The race to upgrade China’s manufacturing
clearly that manufacturing is the existing competitive advantage. For the past few years, people have been saying that China’s manufacturing is big but not that strong. Given the scale, the government is trying its best to upgrade it to a new shape. They want to do it fast because time is very constrained. In five years, 10 years at most, we will see a new structure of leading countries. The fourth industrial revolution is already going on,” said Zhai Xin, associate professor at Peking University’s Guanghua School of Management.
The 13th Five-Year Plan (2016-20) concentrates on a set of policies to create an “optimized modern industrial system” that can deal with this new environment.
“With a focus on carrying out deep structural adjustment and revitalizing the real economy, we will move ahead with supply-side structural reforms, foster new industries while upgrading traditional ones, move faster to put in place a new modern industrial system that has strong innovative capabilities, provides quality services, is based on close collaboration and is environmentally friendly.”
The Internet Plus and Made in China 2025 policies introduced by Premier Li in 2015 aim to redirect China’s model by using technology to move traditional industries to higher value-added products and to invest in creating new capabilities in 10 new high-tech industries.
Financing the upgrade
Recognizing that industrial upgrading is key to the future economy, the government is putting big money behind its policies, but it is also striving to ensure a high level of market input.
In August last year, the government announced the creation of a $30 billion venture fund especially targeted to boost industrial technology. Somewhat smaller funds have more specific targets.
According to the research company Merics, the Advanced Manufacturing Fund will insert capital worth $3 billion into industrial technology upgrading. The National Integrated Circuit Fund has $20 billion and the Emerging Industries Investment Fund holds almost $6 billion.
In addition, local and provincial governments will set up funds to support industrial upgrading in their regions. By comparison, the German government is devoting only $225 million, and German companies plan to spend about $12 billion over the next decade on the so-called Industry 4.0 upgrading, according to Experton Group, a business consultancy.
The government funds seek to guide market investors, not to provide majority State funding. According to Chen Shaozhi, a senior journalist who heads the Made in China 2025 team at Xinhua News Agency’s Economy and Nation Weekly: “The government may lead the industrialization fund, but it is very commercialized. The government puts in a little money. Then the banks, investment companies and venture capital funds all can invest together.
“This type of guidance is similar to the way the government has encouraged private investment in high-tech Silicon Valley-like areas such as Zhongguancun in Beijing. The main goal in traditional manufacturing is to help the entrepreneur make money and survive in the market.
“Everyone, government officials and businesspeople, understand that industry has to upgrade. If you don’t upgrade, you will be expelled from the market. If you upgrade, it may bring some hurt. But, if you don’t upgrade, the only question is whether you die early or die late.”