“Made in China 2025”
Lead author: Ziye Li - Venture Analyst, Accathon Capital (Ziye Li)
Made in China 2025 (MIC 2025), the Chinese version of Industry 4.0, as its first ten-year national plan for transforming China’s manufacturing, has attracted worldwide attention since getting published in 2015.
In a nutshell, MIC 2025 is designed to put China on a new path to industrialization, with an added emphasis on leveraging of frontier innovations as a means to shift focus from a manufacturing giant with a focus on quantity, to one with a qualitative edge.
China’s Ministry of Industry and Information Technology (MIIT) has explained that implementing MIC 2025 is a strategic choice, learned from the lesson of missing the previous two industrial revolutions. And China wants to take the initiative in the new round of scientific/technological revolution and consequential industrial transformation. Despite many controversies and doubts, MIC 2025 indicates the developing trend of the world’s second largest economy in the next decades and shows entrepreneurial and investment opportunities for those who seek for success in the Chinese market.
What is Made in China 2025?
Made in China 2025, announced by the State Council of China in May 2015, is a manufacturing policy proposed by Chinese Premier Li Keqiang. The entire strategy is broken into three phases, stretching the timeline 2025 to 2049 :
In achieving this goal, MIC 2025 identified ten priority sectors, including:
- Next-generation information technology
- High-end numerical control machinery and robotics
- Aerospace and aviation equipment
- Maritime engineering equipment and high-tech maritime vessel manufacturing
- Advanced rail equipment
- Energy-saving and new energy vehicles
- Electrical equipment
- New materials
- Biomedicine and high-performance medical devices
- Agricultural machinery and equipment
From the output scale perspective, China is already the world’s largest manufacturing country. However, the problem of “big but not strong” is prominent. In terms of the capacity of independent innovation and supply of key materials and components, as well as product quality and reliability, there is an obvious gap between China and other manufacturing countries in Europe and America.
China’s current occupation is mainly in the middle and low-end manufacturing sectors while the developed countries in Europe and the United States mainly occupy R&D, brand building, marketing channels, and high-end manufacturing. It not only means that China is at a disadvantage in the distribution of global interests but also means that its current position can be easily replaced by other emerging economies. Therefore, MIC 2025 is an inevitable choice for China to transform the manufacturing industry from providing cheap labor and relying on large national companies to relying on domestic science and technology development.
The impact of MIC 2025, domestically and globally
Through MIC 2025, China hopes to integrate the new generation of information technology and manufacturing industry, triggering far-reaching industrial changes and forming new production methods, industrial forms, business models and economic growth.
Although MIC 2025 can play an important role in guiding the market and inspiring public’s enthusiasm in innovation, it also stimulates (understandably) some tensions in European and American countries as some believe that “Made in China 2025” is a step towards furthering the technology and trade war; and has a strong political significance underlying it.
In the recently published list of taxation product proposals issued by the US government several months ago, many Chinese industries related to manufacturing upgrades are in the forefront, while Chinese traditional industrial products with comparative advantages and a trade surplus in China have been ignored. Therefore, its intention to target MIC 2025 is self-evident.
Why MIC 2025 brings innovation and investment opportunities?
In China, the priorities of industrial development largely depend on the direction given by the government, rather than the demand of the market. The Chinese government has proposed “improving the innovation capability of the manufacturing industry” as one of the strategic tasks of MIC 2025, paying more attention to the quality of innovation and entrepreneurship. Moreover, the Chinese government has placed more emphasis on the cross-border cooperation, including introducing overseas high-quality innovation resources, attracting overseas startups, accelerating transnational technology transfer, transnational angel investment, and cross-border incubation. It is undoubtedly a good news for startups and investment companies around the world.
In addition, China is still in the era of industrial 2.0 and has insufficient independent innovation capability. Therefore, there is still a great demand for basic scientific research and innovation products from overseas. Whether it is the intelligent transformation of Chinese traditional manufacturing process or changes in energy use and environmental governance, it requires a huge amount of existing innovative technologies, equipment, and services, leading to the plenty of opportunities for US-China cooperation.
Opportunity Areas for innovation and investment
With the publication of the MIC 2025, we can easily foresee that many manufacturing sectors will undergo a tremendous transformation in the near future. Those companies using technology to drive the industrial transformation and digital upgrade, will obtain the most tremendous growth opportunities in this process.
We predict the following three areas to usher major investment and innovation opportunities:
- Semiconductor
China is the world’s largest semiconductor chip market. Nevertheless, for a long time, China has relied heavily on imports of integrated circuits, and the trade deficit has continued to expand. According to China Semiconductor Industry Association(CSIA), the domestic self-sufficiency rate of integrated circuits in 2017 was only 38.7%. Chinese companies have long been in the middle-low sector in the global chip industry and can only independently manufacture low-end chips such as analog and separation. According to the data, 95% of China’s chips still rely on imports. During the Sino-US trade war, the incident of ZTE made China deeply feel the urgency of self-sufficiency of high-end chip manufacturing, and the government attached great importance to it. With huge demands and government’s policy support, China’s semiconductor industry will usher in major development opportunities.
Biological Medicine and Medical Devices
With the development of the economy and the increase of the elderly population, the demand for biomedical and high-performance medical devices will expand in China. However, at present, people in China are still facing many problems using medicines and medical devices: First, the proportion of innovative medicines is extremely low as less than 20%, which is far behind developed countries; Second, there is a mess in the generic drug market, and the various generic drugs have different effects; Third, the supply of high-performance medical devices cannot meet market demand. The Chinese government is trying to change the situation by encouraging innovation, establishing the standard, and optimizing the management of medical devices. In the long-term, innovative drugs, generic drugs, and high-end medical equipment have great market potential.
New Energy Vehicles
Energy-saving and new energy vehicles is one of the priority sectors addressed In MIC 2025, and the pure electric and plug-in hybrid vehicles, the fuel cell vehicles, the energy-saving vehicles, and the smart connected vehicles are regarded as the key development directions in the future. Under the situation of energy restriction and environmental pollution, the concepts of “green travel” and “emission reduction” have been deeply rooted in the hearts of Chinese citizens, subtly changing people’s car-purchasing habits and leading to the exuberance of the new energy vehicle market. From the latest subsidy policy of the Ministry of Finance, we can foresee that the country will pay more attention to the high quality and long-term endurance of new energy vehicles, which will also drive the future market demand.
Conclusion
Although China has switched to a more low-key attitude toward the “MIC 2025” after the China-US trade war started, the country has not changed its goal of China’s goal of industrial transformation and upgrading as well as becoming a strong manufacture powerhouse. For the Chinese government, 2025 is still considered an important turning point.
As mentioned at the beginning, 2025 is not the end of the policy. The plan will continue to 2049, which is the 100th year of the Chinese Communist Party’s administration. For those companies interested in expanding their business to China or investing in China, it is important to keep an eye on the government’s policy directions.
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