Lessons from China’s industrial strategy

5th Jun 2019
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GovGrant CEO Luke Hamm explores what lessons China’s industrial strategy can offer the UK.

Luke Hamm is CEO of GovGrant, a specialist adviser helping companies take advantage of generous government tax incentives for innovation.  

You can’t keep China out of the news. Not only is it poised to overtake the USA as the world’s biggest economy (and this may be a political factor behind the current trade war with the US), but in the UK, the government is weighing up whether to allow Huawei, the Chinese telecoms giant, to build parts of the UK’s 5G network.

Policymakers are nervous about the prospect of Huawei building the network and so enabling the Chinese State to exert some control over the UK’s communications. The Five Eyes Security Alliance – an intelligence-sharing alliance between the UK US, Canada Australia and New Zealand - could be compromised. The Americans are said to be especially worried, but that may be related to the politics of trade, as opposed to intelligence per se.

China’s Belt and Road infrastructure strategy has also received plenty of coverage and plenty of comment, but another area where the Chinese are determined to live up to their ambition to be the global powerhouse of the 21st Century is in innovation and R&D.

China’s commitment to fuel growth in new sectors such as Technology, AI, Robotics and Clean Energy, is wrapped up in its ambitious ‘Made in China 2025’ (MIC 2025) Industrial Strategy. Launched in 2015, the aim is to generate innovation-driven development and turn China into a manufacturing superpower in ten years.

Among its various goals, the MIC 2025 aims to raise the domestic content of core components and materials in ten key sectors to 40 percent by 2020 and 70 percent by 2025.

MIC 2025 targets include:

  • Supply 70% of the domestic robotics market
  • High tech ship design and manufacturing to supply 50% of international markets
  • 40% of railways business to be overseas
  • Three domestic companies to rank in the top five global energy saving vehicles companies
  • Supply 80% of space information applications
  • Innovative development and production to reach international standards for biopharma and medtech
  • 95% self-sufficient in new materials
  • Mobile communications equipment to supply most of domestic and nearly half of international  markets
  • Renewable energy equipment to account for 80 per cent of market 
  • Become the world’s biggest agricultural equipment maker.

The end goal of the MIC 2025 being near self-sufficiency for domestic companies would then enable Chinese companies to compete for a greater foothold in global markets. MIC2025 is backed by hundreds of billions of dollars of state banks and other pools of government capital.

Currently China spends 2.18% of GDP on innovation, but it looks set to miss its target 2.5% by the end of this year. Actual funding rose just over 12% last year, making China the second biggest spender on innovation after the US, but the Chinese figure of 2.1% is just half that of South Korea’s, and significantly below Japan’s 3.5%, Germany’s 2.9% and the United States’ 2.8%. Neither China nor the UK are currently in the world’s top 15 for R&D spend.

China’s MIC 2025 is undoubtedly ambitious, but looks increasingly unattainable, not least because it is starting from such a low base. In 2017, high-tech manufacturing accounted for just under 13% of total industry value. Over 50% of China’s technology standards for eO starPurketof eal ipmen etry or eO ev class="add-this"> <13% 2pgovernment captry value. Over yWjepgoverneetryral ehnoloinaas technology standasrPur <13% lf--|iGC2pgoverneetryur <13% lf-e yLlerneetryur 0tentsld in globSkmpgovl i="107" alt="Gdustry insightsa-logo-no-strap3| lf-e yLlerneetryur 0tentsld in globSsdbmions eapan’s 3.5%, epp/imst of dptes theaytpigh undoubtedly ambitious p/i5v?ata-product-list="o build parts of the Cscal 3vecpvs build parts equipment mak73vsag4-for-web.jpg?itok=3'438yCes,3vecpvsmel-o//drupa

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