'Made in China 2025' will evolve under US pressure

Subject China's industrial policy. Significance At the heart of the current US-China confrontation over trade and investment is China's ambition to challenge US technological and industrial superiority. This ambition is now often treated as synonymous with its best-known element, the 'Made in China 2025' initiative (MIC 2025) -- a grand plan that sets ambitious targets for expanding high-end manufacturing. Impacts An uneasy relationship between China and the West regarding technology might delay release of technical standards for emerging technologies. China will invest heavily in its basic scientific research capabilities, but will not match the United States any time soon. It may become more difficult to obtain critical information on high-tech sectors and policies if government decides to downplay them.

Subject China's global market presence in the sectors targeted for development by Made In China 2025. Significance Beijing's 'Made in China 2025' framework aims to make China a leading player in ten high-technology sectors. China’s current position in the global market varies greatly from one targeted industry to another. Comparison with the United States as the world's economic superpower and China’s main rival helps put the grievances Washington expresses towards China in context. Impacts China’s ability to compete on technology and quality will rise significantly, especially in advanced non-electrical and transport machinery. Domestic political pressure on the US government will rise as more US firms face Chinese competition. Trade tensions with the United States will spur indigenous development of technologies for which Chinese firms now depend on US suppliers. A cohort of globally competitive Chinese high-tech firms will develop first; upgrading the whole Chinese economy will take far longer. Even when the technological gap narrows, Chinese firms will continue seeking to acquire high-tech firms in developed countries.


Subject China's Made In China 2025 industrial policy framework. Significance Made In China 2025 (MIC 2025) is a ten-year policy framework for comprehensively upgrading the technological base of China’s manufacturing sector. Its aims to make the country a world leader in high-tech production, and switch it to an innovation-driven and environmentally sustainable pattern of economic growth. Impacts Chinese policymakers will use market forces selectively, seeing them as just one tool among others. There is a risk that heavy state involvement will in some cases hold back competition and innovative private entrepreneurship. Penalties from Washington and other governments will raise the cost of technological espionage, but perhaps not prohibitively. Resistance to Chinese high-tech acquisitions will grow stronger in the West, not only in the United States.


Subject The impact of the China-US trade tariffs on Japan's economy. Significance As trade talks between the United States and China stumble toward a March 1 self-imposed US deadline, US tariffs and Chinese retaliations are influencing global trade patterns. Japan as a major trading nation has much at stake. Impacts Japanese producers are examining relocation options for products now made in China. South-east Asia, not Japan, is the top candidate for supply chain relocation. Mexico also is another candidate for substitute production because of its location and technology skills. If the United States follows up its threat to impose a 25% tariff on its imports of autos and parts this would hit Japan’s auto exports.


Subject China's commercial spaceflight sector. Significance Spaceflight is one of the few high-tech industries in which China is unquestionably a world leader, operating by far the largest number of satellites of any country besides the United States. Impacts The government may subsidise commercial launches for diplomatic and industrial policy reasons, but the aim is to make them profitable. China’s success in spaceflight will be a model and inspiration for other sectors seeking technological independence. Chinese space businesses will benefit from ‘military-civil fusion’, a policy for commercialising previously restricted military technology.


Significance Follow-on action from Washington and responses from foreign actors will shape the US government’s adversarial policy towards China in semiconductors and other strategic technologies. Impacts The Biden administration will likely conclude that broad-based diversion of the semiconductor supply chain away from China is not feasible. The United States will rely on export controls and political pressure to prevent diffusion to China of cutting-edge chip technologies. The United States will focus on persuading foreign semiconductor leaders to help develop US capabilities, thereby staying ahead of China. Washington will focus on less direct approaches to strategic technology competition with China, notably technical standards-setting. Industry leaders in the semiconductor supply chain worldwide will continue expanding business in China in less politically sensitive areas.


Subject Foreign policy after the attempted coup. Significance Before the July 15 coup attempt, foreign policy was showing signs of turning towards pragmatism from the ambitious positions associated with former Prime Minister Ahmet Davutoglu. Rapprochement was sought with both Russia and Israel, and relations with the United States and EU were relatively stable. The attempted coup introduces considerable uncertainty. President Recep Tayyip Erdogan's insistence that US-based cleric Fethullah Gulen was behind it is drawing the United States into Turkey's most serious political trauma in decades. Impacts Relations with the West are unlikely to return to their pre-coup warmth soon. The most likely result for US-Turkish relations is what may be termed a 'stressed-out partnership of convenience'. How both US-Turkish relations and Turkey's conflict with the PKK develop will determine Turkish policy on Syria and the ISG.


Subject Russia's new foreign policy document. Significance A new foreign policy concept presents Russia as a nation facing a range of security threats but nevertheless willing to play a global role in a multipolar, chaotic and unpredictable world. Replacing the 2013 foreign policy concept, the document also attempts to assuage fears of Russian expansionist intent. Impacts Assumptions about the United States may change rapidly under President Donald Trump. Moscow will strengthen its foothold in Syria as a bargaining chip with the West and to show its resolve not to back down under pressure. Russia will refuse to relax control over Ukraine's eastern regions. Asian policy will consist partly of courting China and partly of seeking alliances to counterbalance this. Economic cooperation with Japan will be constrained by lack of a near-term deal on territorial issues.


Subject Chinese FDI into Europe. Significance China's hosting of the G20 summit on September 4-5 came as it is recalibrating its foreign economic strategy, becoming a major investor in the West and particularly the EU. With a few notable exceptions, EU governments have been keen to encourage those investments. Impacts While China will continue to relax restrictions on investments into its domestic economy, it is unlikely to reciprocate fully to the EU. Sectors China considers strategic, including defence equipment and infrastructure, will remain out of bounds to foreign companies. Concerns about the geostrategic risk of Chinese investments appear to resonate more strongly in Australia and the United States than the EU.


Significance Senior US officials see Communist-led China as the foremost threat to the United States. The Trump administration’s campaign against it spans the spectrum of government actions: criticism; tariffs; sanctions; regulatory crackdowns; military intimidation; support for Taiwan; and restrictions on imports, exports, investment and visas. Impacts Beijing will have little success in driving a wedge between Washington and its major Western allies. The West is unlikely to produce a convincing alternative to the Belt and Road Initiative (BRI). Negative public views of China incentivise China-bashing by politicians, which in turn feeds negative public opinion in a downward spiral. Beijing will persist in its efforts to encourage a more positive view of China among Western publics.


Significance Under pressure from the US and EU ambassadors, Bosnia's leaders have reached agreement to form a state government. The breakthrough has provided a badly needed respite from political paralysis; it required difficult concessions from all sides. Impacts By emphasising each side's concessions, politically affiliated media could jeopardise a shaky settlement. The United States and EU are too preoccupied with mainly internal problems to re-engage in Bosnia or the Balkans more concretely. Tensions between Russia and the West are being reflected in Bosnian politics.


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