China’s heyday as the "world’s factory" is fading as labor costs rise and export demand has faded. To address that and other challenges, the world's second-largest economy has unveiled a plan to beef up its presence as a global manufacturing power.
"Made in China" is a 10-year campaign, approved by Premier Li Keqiang, to close the huge gaps between advanced industrial nations and China, which no longer can rely on low-end manufacturing and exports to fuel its massive economy.
The campaign focuses on a host of problems, incuding a lack of high-quality goods or strong international brands, inefficient use of energy and other resources, and a high environmental toll. For instance, pollution has contributed to poor air quality in Beijing and other cities.
It aims to move China higher up the manufacturing chain by focusing more on innovation and cutting-edge technology, including "green" manufacturing.
The plan outlines 10 key sectors in which the country seeks advances, including: information technology; robotics; medicine and medical devices; and high-tech ships and ocean engineering equipment.
Pressured to change
Rising labor costs and sluggish foreign demand for goods are pressuring China, more than other emerging economies, to create value-added labor and reduce its reliance on exports, said Klaus Meyer, director of the China Europe International Business School’s Research Center for Emerging Market Studies in Shanghai.
“There are fewer young laborers available; therefore, labor costs, especially in the urban centers such as Shanghai, are increasing," Meyer said. "... The model that China has pursued over the last 30 years, which had a major element of export-oriented production based on low labor costs, will not be sustainable.”
Raymond Yeung, a senior economist with ANZ in Hong Kong, said the plan provides good direction to promote China as a brand. But whether the government can carry that out remains to be seen.
“Obviously, we need the government to open up the market for foreign access and to allow the private sector to take a larger role in the economy and different sectors," he said. "Deregulation remains a key and the document does not touch on it in detail.”
Yeung said such measures could come later, announced by other government departments such as the National Development Reform Commission.
Policy shifts expected
China’s state-run Xinhua news agency said that, to help support the market-oriented, government-guided plan, a “slew of polices to deepen institutional reforms and strengthen financial support” will follow.
While some industries may need government funding and other support for research and development, market involvement is the key to innovation, Yeung said.
He expressed concern about the government's decision to cherry-pick 10 key sectors, saying that could be risky.
“What the government actually needs to do is cultivate an environment and allow the market to promote different industries when it sees fit,” Yeung said.
Skimps on private enterprise?
Hu Xingdou, an economist at the Beijing Institute of Technology, also said he worried the plan pays little attention to private enterprise, fearing it may put too much focus on China's large and less nimble state-owned operations.
"Promoting entrepreneurship and developing an entrepreneurial spirit is key and entrepreneurs breed innovation," Hu said. "And to breed innovation, you need private enterprises. Those who are in charge of state-owned enterprises are not entrepreneurs, they are administrative officials.”
Made in China 2025 is just the first phase of a three-stage plan. China aims to be a manufacturing power on par with other major powers by 2049, the 100th anniversary of the founding of the People's Republic of China.
Shannon Van Sant in Hong Kong also contributed to this report.
