If China wants to achieve its goal of upgrading the industrial sector, it should seriously take into consideration local governments as they play a relevant role. China, indeed, is not a single entity, but rather a combination of 31 provincial administrative units, each of them characterized by specific features and unequal level of economic development.
In addition, some sectors are highly concentrated within certain provinces. For example, steel is mainly produced in Hebei while mining is based in the Northern provinces. This means that the overall Chinese industrial transformation needs to adapt to local conditions and that a single strategy might not be suitable for the whole country. Such condition is central for the Made in China 2025’s implementation strategy across the provinces.
The most relevant document on the topic is “Made in China 2025’s Guide for provinces and cities” issued in 2016 and, as announced in 2017, currently under revision. According to Miao Wei, Minister of Industry and Information Technology, China’s government policies are shaped according to the principle of “promoting a differentiated development and a deep cooperation between ministries and provinces based on comparative advantages”. Indeed the Ministry promotes selected development priorities and directions that are based on local resource advantages, location conditions and market environment. Even if, by the end of 2016, almost every province had already declared to be developing most of the 10 core sectors of Made in China 2025, the government’s plan for provinces and cities focuses instead on ad-hoc measures for each region. At the same time, the Guide promotes different levels of industrial upgrade according to the current geographical situation. For instance, coastal provinces are the most advanced ones, therefore they are the place where to implement smart manufacturing development, robotics and industries related to “Internet +”, a plan conceived to improve the implementation of interconnectivity in production processes. High-end ships, new power equipment and aerospace are also at the center of production activities in eastern provinces like Zhejiang, Jiangsu, Shandong and Guangdong.
A different case concerns the central and northern provinces, where the primary sector still holds a relevant share, forcing local authorities to set as the main goal the improvement of mining, agriculture and related sectors, mainly in terms of new energy, new materials, machinery and equipment for coal, chemical and agriculture. A second goal is to phase out energy-intensive and highly-polluting industries, a common feature of this region.
That being said, one of the key objectives of Western and North Eastern China is to eliminate backward production capacity, a further evidence that Made in China 2025 is not only China’s version of Germany’s Industry 4.0, but rather a wider initiative aimed at reshaping the Chinese industry. However, if provinces like Sichuan and Chongqing are already leading spots for aerospace, cloud computing and big data, the old industrial base within Manchurian provinces (Liaoning, Jilin and Heilongjiang) might be struggling a lot in order to overcome the crisis that their outdated industrial system has been experiencing in the last decade. In this region, a significant presence of heavy industry State Owned Enterprises represents the biggest challenge to industrial reform and upgrade. However, that is not the only problem. Should a coherent implementation of Made in China 2025’s objectives take place, the region would also face rising related social and political costs such as layoffs. On the contrary, Guizhou – and in particular Guiyang – is benefiting from its advantages of backwardness. One of the poorest provinces, the southwestern Guizhou is becoming a strategic destination for investment in cloud computing, big data and data storage without the need to transform the existing industrial base.
According to Caixin – a Chinese finance newspaper – in 2017 local governments shifted investment from infrastructure to industrial development, probably as a direct effect of Made in China 2025. The report found that investment of this kind accounted for about 70% of their total amount in relevant provinces like Shandong, Hunan and Guangdong. The next steps for promoting Made in China 2025 in the provinces are very consistent with China’s history of gradualism and experimentation. For example, the government is about to nominate 30 pilot demonstration cities across the country, after having selected them from a list of candidate cities that had previously submitted their application. Those cities will be diverse in terms of geography and sectors of specialization. The vanguard pilot city is Ningbo (Zhejiang province) that already gained this status in 2016.
A re-emergence of China’s past might be evident not only through the existence of a long-term plan and the associated way to get it (gradualism), but also through the possible negative effects it carries. Indeed, the biggest threat to China is the actual possibility to end up replicating those past mistakes that led to the current overcapacity in many industrial sectors, which in turn represented the main problem for China’s economy along with its debt.
As it is clear from the list of priorities published by each local administration, almost every province wants to achieve success in most of the 10 main sectors identified as crucial in the Made in China 2025 initiative. However, this might lead to resource misallocation, duplication of projects and large inefficiency. Even the selection of pilot demonstration cities bears uncertainties since it might represent either a way to coordinate policies or a way to create overinvestments. Simply put, by average selecting 30 pilot cities means having at least 3 pilot centers for each of the 10 sectors, without mentioning the fact that each pilot city will focus on more than one sector. As a result, focusing on the implementation of Made in China 2025 is very useful to fully understand how China seeks to achieve its goal. At the same time, it makes clear that there is still a long way to go before succeeding. Made in China 2025, indeed, holds both the long-term view of a plan and the weaknesses of a command economy.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the Italian Institute for International Political Studies (ISPI)