“Made in China 2025” was first revealed in May 2015. It aimed to use regime subsidies, mobilize state-owned enterprises, and pursue intellectual property acquisition to catch up and surpass the West’s technological prowess in advanced industries by 2049.
However, about seven years after Beijing launched the plan, policymakers and security officials in the United States and other developed countries became aware of China’s attempt to become the dominant player in the field of advanced technology as a matter of national security. Therefore, the term is almost no longer appearing publicly, according to Asia Nikkei.
For the U.S. and some major industrialized countries, China’s plan not only undermines China’s compliance with international trade principles but also poses a security risk. In 2017, the Pentagon warned that Chinese investment in U.S. companies working on facial recognition software, 3D printing, virtual reality systems, and autonomous vehicles was an attempt by China to “blur the lines” between civil and military technology.
Policymakers worry about China’s ambitions to control the entire supply chain that could place an entire specific U.S. industry under the control of a rival geopolitical power—for example, the cobalt industry, which powers most of U.S. modern electronics. In June 2018, the White House warned that China’s economic moves threaten the U.S. economy and the global innovation system.
Meanwhile, many other countries have tightened foreign investment supervision, strategizing their responses to China’s actions. In addition, policymakers and security officials in the U.S. and other developed countries view China’s plan to dominate advanced global technology as a matter of national security.
In March 2018, an investigation by the Trump administration found that China’s trade, investment, and currency policies increased the U.S. trade deficit and brought down American manufacturers.
Many studies also show that China is trying to distort the global market by prioritizing political incentives over economic incentives. Subsidies under this plan have manipulated the market and led to overproduction and dumping of low-priced products on world markets, as is the case with solar panels, for example, where China faced allegations from many countries. In addition, companies based in the U.S., Europe, and other continents argue that there is an asymmetry when China is free to invest abroad, but investment requirements and restrictions constrain foreign companies that sell and operate in China.
EU leaders have long complained about Chinese subsidies distorting the global economy and reducing European companies’ market access. As a result, the EU has filed a lawsuit against China at the WTO and imposed anti-dumping measures on many mainland products.
The technology competition between China, the U.S., and some other developed countries is becoming increasingly fierce, leading countries to seek to build their own systems of strategy and value chains.
The end of the ‘Made in China’ era?
Analysts have recently pointed to a series of salient issues in the “Made in China 2025” plan that poses a threat to global trade and which, if left unaddressed in themselves, will quickly end the Made in China era. That is:
- Regulatory environment
Many of the Chinese economy’s current difficulties stem from the strict private sector regulations that President Xi Jinping introduced in 2020. Moreover, there are concerns that the Chinese regime will continue to be tough this year in many fields, from education to technology.
In July 2021, China issued a series of regulations for the $120 billion private tutoring industry, shutting down tens of thousands of companies. At the same time, the regime handled the country’s largest ride-hailing app Didi just days after the parent company’s shares began trading in New York, leading to a sell-off in Chinese corporate stocks worldwide.
“Global investors don’t want to play the game of guessing the regulations or worry that tomorrow’s news could undermine their companies or business,” said Brock Silvers at investment firm Kaiyuan Capital (China).
Foreign companies working in China regularly face difficulties due to the Chinese side’s frequent breach of contractual payment obligations, irregular accounting practices, trademark and patent infringement, financial and commercial fraud, undisclosed debt, or competing for control in joint ventures. Meanwhile, many Chinese prosecutors and police officers do not have adequate legal training. At the same time, legislators and officials follow the rules that suit their political interests, so whenever a lawsuit occurs, the party that suffers is usually a foreign enterprise.
- Theft of intellectual property rights
In 2018, the Office of the United States Trade Representative (USTR) reported that its investigation under section 301 found that China pursued various unfair and harmful policies and practices related to technology transfer, intellectual property, and innovation. As a result, according to the American Chamber of Commerce, 86% of counterfeits come from China.
Intellectual property theft costs the U.S. economy up to $600 billion annually. China has stolen American secrets in everything from trade to defense. For example, China has stolen data from U.S. defense projects such as the F-35, the Aegis Combat System, the Patriot missile system, unmanned underwater vehicles, and thermal imaging cameras.
