China preparing to increase access for foreign companies
China plans to replace an industrial policy savaged by the Trump administration as protectionist with a new programme promising greater access for foreign companies, according to people briefed on the matter, in a move to resolve trade tensions with the US.
China’s top planning agency and senior policy advisers are drafting the replacement for Made in China 2025, President Xi Jinping’s blueprint to make the country a leader in high-tech industries, from robotics to information to clean-energy motor vehicles.
The revised plan would play down China’s bid to dominate manufacturing and be more open to participation by foreign companies, these people said.
The sources said current plans call for rolling out the new policy early in 2019, a time when the US and China are expected to be accelerating negotiations for a deal to end their bruising trade battle.
Odds that the new plan will go far enough in addressing US complaints are long.
Xi and others in the Chinese leadership are used to exercising a strong hand in the economy. Many bureaucracies and state-owned enterprises benefit from the unfettered access to resources that come with big government initiatives and so do not want to be hampered by the greater competition of a level playing field.
The revision is also likely to be treated with scepticism in the US. Officials in the Trump administration have called Made in China 2025 a threat to fair competition, saying it encourages domestic subsidies and forces technology transfer from foreign partners.
Some US officials are likely to see the changes as more cosmetic than real. If approved by Xi, the plan could nonetheless win over some foreign businesses and persuade some in the Trump administration that Beijing is making meaningful changes to retool the economy to be more market driven.
“It would be a positive shift from the government focusing primarily on which tech sectors to foster to it emphasising making the production process more efficient,” said Scott Kennedy, an expert on China’s industrial policies at the Centre for Strategic and International Studies, a Washington think-tank.
Chinese leaders in recent months have stopped mentioning the Made in China plan in public remarks. At a news conference in November, Trump took credit for China shelving the plan, saying: “China got rid of their China ‘25 because I found it very insulting.”
A key concession under consideration would be dropping the numerical targets for market share by Chinese companies, the sources said. Made in China 2025 sets defined goals of 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.
Chinese officials backing the proposed changes emphasise that China needs to move away from Made in China 2025 and state-led development for its own reasons. Xi’s economic adviser, vice-premier Liu He, and other senior officials have criticised Made in China 2025 for creating waste.
Cheap loans made available by various levels of government, for example, have led to extreme overcapacity among electricvehicle battery makers in the past couple of years, making the sector less viable. A more market-driven approach to upgrading the manufacturing sector would produce better economic returns and help rekindle the Chinese leadership’s commitment to reform, the people briefed on the matter said.
Xi has stressed a shift to higher-quality growth, and this month marks the 40th anniversary of the market-orientated reforms that transformed the country from one of the world’s poorest. Beijing is also planning to announce policies aimed at introducing fairer competition among state-owned, private and foreign firms based on the concept of “competitive neutrality”, the people said.
In the past few years, China has significantly increased the government’s role in the economy, pumping up the state sector and crowding out private and foreign businesses. The Trump administration has pushed the “competitive neutrality” principle, making sure it was part of the renegotiated North American Free Trade Agreement, known as the USMexico-Canada Agreement.
Under the concept, governments are prohibited from favouring state-owned companies over privately owned ones. The idea was a favourite of prior US administrations and was part of the Trans-Pacific Partnership, a trade pact of Pacific-rim nations, including the US and Japan, which was rejected by Trump.
CHINESE LEADERS IN RECENT MONTHS HAVE STOPPED MENTIONING THE MADE IN CHINA PLAN IN PUBLIC REMARKS