Chapter 4: Techno-nationalism and Techno-Industrial Policy
4.6 Made in China 2025
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resources allocated high-tech R&D, targeted policy support for specified “strategic” technologies, sectors, and individual firms, and the increasing usage of related policy instruments designed to promote indigenous firms and protect them from foreign competitors.
4.6 Made in China 2025
The newest centerpiece of Chinese techno-industrial policy - “Made in China (MIC) 2025” - was unveiled by the State Council in May 2015 after two years of development and coordination between the Chinese Academy of Engineering and the Ministry of Industry and Information Technology (MIIT). The plan, which enjoyed top-level political support from the onset of its formulation, identifies ten strategic sectors for prioritization: information technology, high-end robotics and machinery, aerospace, maritime equipment, advanced railway technology, energy-saving vehicles, electrical equipment, new materials, biomedicine, and agricultural machinery.
As Xinhua reported during the unveiling of MIC 2025 in May, 2015, China’s ongoing struggle with decreasing demand, coupled with heightened international competition and the need to embrace higher value-added manufacturing, drove development of MIC 2025.178 By combining information technology with traditional industrial sectors, China hopes MIC 2025 harnesses the trend toward “smart” manufacturing.
By incentivizing the application of new forms of information technology into the industrial production process, Chinese state planners hope indigenous firms move into high stages of the international production chain; better positioning themselves to compete with leading “advanced-economy” firms from Japan and Korea to Europe and North America.
Taken together, the priority sectors constitute a substantial portion of China’s overall manufacturing sector.
Much of the analysis of the MIC 2025 initiative points out that it contains contradictory language suggesting
178 “Made in China” plan unveiled to boost manufacturing. Xinhua. May, 2015. < http://news.xinhuanet.com/english/2015-05/19/c_134252230.htm>
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both market-conforming and market-distorting approaches to achieving core development objectives. MIC is often depicted as building off the template outlined in Germany’s “Industrie 4.0” plan.179 Central
bureaucracies tasked with developing and implementing the plan emphasize MIC’s conformity with similar plans found in both developing and developed economies.
Along those lines, according to analysis from CSIS’ Scott Kennedy, MIC’s overarching goal is
“comprehensively upgrading Chinese industry, making it more efficient and integrated so that it can occupy the highest parts of global production chains.”180 Kennedy points out that the MIC plan differs from prior initiatives like the MLP and SEI in several important respects: in terms of the level of policy coordination, in terms of utilizing a broader array of policy tools, and in generally relying more on market-forces than central planning. Unlike the SEI, MIC 2025 promotes a broader swath of industrial sectors and focuses on the entire production cycle as opposed to simply emphasizing novel-product innovation.181
The plan fits into the broader goal of establishing China as the world’s leading manufacturing power by the year 2049. To that end, MIC 2025 focuses on nine central priorities; bolstering of manufacturing innovation;
the integration of technology with industrial production; improving the visibility of Chinese technology brands; restricting the manufacturing sector; and building up the national industrial base. Adding to the nine tasks, MIC targets ten key industrial sectors including: new forms of ICT, automated robotics, aerospace, power generation, railway transportation and oceanic engineering among others. To achieve the goals outlines in the Made in China 2025, the plan calls for the utilization of both state and market forces, including efforts at strengthening intellectual property enforcement with government financial support for Chinese firms and the creation of numerous innovation centers geared toward improving the efficiency of industrial production systems.
In meeting outlined manufacturing targets, MIC 2025 directly utilizes and/or interacts with a number of
