Made in China 2025, Exclusive Opinion Piece By Lt Gen S L Narasimhan (Retd)

By Lt Gen S L Narasimhan: MADE IN CHINA 2025 (MiC2025)

 

Germany has identified 10 future projects for its High Tech Strategy 2020. One of them is Industrie 4.0. Aim of Industrie 4.0, which aims to usher in the fourth industrial age, is to establish Germany as a lead market and “the” provider of advanced manufacturing solutions. Its facets are to shift from centralised to decentralised manufacturing and production, adopt smart production by using ICT based machines, systems and networks that will independently exchange information and respond to such information to manage manufacturing processes.  

Readers must be wondering why Industrie 4.0 is being discussed in an article that discusses Made in China 2025. This is because Made in China 2025 and Industrie 4.0 are based are similar principles. Industrie 4.0 was officially announced during the Hanover Fair in April 2013.

As mentioned in the first article of this trilogy, Made in China 2025 was articulated by the Premier Li Keqiang on 19 May 2015.  In this second article on the subject we will see as to what is this plan. This plan was drafted by the Ministry of Industry and Information Technology (MIIT) over two and a half years, with input from 150 experts from the China Academy of Engineering.

Why did China adopt this Policy? China’s economy was contracting and stabilising around 6.5% to 7%, a phenomena termed as the ‘new normal’ by President Xi Jinping. Manufacturing was also not doing well. PMI Index also known as Purchase Manager’s Index shows the expansion or contraction in manufacturing. Any factor above 50 shows growth and below it indicates reduction

Source: Caixin China/Markit

The chart above shows that China’s manufacturing sector was struggling. July 2015 showed the sharpest contraction in the two years preceding it. With increasing labour cost in China, manufacturers were eyeing countries like Cambodia, Vietnam and Indonesia.  Incidentally, Foxconn, maker of iPads, iPhones and other apple products, has shifted its mobile phone manufacturing unit to India recently. China had to do something and that too very fast to move China up the manufacturing chain. So,they came out with the plan of Made in China 2025.

What is Made in China 2025? “Made in China 2025 is an initiative to comprehensively upgrade Chinese industry. The initiative draws direct inspiration from Germany’s “Industry 4.0” plan, which was first discussed in 2011 and later adopted in 2013. The heart of the “Industry 4.0” idea is intelligent manufacturing, i.e., applying the tools of information technology to production”, says Scott Kennedy of Centre for Strategic and International Studies.

The strategy behind this plan is threefold. That is to improve structural adjustment of manufacturing industry, coordinated development of service oriented and product manufacturing and raise the manufacturing industry to international standards. These strategies are to be implemented through eight policy measures and systemic arrangements. These are: furthering reforms in systems and mechanisms, creation of a fair and competitive market environment, improving the financial support policy, expansion of the level of support in taxation and fiscal policies, develop a multi-tier training system, making the policy on small and medium size enterprises friendlier to them, further open the manufacturing sector to foreign investment and strengthening the mechanisms of organisation and implementation. Basically, what it implies is by using Internet of Things, cloud computing and big data China is trying to modernise and upgrade its manufacturing. Integrating the manufacturing chain and factories will also be a factor.

This plan is the first of the three steps to achieve the goal of overtaking high tech manufacturing countries like Japan, Germany and the USA by 2049 as that year marks the 100 years of China becoming a republic.(It is also known as the second centenary goal, the first one being 2021, which is the 100th year of raising of the Communist Party of China). Innovation and localisation are also important hall marks of this plan. China aims to create 15 innovation centres by 2020 and increasing it to 40 by 2025. Domestic content of core component and materials to be 40% by 2020 and 70% by 2025.  

There are ten important industries that have been identified to be improved as per this plan. These are new advanced information technology, automated machine tools and robotics, aerospace and aeronautical equipment, maritime equipment and high tech shipping, modern rail transport equipment, new energy vehicles and equipment, power equipment, agriculture equipment, new materials and biopharma and advanced medical products.

Some factors that support this policy are high level of growth in the high technology sector like electronics and communication, medical equipment and pharmaceuticals, aerospace and aviation equipment.  Her investment in Research & Development is more than 2% of the Gross Domestic Product. Due to this high investment, the invention patents and the number of high tech products have been increasing, particularly, in the next generation Information Technology, biotechnology, energy and environment. Exports of machinery and equipment is higher than the imports indicating that the international competitiveness in manufacturing is strengthening. Developments in mould and die industry due to government policies, infusion of capital and impetus in regional development strategy, is contributing towards technological progress. Internet, broadband penetration and the facilitation for integration of system components, that is the fallout of the first two factors, will give a boost to this plan.

Some other factors that may jeopardise the success of this plan are lack of skilled technicians and lack of understanding that innovation is a must to progress in manufacturing to global standards. This is because China’s manufacturing has been concentrating on manufacturing of lower end of the value chain goods on a contractual basis. Superfluous and disproportionate investment in the manufacturing sector is another drag on this policy.  China’s affinity to give subsidies and initiatives to the state owned enterprises (SOEs) may be another negative factor. However, some analysts feel that the capacity and capability of the SOEs will be an asset.

The plan was short on implementation of specific issues when it was announced. There have been a number of policies that have been issued since then, particularly in the fields like internet, big data, nomination of industries for intelligent manufacturing processes etc.  At the moment China’s industry is in transit from second level that uses main assembly lines to the third level that employs more industrial automation, IT and electronics. There are only 14 robots for 10000 factory workers in China whereas Germany has 282 for the same amount of workers.

Like for every plan there are supporters and nay sayers, this plan also has a number of supporters and persons who express negative sentiments about this plan. Only time will tell whether the plan will succeed or not. But knowing the single minded pursuit by the government of China to push through the plans one can expect that this plan will succeed. The very fact that the focus has been given to manufacturing, supported by government policies it is very likely that the manufacturing in China will improve considerably and move towards achieving global standards.  There have already been reports that by a submarine that was facing problems for want of a spare part was repaired by making that spare part by the using 3D printing technology.

In the third part of the trilogy, we will discuss India’s own Make in India and carry out a comparison between Made in China and Make in India. Au Revoir till then.

 

 

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