding subsidies, standard setting, procurement and others.”
  • But the changes could be significant, even if they end up short of the Trump administration’s demands.
    • One change under consideration is “dropping the numerical targets for market share by Chinese companies.” The core goal of the current plan is “raising domestic content of core components and materials to 40% by 2020 and 70% by 2025, an increase that comes at the expense of foreign competitors.”
    • Any shift to a more market-based approach would not be too surprising. The WSJ notes that Liú Hè 刘鹤, China’s economic “mastermind” and Beijing’s point person for current trade talks, has “criticized Made in China 2025” for creating overcapacity in some sectors.
    • The concept of “competitive neutrality,” or treating state-owned and privately-owned companies the same, is also reportedly gaining traction in Beijing, though entrenched interests would be tough to overcome and this would be a reversal from the trend in recent years.
  • Made in China 2025 is already being deemphasized, Caixin reports:

China’s central government has updated its list of priorities [in Chinese] for local governments to focus on — and the controversial ‘Made in China 2025’ industrial strategy is off the list…

One notable change from the 2016 list is the government’s greater emphasis on ‘promoting steady growth of foreign trade and foreign investment,’ as China faces headwinds from trade tensions with the U.S…

Though Made in China 2025 was left out, the list included policies that support independent innovation, high-technology industries and industrial transformation.

Why would China want to be open to foreign investment in its high-tech industry, when all year, Xi Jinping has been increasing the drumbeat for “self-reliance” and indigenous technological innovation?

The Financial Times provides (paywall) what could be a clue, related to the booming semiconductor manufacturing industry in China:

While Beijing has been pouring billions into the industry to catch up…the percentage of locally-produced equipment used by China’s chipmakers actually declined to around 5 per cent last year from 8 per cent in 2015 as local suppliers failed to keep up with the country’s fleet of semiconductor foundries and assembly and testing factories.

As much as Beijing wants to go it alone to upgrade China’s industries, it probably recognizes that outside investment and foreign technology inputs are necessary at least for the next few years.

More trade-war-related news:


Previously in SupChina’s trade war coverage:

Trade war, day 159: Lighthizer-Liu negotiations proceed, but ‘major broadside’ being planned in Washington

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Lucas Niewenhuis

Lucas Niewenhuis is an associate editor at SupChina who helps curate daily news and produce the company's newsletter, app, and website content. Previously, Lucas researched China-Africa relations at the Social Science Research Council and interned at the Council on Foreign Relations in New York. He has studied Chinese language and culture in Shanghai and Beijing, and is a graduate of the University of Michigan.

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