Industrial and Regional Policies

Strategic Vision and Outlook of “Made in Yongyu Shao, Ph.D. and Economist
China 2025” (Part 2) China Business Promotion Division

―Possibilities and Challenges for Industrie 4.0 China Mizuho Bank, Ltd.

Version― (yongyu.shao@mizuho-bk.co.jp)

4．Major Policy Measures for “Made in China 2025”

“Made in China 2025” sets forth eight specific policy measures and systemic arrangements with a view to
ensuring the steady implementation of its latter strategic tasks and priorities, namely: (1) to further
promote the structural adjustment of the manufacturing industry; (2) to promote the coordinated
development of service-oriented manufacturing and productive manufacturing; and (3) to raise the level
of development in the manufacturing industry in line with international standards (Table 5). Various
measures are to be instituted for each of these policy measures, namely: (1) deepening of reform in
systems and mechanisms; (2) creation of a fair and competitive market environment; (3) enhancement of
financial support policy; (4) expansion of the level of support in fiscal and taxation policies; (5)
development of a multi-tier personnel training system; (6) improvements in policy on small and
medium-sized enterprises (SMEs); (7) further opening up of China’s manufacturing sector to foreign
investment; and (8) strengthening of the mechanisms for organization and implementation. Each includes:
improved levels of industry administration through the provision of legal administrative guidance and the
transformation of government functions; the realization of corporate entities through further reform of
administrative systems and the simplification of administrative procedures; improvements to the
mechanisms for the cooperative emergence of government, industry and academia, and efforts to promote
the application of scientific and technological research findings; efforts to promote reforms to the system
granting market access (to foreign companies) and the development of nationally standardized markets;
and the establishment of standards for the conservation of energy, land, water and the environment within
the manufacturing industry and the strengthening of the policing thereof.

Table 5: Measures for the Implementation of “Made in China 2025”

and the Design of its Implementation Structure
・ Improve the levels of industry administration through the provision of legal administrative guidance and
the transformation of government functions
Deepening of reform
・ Realize corporate entities through further reform of administrative systems and the simplification of
1 in systems and
administrative procedures
mechanisms
・ Improve the mechanisms for the cooperative emergence of government, industry and academia, and
promote the application of scientific and technological research findings
・ Promote reforms to the system granting market access (to foreign companies) and the development of
Creation of a fair
nationally standardized markets
2 and competitive
・ Establish standards for the conservation of energy, land, water and the environment within the
market environment
manufacturing industry, and strengthen the policing thereof
・ Utilize the respective characteristics of policy finance, development finance and commercial finance to
Enhancement of enhance support for priority sectors, such as next-generation information technology, high-end
3 financial support equipment and new materials
policy ・ Development a multidimensional capital market, develop domestic and international financing
arrangements and offshore resources (capital) for enterprises, and enhance support for the establishment
 Industrial and Regional Policies

of R&D centers and high-tech companies

・ Increase government funding to support the manufacturing industry as a whole and intelligent
Expansion of the manufacturing specifically
level of support in
4 ・ Induce the utilization of PPP arrangements and private sector funding in major manufacturing ventures
fiscal and taxation
policies ・ Encourage the use of prototypes, and emphasize the implementation of tax revenue policies favorable to
structural adjustment in the manufacturing industry
・ Formulate and implement a human resources development plan for the manufacturing industry, and
promote to restore training system health
Development of a
・ Implement training for business managers and SME personnel, and promote a shift to science and
5 multi-tier personnel
technology universities
training system
・ Train technicians and engineers urgently needed for manufacturing, and attract future leaders currently
in shortfall
Improvements in ・ Implement preferential policies to support the development of micro enterprises, and utilize dedicated
policy on small and SME funds
6
medium-sized ・ Absorb private sector funds, and establish an SME development fund and small- and medium-sized
enterprises (SMEs) private banks
・ Further reform foreign investment administration systems, and enhance the convenience of foreign
Further opening up
exchange and tax administration, etc.
of China’s
・ Promote the easing of the restrictions on market access, and revise the policies governing the iron and
7 manufacturing
steel, chemical engineering and shipping industries, etc.
sector to foreign
・ Utilize industry funds and corporate earnings to promote overseas participation in the development of
investment
rail, electrical and construction equipment
・ Create a steering group to promote China’s emergence as a global manufacturing powerhouse, and vote
Strengthening of the on and execute the related major proposals
mechanisms for ・ Establish a strategic advisory commission on China’s emergence as a global manufacturing powerhouse
8
organization and to submit recommendations on and assess the relevant policy proposals, set up a third-party organization
implementation to implement “Made in China 2025” tasks and monitor progress toward its goals, and implement
measure statistics and assess results, etc.
Source: Excerpted from “Made in China 2025”