- Technology transfer
Technology transfer is the cost of doing business in China. In particular, China adopts many regulations that require or pressure foreign companies to transfer technology. China also restricts technology licensing and directs or facilitates domestic companies to acquire assets. In addition, it pressures foreign companies to hand over their advanced technologies and conducts and supports intrusions and thefts from the computer networks of U.S. companies to obtain unauthorized access to intellectual property. All these actions aim to get foreign companies to spend billions of dollars on R&D while Chinese companies get accessible technology.
- Commercial espionage
In April 2018, U.S. intelligence agencies said China’s policy of discrimination against foreign investment coupled with China’s recruitment of foreign scientists and targeted acquisitions of American companies constitutes an “unprecedented threat” to the American industrial base.
The Chinese regime steals technology from foreign companies operating in China. Local internet service providers partner with the regime to monitor business emails. Many owners of local companies are members of the CCP, and the new regulations also include the establishment of party cells in all private companies. Article 27 of the Chinese Cybersecurity Law facilitates espionage activities and the transfer of personal data by Chinese companies.
In addition, sophisticated espionage campaigns targeting employees in hotels across China have recently been uncovered by foreign governments. According to the U.S. intelligence community, classified information is collected from mobile devices after agents have logged into wireless connections. Based on this data, Chinese intelligence agencies can track locations and intercept communications on mobile devices. As a result, automotive battery and brake technologies, high-speed rail technology, aviation test data, and valuable chemical and pharmaceutical formulations were also stolen. As a result, companies are increasingly concerned about the complex surveillance environment in China.
- Labor issues
Labor force discontent has long been present in the mainland economy for various reasons.
Protests, strikes, and shutdowns have become increasingly common across the country, especially since China has implemented automation to reduce costs. According to the China Labor Bulletin, there were 9,570 strikes in China between 2015 and 2020. It signaled the end of the era of cheap manufacturing and the beginning of a new chapter where the investment environment would become more challenging.
In addition, China is weaponizing its population. Companies could be banned from operating in China if their employees make comments the authorities consider harmful to its authoritarian policies. Companies must comply with government policies, or they will be ostracized and targeted by smear campaigns on social media.
China’s labor costs are higher than most ASEAN countries, and their standard of living is already close to that of the developed world. For example, the cost of running a factory in the U.S. and China is almost the same, while American workers are much more productive than their Chinese counterparts. Moreover, the regime’s enactment of a new law requiring companies to increase employee compensation and benefits significantly increases companies’ costs.
The movement of ‘escape from China’ was formed
Manufacturing in China no longer has many advantages when land, manpower, logistics, customs duties, and trade tariffs are no longer competitive. In addition, the trade war, technology transfer, and intellectual property theft also tend to make foreign businesses bring the supply chain back home. Meanwhile, Chinese companies tend to build their production plants in countries where many of their consumers reside.
Under President Xi Jinping, China has become even more authoritarian. The regime’s coercive policies violate WTO rules and adversely affect the business environment. Its investigations into companies and sky-high worker wages have forced companies to leave China.
Governments worldwide are concerned about their dependence on supply chain disruptions from China. Due to the lack of transparency in the regime’s reporting figures, companies cannot conduct due diligence on their local partners’ quarterly and annual financial statements. Besides, the country is losing the advantage of cheap labor due to AI and automation.
Due to the coercive policies of the Chinese regime and U.S. trade tariffs, companies such as Apple, Whirlpool, and Stanley Black & Decker have abandoned sales plans or announced their decision to move production to the U.S. Auto companies announced a new $34 billion investment as a result of the USMCA (United States-Mexico-Canada Agreement) deal. In addition, companies like HP, Dell, Microsoft, and Amazon are moving their assets out of China.
Some of the companies that have moved to neighboring countries are Harley Davidson (Thailand), Panasonic (Malaysia), Samsung (Vietnam and India), and Foxconn (Vietnam and India). Observers have warned foreign companies doing business with China about the gray rhino phenomenon. Asymmetric competition by Chinese companies, intellectual property theft, and technology transfer are obvious but neglected threats that have an enormous impact with dire consequences for foreign companies. Loss of trade and markets led to the collapse of ancient civilizations. An unfavorable investment environment could lead to the downfall of China as an economic power.
This is not a pause but the end of Made in China.