China‘s manufacturing has been on a major mission to reinvent itself. On the verge of becoming the world’s largest economy, China at the same time faces some major challenges. Rising costs, a gradually shrinking labour force due to an aging population, combined with the rising aspirations of the younger generation present some hurdles but also many opportunities for both domestic and international manufacturers.
What is ‘Made in China 2025’?
Made in China 2025 (MIC 2025) is the Chinese state’s ten-year plan to update the domestic manufacturing base by rapidly developing a range of high-tech industries. It has the dual objective of boosting growth and tackling some of these major challenges. Released in 2015, it aims to stimulate the creation of higher value-added jobs and much greater automation of production for instance, which, together with robotics, has become a top priority for China’s manufacturing sector. Eight of the key sectors are shown in the chart below:
Source: Expert Commission for the construction of a Manufacturing Superpower
Multiple key products and services are being stimulated by MIC 2025. It includes the production of electric cars and other new energy vehicles, next-generation information technology (IT) and telecommunications and advanced artificial intelligence (AI).
Other major Chinese sectors targeted include agricultural technology, aerospace engineering, new synthetic materials, advanced electrical equipment, emerging bio-medicine, high-end rail infrastructure, and high-tech maritime engineering.
Comparison of ‘MIC 2025’ and ‘Industry 4.0’
The industry sectors focused on by MIC 2015 are central to China’s own version of the so-called ‘Fourth Industrial Revolution’, or ‘Industry 4.0’. This refers to the integration of big data, cloud computing and other emerging technologies into global manufacturing supply chains. There was a precedent and some inspiration for Chinese policymakers from the German government’s own Industry 4.0 development plan.
A common goal between MIC 2025 and Industry 4.0, for instance, is the extensive use of information technology and manufacturing technology integration which ultimately will drive innovation. But in comparison, MIC 2025 is less an evolutionary development of the existing manufacturing processes and technology base. It rather targets a large-scale transformation of China’s manufacturing industries and extends much more widely, while addressing strategic challenges of China’s development, such as product quality and safety, industry oversupply, labour costs, and aging population. China intends to fully integrate manufacturing with digital technologies and processes to increase productivity and drive efficiencies.
Opportunities for foreign businesses
While MIC 2025 themes on the transformation of Chinas economy through the build-up of own high-tech capabilities and creation of national champions, it is also the source of many opportunities for foreign companies to benefit from the Chinese transformation.
Companies with experience in process innovation, manufacturing efficiency, productivity improvements and integration of new technologies into the product development cycle and manufacturing process will be of great value to Chinese companies. As the Chinese economy is moving up the value chain, its companies will be keen to buy machinery, equipment, and services or partner up with foreign companies who can supply their expertise, machines, and technology to support Chinas transformation. An increased Chinese outbound investment into industry sectors stipulated in MIC 2025 has already begun and can be expected to continue.
China has encouraged the setting up of industrial clusters in specific cities or regions in the past; in many cases, entire industry supply chains have congregated in a few key locations. With MIC 2025 being a national strategy opportunities will be across China but can vary by city and region. Some examples of industry opportunities for international businesses seeking either new customers or a potential base for operations are as follows (Source: B2B International):
– Shanghai – Petrochemicals, chemicals, pharmaceuticals, automobiles, electronic apparatus, and financial services
– Beijing – IT, communications and electronics
– Guangzhou – Automobiles, electronic appliances, textiles, apparel toys, petrochemicals, and chemicals
– Jiangsu – Chemicals, textiles, communications, petrochemicals, steel, foods, auto parts, and biomedicine
– Shenzhen – IT, semiconductors, biomedicine, communications, and electronics information
– Zhejiang – Light industry, plastics, textiles, apparel, toys, metallurgy, household electrical, furniture, and kitchenware
– Shandong – Agricultural, oil & foodstuffs, and pharmaceuticals
MIC 2025 will bring new momentum to China’s major industrial centres, creating opportunities for foreign investment, trading, and operations. But MIC 2025 also incurs challenges from preferential treatment of local companies, through protection of intellectual property rights (IPR) to the transparency of policies and local business practices. Especially small and medium-size enterprises who are resource constrained or inexperienced with these Chinese markets should, therefore, look for a strong local partner to create a winning strategy for the Chinese market.
Extraordinary changes are taking place across Chinese manufacturing, hugely driven by state stimulus to shift the labour market towards higher value-added jobs and shift manufacturing industries towards greater automation and innovation.
While MIC 2025 themes on the transformation of Chinas economy through the build-up of own high-tech capabilities and creation of national champions, it is also the source of opportunities for foreign companies. But to embrace and fully realize the opportunities, foreign companies should be aware of the market risks in China and seek a reliable well-connected partner such as Melchers. Melchers has a long tradition in China with doing business for more than 150 years and can support you to successfully navigate through Chinas manufacturing transformation. Our services cover the entire value chain – from product development and manufacture through sales and marketing to after-sales service.
For more information about establishing a presence or doing business in China, please contact Melchers at firstname.lastname@example.org.