Examining International Worries of a National Development Strategy: Evidence from Made in China 2025 Strategy

Chen Chaofan, Frank

           Since the end of the Cold War, globalisation has swept the world and brought high-speed economic development, especially in developing countries. Several global south countries have successfully experienced rapid advancement through their coordinated and open policies. East Asia contains many successful stories, from South Korea and Singapore to Mainland China and Hong Kong SAR. However, some became successful due to their investment in innovation and research (e.g., South Korea and Taiwan); some became successful for financial and banking services advantages, like Hong Kong SAR. China got an economic boost through manufacturing development, which has been called the “World Factory” for decades.

           However, China’s development through manufacturing, particularly the low-and middle-end manufacturing (e.g., assembly), caused economic structural, societal, and environmental problems. Chinese government realised these obstacles and decided to structure a new holistic manufacturing plan for the country after Xi Jinping became the president. In 2015, Chinese Premier Li Keqiang proposed the “Made in China 2025 (MC2025)” strategy, which targets the direction of “advanced and smart manufacturing” for the future development and transformation of the Chinese manufacturing sector (State Council, 2015). MC2025 borrowed the German “Industry 4.0 Plan” and was called the Chinese version of “Industry 4.0”. MC2025 addresses threefold aims: China to become the manufacturing powerhouse in 2025 and reach the middle-level among the world’s manufacturing powerhouse camp, then ultimately enter the forefront of the world manufacturing powerhouse camp (State Council, 2015).  

           Given that the MC2025 is China’s ambitious strategy to “catch up” and “win the leading role in the next industrial revolution”, it is seen as a potential threat to the western world’s established advantage in the global manufacturing sector and the potential trade protectionism policy (Doshi, 2020). The Trump administration negatively viewed this project during the trade negotiation with China because they considered the strategy a threat to national security and IP rights disputes (Woo and Xu, 2018). Increasing passive responses from other countries make the diplomatic dilemma of the MC2025 for China. A national-level development strategy could have an international influence and provoke potential bilateral or multilateral diplomatic and economic concerns and conflicts, and these worries concentrate on protectionism and national security problems.

           The article will first review what existing papers have discussed on this topic and then examine the two aspects that could provoke risks to a national-level development strategy from an international relations perspective, namely trade protectionism and national security. A short conclusion will be at the end.

Literature Review

            Kerry Liu (2018) considers the MC2025 as the “key to the dispute (Sino-US trade war)” because MC2025 provides mass support and substitute to China’s domestic manufacturing and raises the concern about free trade and national security from the US. Liu addresses over 1300 commodities in the punitive tariff list are MC2025-benefited goods, including electromagnets, aerospace parts, and machines to make and process textiles and food. In addition, Liu finds that given that the MC2025 is so critical for China, the Chinese government would not make substantial compromises in the trade war, which indicates the potential conflict escalation in trade and diplomacy between China and the US (Liu, 2018).

           Derek Levine (2020) expects that China’s MC2025 is new evidence of China’s trade protectionist policy: mass substitute to state-own and private enterprises, forced technology transfer, commercial espionage, and IP rights violations. He regards MC2025 as the tool for China to embody trade discrimination against other countries and become a critical threat to the national security of the US. Chi-Hung KWAN (2019) and European Chamber (2019) share a similar view with Levine; they believe the MC2025 and affiliated trade protectionist behaviours provoked the global consideration of its liberalist market-oriented system and the global trade rules. EU Chamber of Commerce in China sees the MC2025 distorting the market.

(Magnier, 2017) Rashidin and Javed (2020) discuss the security aspect. Their research views MC2025 as a comprehensive plan for China to catch up and even surpass the US in the manufacturing and technology sectors. Therefore, they consider the US “could suffer with huge penalties” and be threatened with national security concerns on military technology and the capitalist system. The above research shows that the MC2025, a national manufacturing development plan, has influenced international concerns on trade and security topics.

Twofold International Worries toward MC2025

Protectionism

           The most critical concern to the MC2025 is the protectionism embedded with the strong government support of Chinese State-Own-Enterprises and specific private companies. The European Union, one of the most solid supporters of free trade, declared their concern about the fair competition environment for European enterprises in China in a report released in 2019 (Alves et al., 2019). EU Commerce Chamber in China specifically expressed their worry that the MC2025 might escalate China’s protectionism in domestic business (European Union Chamber of Commerce in China, 2019). They consider this policy distorting the market and making the government bureaucracy decide “who is the winner and who is the loser, end up in tears”, which makes money wasted (Magnier, 2017).