The plan also mentions: the utilization of the respective characteristics of policy finance, development
finance and commercial finance to enhance support for priority sectors, such as next-generation
information technology, high-end equipment and new materials; the development of a multidimensional
capital market, domestic and international financing arrangements and offshore resource developments
for enterprises, and enhanced support for the establishment of R&D centers and high-tech companies;
increased government funding to support the manufacturing industry as a whole and intelligent
manufacturing specifically; inducements through the utilization of public-private partnership (PPP)
arrangements and private sector funding in major manufacturing ventures; the establishment of tax
revenue policies favorable to structural adjustment in the manufacturing industry; the formulation and
implementation of a human resources development plan for the manufacturing industry; and the
promotion of the development of SMEs. The plan also incorporates measures to strengthen organizational
arrangements on a level not seen in Chinese industrial policy to date, including calls for: the creation of a
steering group to promote China’s emergence as a global manufacturing powerhouse and the voting on
and execution of the related major proposals; the establishment of a strategic advisory commission on
China’s emergence as a global manufacturing powerhouse to submit recommendations on and assess the
relevant policy proposals; and the setting up of a third-party organization to implement “Made in China
2025” tasks and monitor progress toward its goals, and the implementation of measure statistics and assess
results, etc.

5．Advantageous Factors to “Made in China 2025” Implementation

This section examines the conditions in favor of “Made in China 2025” implementation within the
context of the current status of China’s high-tech industry and R&D expenditure in the manufacturing
 Industrial and Regional Policies

sector. Fig. 6 offers an overview of the development of China’s high-tech industry. It points to a rapid
expansion in the scale of this industry since 2010 (with annual growth averaging 15.8%). In terms of
industry share, the data confirm the continuous rise of the electronic communication equipment sector, an
increasing market share for pharmaceuticals and medical equipment, and steady growth in the aerospace
and aviation equipment sector. Fig. 7 gives annual sales (averaging more than 24% growth per annum) and
exports (averaging 16% growth p.a.) for enterprises located in China’s State High-Tech Industrial
Development Zones, where many high-tech firms tend to aggregate, and is consistent with Fig. 6 in
evidencing a rapid expansion since 2010, particularly in the value of exports. China has been increasing the
scale of its R&D expenditure since 2010, and its spending is increasing as a percentage of GDP (Fig. 8). The
nation’s R&D expenditure reached 2% for the first time in 2013, and continued to gather pace last year.

Fig. 6: Turnover in China’s High-Tech Industry and Transitions in its Structure

140,000 60%
Total Pharmaceuticals
High-tech industry turnover (RMB 100 million)

Structural ratio by sector

Aerospace and aviation equipment Electronic communication equipment
Computers, office equipment Medical equipment, measuring instruments
120,000
50%

100,000
40%

80,000

30%

60,000

20%
40,000

10%
20,000

0 0%
2007 2008 2009 2010 2011 2012 2013

Source: “Statistical Data on China’s High-Tech Industry (2014 edition),” Ministry of Science and Technology of the PRC

Fig. 7: Annual Sales and Exports for Enterprises in State High-Tech Industrial Development Zones
 Industrial and Regional Policies

250,000 4,500
Appendix table: Financial status of Enterprises in State High- Sales Exports
Tech Industrial Development Zones

Sales (RMB 100 million)

Exports (RMB 100 million)

Industrial Amount of
No. of
No. of
output
Profit
tax paid
4,000
Year employees (RMB 100
enterprises (RMB 100 (RMB 100
(10,000) million)
million) million)
200,000 2007 48,472 650 44,377 3,159 2614 3,500
2008 52,632 717 52,685 3,304 3199
2009 53,692 815 61,151 4,465 3995
2010 55,243 960 84,318 6,855 5447
2011 57,033 1,074 105,680 8,484 6817 3,000
2012 63,926 1,270 128,604 10,243 9581
2013 71,180 1,460 151,368 12,444 11043
150,000
2,500

