The European Union Chamber of Commerce in China has released a major report examining the effects that the China Manufacturing 2025 (CM2025) industrial policy initiative is having on China’s domestic economy and on its international relations.
China Manufacturing 2025: Putting Industrial Policy Ahead of Market Forces analyses the initiative’s goals, which include achieving domestic and international market-share targets in ten industries, attaining self-reliance for key components and turning the concept of ‘indigenous innovation’ into reality.
It also focuses on five of the ten industries covered by CM2025, including new energy vehicles, industrial robotics and semiconductors, and outlines the consequences of government intervention in these sectors.
While CM2025’s focus on upgrading China’s industrial base is a necessary undertaking—both for the sake of China’s environment and the long-term sustainability of its economy—the report cautions against stoking tensions with international trade partners through the implementation of a carefully orchestrated industrial strategy. This includes through policy tools such as subsidies, continued support for inefficient SOEs, limiting market access for foreign business, and state-backed acquisitions of companies from the EU and elsewhere.
“Instead of moving ahead with the progressive market-based reforms announced at the Third Plenum in 2013, state planners are unfortunately falling back on the old approach of top-down decision making,” said European Chamber President Jörg Wuttke. “This poses serious problems, not only for European business but also for much of China’s private sector and the wider economy.”
The report seeks equal treatment for foreign companies under CM2025, with President Xi Jinping’s Davos speech and the State Council’s No.5 Notice from January 2017 identified as potentially providing the necessary impetus for realizing this. It also provides recommendations on how the Chinese authorities can better drive innovation by establishing the market as the decisive force in China’s economy.
Additional suggestions are made to European Union authorities and Member State governments on how to respond to the risk of increased state-intervention that will disrupt the market order of their domestic economies, including through a structured process that carefully screens investments that appear to be state-backed.