           Some Asian economies express their concerns about not only trade protectionism but also the worry of talent loss. South Korea see the MC2025 as China’s manifesto for self-sufficiency, which raises the potential risk of trade protectionism, brain-drain, merges, and loss of intellectual property (Korea International Trade Association, 2019). Korea is one of the global powerhouses of semi-conductor and high-tech R&D. MC2025 provides sufficient funds to Chinese companies to recruit professionals in such areas, especially semi-conductor manufacturing, from places like S. Korea. The Taiwan region shares a similar concern. Ihara’s report (2019) shows that over 3000 semi-conductor engineers were lost for MC2025.

           On the other hand, Japan considers the MC2025 as both an opportunity and a challenge (Bloomberg, 2018). Given that MC2025 emphasises on the development of advanced manufacturing, specifically the semi-conductor and other high-end and high-tech products, China needs raw materials from other countries. Japan has advantages in supplying several exclusive critical raw materials, including chip-producing machines, chip materials, camera sensors, and robotisation production lines. Therefore, they see MC2025 as a business opportunity but worry that China will be a powerful competitor in the future.

           MC2025, as its nature of a domestic manufacturing sector upgrading project, targets the advanced industrial sectors (e.g., ICT, robots, green cars, medicine, semi-conductor) with exclusive policy support and substitution to domestic companies do worry the international partners and counterparts about the protectionist policy in domestic and international markets. Hence, MC2025’s influence has gone beyond China and shaken the WTO’s free trade and non-discrimination principles to some extent. The Chinese government should clearly endorse the WTO rules and comfort their global trade partners with encounter promises or policies. It also reminds us that countries should consider foreign partners in policy rationales to avoid potential conflicts and disputes in the economic aspect.

National Security

           Discussion of MC2025 on the international stage has also extended to the national security level, especially regarding the United States. Kerry Liu (2018) pointed out that the MC2025 is the key to the Sino-US trade war, and this trade war embodies a national security concern of the Trump administration.

           US officials consider the MC2025 would “create a significant gap throughout the technology sector” and a threat to US technology leadership worldwide (Laskai, 2018). The concept of “technology decoupling” was raised since the concern developed; this concept seeks a boundary and desperation of China’s and the US’s technologies. The US also prohibits specific Chinese citizens and institutions, including universities, from using US-developed computer software and technologies. Given that considerations, the US strictly limit the accessibility of Chinese companies to US technologies. Huawei’s ban is one of the most typical cases.

           Based on the pan-national security concern, the Trump administration established a trade war with China, raising the tariff of MC2025-related goods and products. The US government also see the possible brain-drain in high-tech sector. US see the talents as strategic asset of national security, especially in specific MC2025-related areas. Department of Justice raised the “China Initiative” to investigate scholars in the US who have cooperated with Chinese entities, especially those related to MC2025 and its related arenas. This initiative causes fear among US-Chinese scholars because most suspected scholars are accused of espionage. Besides that, the US considers MC2025 to violate WTO’s free trade and non-discrimination principles, which threaten the liberal market and political system of the US and China.

           Till the Biden administration, the US government keeps a similar attitude to the MC2025 and other Chinese development strategies as potential threats. MC2025’s provoking of the national security concern in the US, enlightening us that a country’s development plan could have global political influence, and the government should try to control the potential risks and threats those external pressure and hampers. 

Conclusion

           A country’s plan or strategy for its domestic manufacturing development could provoke international worries from the perspective of economics and politics. This paper uses the Made in China 2025 strategy of China as a case to see the evidence of a domestic policy’s global influence. Results show that, given that the MC2025 provide mass support in policy and finance, it raises China’s international partners’ and counterparts’ protectionism concern in domestic and international markets. The Chinese government should try to reclaim their commitment to the WTO principles and comfort them with coordinated policies because China still needs them to approach diverse products. In addition, MC2025 also raises national security concerns for some countries, especially the US. Concerns concentrate on the technological, military and other sensitive technology transfer, IP rights and the possible threat to the political system and raised the Sino-US trade war (trade barrier). This inspires us that the government needs to have the ability to control the possible international conflict and disputes in politics and economics. Such conflict might provoke a global-scale crisis, especially between China and the United States.

Reference

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This is a course paper for POLS3273-Growth, Innovation and Development Case Studies, the instructor is Dr. Edoardo Monaco.