2,000
100,000

1,500

1,000
50,000

500

0 0
2007 2008 2009 2010 2011 2012 2013

Source: All data taken from “Statistical Data on China’s High-Tech Industry (2014 edition),” Ministry of Science and Technology of the PRC

Fig. 8: China’s R&D Expenditure (% of GDP) (2000-2014)

14000 3%
Investment % of GDP % of GDP
Investment (RMB 100 million)

12000
2%

10000

2%
8000

6000
1%

4000

1%
2000

0 0%

Source: Data for the years 2000 through 2013 are taken from “Statistical Data on China’s High-Tech Industry (2011, 2014 editions),”
Ministry of Science and Technology of the PRC; that for 2014 from the Ministry of Industry and Information Technology website.
Year-on-year figures are calculated values.

This growth in R&D expenditure is facilitating an increase in the number of applications for invention
patents and more competitive business products. Fig. 9 shows the number and distribution of invention
patents granted (obtained) to strategic emerging industries, which are classified as high-tech industries,
and points to conspicuous expansion especially in next-generation information technology (IT). The data
also evidence a marked increase in the number of patents granted for inventions in biotechnology and
energy/environmental conservation. R&D expenditure by above-scale industrial enterprises is particularly
high, and there has been a marked increase in the number of patents obtained and the manufacturing
 Industrial and Regional Policies

competitiveness index per unit of output (sales of RMB 100 million) in recent years as a result (Fig. 10).

Fig. 9: 1umber of Invention Patents Fig. 10: 1umber of Invention Patents

Granted to China’s Strategic Emerging Industries Obtained by Chinese Manufacturing
in Recent Years and Quality Competitiveness Index
35,000
Energy/environmental conservation
0.40 84
No. of patents granted per sector

No. of patents granted to strategic emerging industries

Next-generation IT 140,000 No. of patents obtained per RMB 100 million by above-scale industrial enterprises

No. of invention patents obtained

Biotechnology

Quality competitiveness index

High-end equipment Manufacturing quality competitiveness index
30,000 New energy
New materials
0.35
120,000
New energy cars 83
Total number of projects (right axis)
25,000
0.30
100,000
82
20,000 0.25
80,000

15,000 0.20 81
60,000

10,000
0.15
40,000 80

0.10
5,000 20,000
79
0.05
0 0
2009 2010 2011 2012 2013

0.00 78
2006 2007 2008 2009 2010 2011 2012 2013

Source: “Report on the Statistical Analysis of Invention Patents Source: Ministry of Industry and Information Technology data
Granted to Strategic Emerging Industries” (December 2014),
State Intellectual Property Office of the PRC

Again, the transitions in China’s machinery and equipment imports and exports given in Fig. 11 offer
indirect evidence of the steady technological progress that is being made in China’s manufacturing
industry. Chinese exports of machinery and equipment topped imports for the first time in 2004 and
continued to rise steadily until 2013, giving China a growing trade surplus in this sector. This expansion
in exports of machinery and equipment underpins the growing international competitiveness of the
industry, and is arguably an important indicator of technological progress in China’s manufacturing
industry. The recent technical advances in China’s mold and die industry are believed to be making a
substantive contribution to this technological progress.

Fig. 11: Developments in China’s Equipment Fig. 12: Progress Toward Self-Manufacture of Dies
Manufacturing Industry as Evidenced by and Molds as Evidenced by Exports and Imports
Transitions in Machinery and Equipment
Imports and Exports
12,000 1.8 60 30
Imports & exports (USD 100 million)

Exports of machinery and transport equipment

Trade balance (USD 100 million)
Exports (USD 100 million)

Exports-to-imports (ratio)

Imports of machinery and transport equipment Exports Imports Trade balance

1.6 25
Machinery export-to-import ratio
10,000 50
1.4 20

8,000 1.2 15
40
1.0 10
6,000
0.8 30 5

4,000 0.6 0
20
0.4 -5
2,000
0.2 -10
10
0 0.0 -15

0 -20
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: “China Statistical Yearbook (2014)” Source: “The China Die and Mold Industry Yearbook (2012)”
Multipliers are calculated values.