179 MERICS, Made in China 2025.
180 Ibid
181 Scott Kennedy. “Critical Questions: Made in China 2025.” CSIS. June, 2015. < https://www.csis.org/analysis/made-china-2025>
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financial, legal and regulatory instruments, notably: preferential financial support and subsidies for domestic companies, policy recommendations for Chinese banks to extend financial support in hopes of building up native Chinese brands, support for R&D via the usage of state-owned or state-directed funds, state
encouragement of outbound FDI in designated sectors, SOE consolidation aimed at creating national champions in strategic industry, restrictive market access and licensing agreements for foreign
multinationals, the creation of unique domestic technical standards, discriminatory public procurement policies, and, finally, the usage of laws and regulations pertaining to national and cyber security as a means of curtailing market access for foreign companies.182
However, critics of MIC 2025 see considerable scope for discriminatory state interventionism. In analyzing MIC 2025, the US Chamber of Commerce - drawing upon language contained in the “Made in China 2025 Major Technical Roadmap (Green Book)” put together by the National Advisory Committee on Building a Manufacturing Power Strategy - found that MIC aims at three key objectives: localizing and indigenizing R&D capacity and controlling key sections of the overall global supply chain in priority sectors; reducing overall dependably on foreign technology; and capturing a growing portion of global market share for domestic Chinese technology producers. In accordance with other central planning documents preceding it, the Green Book sets out explicit domestic production targets for designated sectors.183
Made in China 2025 makes clear its objective of replacing foreign technology with domestically produced alternatives, explicitly calling for increasing the domestic market share of “core technology components” up to 70% by the year 2025. One key line in the plan outlines the objective of the Made in China 2025 as “to control essential core technology, improve industrial supply chains and build independent development capacities in basic, strategic and comprehensive areas related to the national economy and industrial security.”184 According to the MERICS analysis, language regarding “indigenous innovation” and technological “self-sufficiency” appears throughout Made in China 2025.185
182 MERICS, “Made in China 2025.”
183 “Made in China 2025: Global Ambitions Built on Local Protections.” US Chamber of Commerce. 2017.
184 MERICS, 2017
185 Ibid
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Registering its concerns regarding the overall thrust of the initiative, the US Chamber writes that, “MIC 2025 aims to leverage the power of the state to alter competitive dynamics in global markets in industries core to economic competitiveness,” elaborating that, “China’s industrial policies, Internet and data legal and regulatory frameworks, and inward foreign direct investment regime regrettably suggest limited support for globalization and competitive markets.”186 Similarly, the MERICS report on Made in China 2025 states that
“China’s leadership systemically intervenes in the domestic markets so as to benefit and facilitate the economic dominance of Chinese enterprises and to disadvantage foreign competitors.”187
4.7 The 13th Five Year Plan (FYP) and “Innovation-Driven Development”
Economic rebalancing through innovation also comes across as a central theme in the 13th Five-Year Plan (FYP); a comprehensive outline of China’s economic development strategy developed in consultation with a broad array of stakeholders. Much like the MIC, the 13th FYP places emphasis on the use of information technology as a central conduit for future growth and development.
According to a recent report from CSIS, “the plan puts a heavy emphasis on streamlining manufacturing, promoting innovation, and encouraging the development of more advanced technologies” which, in totality would move China toward “becoming an innovation power, pushing the boundaries forth of the
technological frontier and moving up the value-added chain in a wide range of sectors.”188 In spite of this, the plan largely leaves comprehensive SOE reform untouched, rehabilitates the use of the term “indigenous innovation,” and, most importantly, ambitiously lays out nine general techno-industrial policy initiatives and roughly 75 priority technologies to support through the allocation of billions of dollars in state backed
subsidies and research grants. The FYP explicitly calls for supporting key techno-industrial policy initiatives, including: MIC 2025, the SEI and informatization-related mega projects. As the CSIS report again notes,
186 “Made in China 2025.” US Chamber of Commerce.
187 Ibid
188 Scott Kennedy and Christopher Johnson. “Perfecting China, Inc.” CSIS.
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“the plan emphasizes the need to protect China’s economic, cyber, and national security. It is likely that the collective consequence of these efforts to strengthen political control and national security are not supportive of the strengthening of unbiased market institutions.”189
Another prominent shift in emphasis in Chinese S&T strategy is the increasing usage of the “innovation-driven development” concept under Xi Jinping, manifested most prominently in the State Council’s
“Opinion on Accelerating Implementation of the Innovation-Driven Development Strategy through
Strengthening Institutional Reforms” released in 2015. The opinion focused on the removal of barriers and strengthening of incentive structures conducive to improving S&T innovation within China.
4.8 Military Modernization, National Security and Informatization
Perhaps the central arena in which China’s techno-nationalist predilections blend with integration into the international economy concerns defensive modernization. As Cheung points out, China’s national system of defensive innovation improved markedly from the 1990s onward.190 This was, broadly speaking, brought about by improved alignment between three powerful constituencies essential for effective modernization:
the military, the defense and scientific research community, and civilian regulators. In no small part, defensive modernization reflected a recognition that access to foreign knowledge and foreign technology was essential for jump starting domestic innovation in the defense sector.