The mold and die industry, which is one of the tools used in the mass production of industrial goods and
 Industrial and Regional Policies

is indispensable to the foundations of the manufacturing industry, has developed significantly on the back
of government policies to support its growth, the introduction of domestic and foreign capital, and the
promotion of regional development strategies, etc. The industry was running a trade deficit up until 2009,
but swung into the black in 2010 and has been running a growing trade surplus ever since (Fig. 12). This
means that some 70% to 80% of the molds and dies used in China are now manufactured domestically,
and this has contributed significantly to the expansion of China’s manufacturing industry and to
improvements in the quality of its industrial goods. Moreover, technological progress in the mold and die
industry is expected to play a continued role in the upgrade and structural adjustment of the Chinese
manufacturing industry.

There is a view that China’s domestic production capacity of molds and dies, which are difficult to
manufacture and have a long service life, remains insufficient4, but the implementation of “Made in China
2025” is expected to improve the situation, and major advances are expected particularly from the digitization
of the machine industry and expanded use of measuring equipment. In this sense, the joint development of
manufacturing and services and the promotion of the integration of industrialization and informatization that
are being called for in “Made in China 2025” are of critical importance, and offer the prospect of further
technological progress in China’s manufacturing industry.

With its status as a national priority and fueled by vast demand and rising income levels, China’s internet
industry has also grown rapidly in recent years (Fig. 13), and whilst broadband penetration has yet to reach the
levels recorded in the world’s advanced nations, it is one of the highest in the developing world and continues
to increase (Table 6). This environmental condition is also favorable to the implementation of “Made in China
2025” and forms the basis for the scenario presented in Table 7, which extends to 2025.

Fig. 13: Growth in the 1umber of Internet Users in China

70,000 40,000
No. of users with internet connections (10,000)
Appendix: Broadband traffic capacity of major Chinese networks No. of broadband ports (10,000)
35,000
60,000 Bandwidth

30,000
50,000

25,000
40,000

20,000

30,000 Source: Excerpted from the

“Report on ‘Internet of
Things’ Development in
China (2014)”
15,000

20,000
10,000

10,000
5,000

0 0

4
According to “The Foundations of Chinese Manufacturing: The Die and Mold Industry Development Mechanism” (Li, Ruixue, ed., Hosei
University Press, March 2015), whilst China’s die and mold industry has come a long way, the technological challenges that have yet to be
adequately overcome mean that China is still reliant on Japan and Germany for imports of high end molds and dies (the press metal molds
used in automotive outer body panels and for precision motor cores, all-in-one-printer cartridge molds, etc.)
 Industrial and Regional Policies

Source: “China Statistical Yearbook (2014)”

Table 6: A Comparison of Broadband Penetration Rates in Major Countries and Regions of the World
Country/Region 2010 2011 2012 2013 2014
U.S. 26.50% 27.45% 28.44% 29.25% —
U.K. 30.83% 32.95% 34.51% 35.76% —
France 33.74% 35.78% 37.51% 38.79% —
Germany 31.43% 32.80% 33.70% 34.56% —
Japan 26.77% 28.03% 28.39% 28.90% —
South Korea 35.48% 36.65% 37.25% 38.04% —
India 0.91% 1.06% 1.17% 1.16% —
Brazil 6.80% 8.56% 9.15% 10.08% —
OECD 23.50% 24.60% 25.70% 26.60% 27.50%
Developing countries 4.20% 4.90% 5.40% 5.80% 6.10%
Worldwide 7.60% 8.40% 9.00% 9.40% 9.80%
China 9.40% 11.60% 12.90% 13.90% 14.70%
Source: Compiled from explanatory materials on “Made in China 2025” published on the Ministry of Industry and Information
Technology website; data originally sourced from the ITU (International Telecommunication Union). Figures for 2014 are ITU
estimates.

Table 7: Scenario for Use of Automation in the Manufacturing Industry under “Made in China 2025”
Indicator 2011 2012 2013 2014 2015 2020 2025
Introduction of numerical control automation in major processes 45.9% 48.8% 51.9% 55.1% 58.2% 72.0% 84.0%
Percentage increase - 2.9 3.1 3.2 3.1 2.7 2.4
R&D in digitization, design tools (CAD/CAM) penetration rate 22.3% 24.6% 27.0% 30.1% 33.3% 50.0% 64.0%
Percentage increase - 2.3 2.4 3.1 3.2 3.3 2.8
Source: Same as Table 6, compiled from explanatory materials on “Made in China 2025” published on the Ministry of Industry and
Information Technology website
Note: Figures for 2015 and beyond are estimates. Percentage increases given for 2020 and 2025 are the relevant five-year averages.

Trends in the development of China’s manufacturing industry to date and the features of its comparison
with Japan and elsewhere suggests that China excels in the modular production (manufacturing)
technologies by fabrication as opposed to the integration technologies by optimization, and that numerous
leading companies are emerging in the field of IT technology utilization. Under the concept of Germany’s
Industrie 4.0, system component technologies as opposed to element technologies are said to hold the key
to the future5. “Made in China 2025,” which makes explicit provision for the “Internet Plus” Action Plan, creates
the space and opportunity for new growth that will be needed to upgrade and transform (“optimize”) China’s
manufacturing industry, and expanded internet penetration and the integrated cooperation that will accompany it are
expected to create major market demand and growth potential not just for the manufacturing industry but for other
sectors of the economy and for Chinese society as a whole.

6．Major Challenges, Recent Trends and the Outlook for “Made in China 2025” Implementation
China is expected to face numerous difficulties and challenges in implementing “Made in China 2025.”
The biggest of these are the lack of awareness of the need for innovation and a shortage of technicians,
including systems development engineers, which have long plagued China’s manufacturing industry. In
consequence, China has been unable to establish its own technology infrastructure, which is hampering
both technology transfer and the diffusion and penetration process and weakening the nation’s
international competitiveness. Although this article does not incorporate a detailed study of these issues,
the decline in the trade specialization coefficient for China’s high-tech industry, and the high percentages of

5
Kaneko, Ikuyo, ed. “Front-Line Policy Management II,” Keio University Press, October 2003.
Kimura, Hidenori, ed. “Thoughts on World-Changing Technologies,” Kodansha, May 2015.
 Industrial and Regional Policies

contract manufacturing and exports by wholly foreign-owned enterprises given in Fig. 14 offer a vivid testimony
to the facts. In consequence, the Chinese manufacturing industry has for many years had to accept its position on
the lowest rung of value creation in assembly line products, and has had no choice but to remain at the bottom of
the smile curve of manufacturing technologies (Fig. 15). Overcoming this situation will be no mean feat, but
conversely, if China cannot overcome this difficulty, it will be difficult for it to realize the real upgrade of its
manufacturing industry, i.e., the far-reaching goal of “Made in China 2025.” For China, the challenge will be to
utilize the advantageous environmental conditions in place so as to realize step-by-step the various policy
measures set forward in “Made in China 2025.”

Fig. 14: China’s Dependence on Foreign Technologies as Evidenced by the Trade Specialization Coefficient and
Other Related Indicators for High-Tech Products (2002−2013)

0.35 80%

Ratio of high-tech product exports and share of exports from contract

Trade specialization coefficient

0.30
70%

manufacturers and wholly foreign-owned enterprises

0.25
60%
0.20
High-tech product trade specialization coefficient (bar chart)
Share of high-tech product exports 50%
0.15
Share of contract manufacturing exports
Share of wholly foreign-owned enterprise exports
0.10 40%

0.05
30%

0.00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20%
-0.05

10%
-0.10

-0.15 0%

Source: All data taken from “Statistical Data on China’s High-Tech Industry (2014 edition),” Ministry of Science and Technology of the PRC.
Note: The trade specialization coefficient, which is also known as the “international competitiveness coefficient,” is obtained using the following
formula: (exports – imports)/total trade, and is used as a measure of the relative strength of a particular product’s competitiveness in
international markets.

Fig. 15: A Conceptual Diagram of the Smile Curve for Manufacturing Technologies

Added value

Prototype
High development, etc. Technical support
services

Parts manufacture Sales

Assembly

Low

Upstream Downstream Business processes

(processing)
 Industrial and Regional Policies

Source: Excerpted/revised from the “White Paper on Manufacturing Industries (Monodzukuri),” Ministry of Economy, Trade and Industry of Japan

The next issue that must be addressed is that posed by redundant and excess investment, a problem that
has already plagued China’s manufacturing industry. The tendency to view “Made in China 2025” as a
pump-priming measure in the context of China’s recent economic slowdown means that, for the
government, finding ways to invest effectively and appropriately and to guide the development of
emerging industries is a perennial issue and one that must be consistently addressed.