Cheung notes that within the uppermost echelons of the PLA, techno-nationalist notions rooted in historical experiences tracing back to the collapse of the Qing Dynasty and the successful “Two bombs, One Satellite”
drive under Mao continually shape and reinforce the imperative placed on technological autonomy.191 While defense related projects don’t figure prominently in the content of the MLP, Cheung argues that it “seeks to blur the classic distinction between civilian and military technologies and points out that S&T development
189 Ibid
190 Cheung, Fortifying China, 2009.
191 Ibid
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should benefit both civilian and defense needs at the same time.” As Cheung writes:
The potential benefits from the establishment of an effective and capable dual-use economy are numerous and wide-ranging. A dual-use economy will produce an environment that is more encouraging and supportive of the kinds of innovation and leapfrogging activities that the Chinese authorities are actively seeking to promote. This includes marrying commercial entrepreneurship and risk taking with the support of substantial state resources and R&D capabilities. The results should be the development of technology and equipment that is cheaper, better, and faster.192
Whereas earlier efforts at civil-military integration were ineffective and poorly coordinated, the current movement toward Yujun Yumin is both more nuanced and well-though out in its policy approach and enjoys a robust level of elite level political support. As Cheung notes: “Finding ways to catch up and leapfrog has become a central tenet in this search for a new development model. This is because a key assumption framing this debate is that the new information paradigm offers a unique chance to leap ahead and significantly narrow the military technology gap with the world’s advanced military powers.”193
The blurring of the security and civilian sectors – embodied by the movement toward a dual use economy – is most clearly reflected in the current emphasis placed on development through the informatization of the physical economy. According to a recent CCP journal article in Qiushi, prepared under the Cyberspace Administration of China (CAC), the deepening of civilian and military capabilities is one of the central objectives of China’s current push toward a informatization-based economy.194
In July, 2016 the State Council issued guidance for the “National Informatization Development Strategy Outline” as a way of strutting development of the ICT sector in China going forward. National security and
192 Ibid
193 Ibid
194 Elsa Kania, Samm Sacks, Paul Triolo and Graham Webster. “China’s Strategic Thinking on Building Power in Cyberspace.”
New America. September, 2017. < https://www.newamerica.org/cybersecurity-initiative/blog/chinas-strategic-thinking-building-power-cyberspace/>
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indigenous innovation figure prominently into the plan with specific calls for reducing foreign reliance on
“core” technologies. References are repeatedly made to the priority of achieving a “secure and controllable”
network system, with language tying informational superiority to national competitiveness and military security.195
Unsurprisingly given the centrality of ICT as a major driver of both development and national security, Chinese leadership takes a keen interest in overseeing development and regulation. The clearest indication of this is the formation of the Central Leading Small Group for Network Security and Informatization set up in 2014 under the chairmanship of President Xi. According to Congressional testimony provided by Chinese cybersecurity expert Samm Sacks, the formation and composition of the group is reflective of two key developments in China’s ICT policy approach: the desire for centralization in the policymaking and oversight/implementation process and the rising influence of hardline thinking as it pertains to the cyberspace. Sacks states that, “within the Chinese bureaucracy, proponents of greater data localization, import substitution, sovereignty in cyberspace, and encryption access are exerting increasing influence over the policy agenda……direction is coming from the highest levels in the Chinese system under the direction of President Xi himself.”196
Evidence of this thinking further reveals itself in the words of President Xi himself, who has asserted that,
“national security no longer exists without information security”197 and that China should push for “internet sovereignty” as a means of safeguarding both economic development and national security prerogatives.
Such language, built upon in an assortment of recent policy documents, refutes the Western notion of a
“borderless internet” largely independent on extensive national regulation. The goal of ICT development through economy-wide informatization brings security concerns intimately into the realm of technological
195 “Preventing Deglobalization.” US Chamber of Commerce.
196 Testimony of Samm Sacks to U.S.-China Economic and Security Review Commission. Hearing on Commercial Cyber Espionage and Barriers to Digital Trade in China. < https://www.uscc.gov/Hearings/hearing-commercial-cyber-espionage-and-barriers-digital-trade-china-webcast>
197 As quoted in the “Preventing Deglobalization” report.
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development. As the “Preparing for Innovation” report points out, the Snowden revelations exacerbated existing worries about dependence on foreign technology for the provision of core digital network infrastructure.198 In response, Chinese authorities are ratcheting up demands for access to proprietary information from foreign providers as a precondition for market access. In this light, national security legislation is widely seen as playing a dual role: preserving state security and promoting domestic
technology. According to the report, “authorities are drawing up sweeping national security, cybersecurity, and foreign investment laws and regulations that require national security reviews and only permit use of technology that is ‘secure and controllable.’”
Within this framework of national security and cyber sovereignty are myriad concerns that vague and broadly defined definitions of security are means of suppressing competition, extracting technical
concessions and promoting domestic alternatives. As the U.S. Chamber of Commerce points out, the “legal and regulatory framework that sets forth security-related requirements to support development of indigenous technologies and exclude foreign technologies poses an obstacle for foreign companies operating in these industries.”199 China’s policies for achieving developmental and security outcomes in the fast-evolving ICT sector are easing fears over “Chinese leadership’s ambition to use the country’s industrial policy apparatus to foster domestic ICT capabilities for security purposes, political control, and economic power’” wherein
“protectionist instincts underlie security-related policy and regulation.”200
198 Cheung. “Planning for Innovation.”
199 “Preventing Deglobalization”
200 Ibid
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Chapter 5: Case Studies
The preceding analysis focused first on techno-nationalism at the level of ideation; ideas concerning the relationship between technology, security, sovereignty and national development. As covered in chapter four, these ideas correlate with national technology policy; underpinning a comprehensive techno-industrial policy structure considered by many analysts as reflecting “techno-nationalist” thinking.
Chapter five situates ideas and policy into the realm of implementation and interaction. This is done in the form of three relevant (albeit brief) case studies: semiconductors, robotics, and AI. While these three cases hardly serve as a comprehensive basis to reach any sweeping conclusions about the nature of Chinese industrial policy, hopefully they can better our understanding regarding the manner in which techno-nationalism affects the behavior of both foreign and domestic technology stakeholders.
The three examples were chosen on the basis of several common characteristics:
Dual Use: All three cases are clear-cut examples of technologies with both civilian and military application.
As such, they are all seen as integral to China’s ongoing military modernization drive.
Core Technologies: At present and into the future, the three case studies are seen – both within China and abroad – as leading high-tech sectors. China’s emergence as a major player in these fields will likely have a significant impact on firms (if not entire national economies) in East Asia, North America, and Western Europe.
State Prioritization: State planning documents suggest high levels of policy support for indigenous
development in all three cases. Key government initiatives like MIC 2025 hinge on successful development of industrial robots, AI, and semiconductors.
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External Alarm: On account of the aforementioned three characteristics, all three case studies engender a considerable level of external scrutiny – both among governmental officials and within the international media. Actions taken by the Chinese state in promoting these industries is often pointed to in foreign capitals as rationale for restricting Chinese outbound FDI and/or imposing future sanctions.
5.1 Integrated Circuits (IC)
ICs can be seen as the “fundamental building blocks of today’s high-tech knowledge economy,”201 with a widespread array of applications in both the commercial and military spheres. Proficiency in the production of semiconductors is seen as a hallmark of a modern, technologically sophisticated economy: the leading East Asia industrializers (Japan, South Korea, Taiwan) successfully developed globally competitive IC firms.
China’s state-led initiatives at enhancing domestic competitiveness in the global integrated circuits (IC) market have drawn a considerable volume of international attention in recent years. According to testimony from Jimmy Goodrich, Vice President of the Semiconductor Industry Association, “Chinese leadership at the highest levels has made it a priority to develop and produce semiconductor technology” where “no other Chinese industrial development program for the information technology (IT) sector is supported with the financial resources and central government attention given to the IC industry plan.”202
State of the Market:
The production and assembly of ICT products is one of the key industries driving overall growth in the Chinese economy today, accounting for roughly one-third of overall exports. As Dan Breznitz and Michael Murphree put it, “in addition to being the largest and most globalized industry worldwide, the IT industry is
201 Stephen Olson. “Keeping an eye on US-China semiconductor supremacy struggles.” East Asia Forum. February, 2017. <
http://www.eastasiaforum.org/2017/02/20/keeping-an-eye-on-us-china-semiconductor-supremacy-struggles/>
http://www.eastasiaforum.org/2017/02/20/keeping-an-eye-on-us-china-semiconductor-supremacy-struggles/>