“Made in China 2025” constitutes a roadmap that sets forth the growth strategy and direction of China’s
manufacturing industry in this new era, but stops short of providing the detailed arrangements and specific
initiatives needed to accomplish its tasks and goals. Accordingly, some ten policies have been newly released
since the announcement of “Made in China 2025” (Table 8), and policy development is proceeding apace.
Many of these deal with the “Internet Plus” Action Plan, the use of big data technology, smart grid construction,
promoting the growth of industry clusters, and the designation of enterprises to carry out intelligent
manufacturing projects (including pilot project selection). The release by Guangdong Province, China’s
manufacturing heartland, of a region-specific “Plan for the Development of Smart Grid Manufacturing
(2015−2025)” is also worth noting.

Table 8: Trends in Policy Development Following the Release of “Made in China 2025”
Establishing/releasing
Release date Title of relevant government document Essence/remarks
authority
Ma Kai, Vice-premier of the State Council, has
Notice regarding the Establishment of a
General Office of the been nominated to chair the steering group with
June 24, 2015 National Steering Group to Transform China
State Council the Minister of Industry and Information
into a Global Manufacturing Powerhouse
Technology (Miao Wei) to act as vice-chair.
Ministry of Industry and Publication of the 2015 List of Special
June 3, 2015 Designates 94 companies as eligible
Information Technology Intelligent Manufacturing Projects
Submits China’s goal to lower carbon dioxide
National Development Enhanced Actions on Climate Change:
emissions per unit of GDP by 60% to 65% from
June 30, 2015 and Reform Commission China’s Intended Nationally Determined
the 2005 level by 2030 ahead of COP21 (the
(NDRC) Contributions
United Nations Climate Change Conference)
Opinion on the Use of Big Data Technology
General Office of the Pledges to use IT to improve market service
July 1, 2015 to Improve the Government’s Supervisory
State Council functions and strengthen administrative controls
Capabilities and Services for Market Entities
General Office of the Guiding Opinions on Actively Promoting the Promotes the use of the internet in all sectors of
July 4, 2015
State Council “Internet Plus” Action Plan the economy
Sets the goal for smart grid completion at five
NDRC, National Energy
July 7, 2015 Guiding Opinions on Smart Grids years hence, with a focus on promoting new
Administration
energy
Guangdong Provincial Guangdong Province Plan for the Development Promotes research and development on core
July 10, 2015
Government of Smart Manufacturing (2015−2025) technologies and components
Ministry of Industry and Publication of the List of Smart
July 21, 2015 Selects 46 projects to be implemented in 2015
Information Technology Manufacturing Pilot Projects
Ministry of Industry and Opinion on Promoting the Development of
July 23, 2015 Emphasizes regional brands and smart clusters
Information Technology Industry Clusters
Source: Compiled from Chinese government websites and related press materials

“Made in China 2025” covers the whole of China, but there is a strong probability that other regions will
follow Guangdong’s suit and release regional versions of the plan, which could give rise to interregional
competition in the manufacturing sector. Likewise, from a global perspective, Industrie 4.0, which
constitutes a new German-born industrial revolution, also creates new competition in the manufacturing
 Industrial and Regional Policies

industry, and countries throughout the world are in the process of hammering out numerous strategies.
Interest in “Made in China 2025” as a driver of new market demand and positive growth is thus attracting
high levels of interest both at home and abroad. Agreements and compromises on various forms of
cooperation promotion are being reached between China and the governments and economic organizations
of the EU mainly led by Germany, and the number of manufacturing investment projects involving tie-ups
between German and/or French companies and Chinese firms is on the increase. U.S. firms have also begun
investing in several regions in connection with “Made in China 2025.” Looking ahead, the plan is expected
to generate new business opportunities and growth in investment cooperation in the manufacturing and
manufacturing service sectors of East Asia, primarily between China and Japan and China and South Korea,
which could lead to the enhancement of the region’s international division of labor structure and/or changes
thereto.

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