Made in China 2025: The core of China’s industrial upgrading strategy

The ‘Made in China 2025’ strategy is driving industrial upgrading by:

  • Phasing out old-economy sectors: subsidies, tax rebates, and cheap loans have been steadily phased out for low-value added, labor-intensive sectors and factories are being forcibly closed and/or relocated overseas.
  • Supporting new industries: dedicated funds have been set up to provide financing for start-ups, policy banks are supplying financing for new industrial sectors, and local governments are offering tax breaks, grants, and other subsidies to companies operating in industries earmarked by China’s Made in China 2025 strategy.

Raising productivity is key

Raising productivity lies at the heart of this strategy. Despite China’s undisputed success in dominating the global manufacturing sector, productivity, or total output per worker, still lags behind other nations, according to The Conference Board, the US-based research organization1.
Since China’s labor pool is shrinking as demographic trends play out, companies are facing the challenge of doing more but with fewer workers, and that means they have to invest in technology.

Since China’s labor pool is shrinking as demographic trends play out, companies are facing the challenge of doing more but with fewer workers, and that means they have to invest in technology.

Output per employed person (USD), 2017

Source: The Conference Board: International Labor Comparisons, December 2017

China: Global AI leader by 2030

While the Made in China 2025 includes many different initiatives, none encapsulate China’s ambitions better in the industrial upgrading process than the government’s plan for artificial intelligence.

China plans to build a domestic artificial intelligence industry worth USD 150 billion by 2030, and is supporting this goal by offering funding for AI-related companies, special grants for start-up companies in the field and increased support for AIrelated academic research.

China already leading in robotics

The most obvious, or well-known application of AI to manufacturing is in the form of developing robotic production systems, and with China’s push to apply AI to manufacturing, Chinese manufacturers are responding by automating their manufacturing processes and replacing humans with robots.

Indeed, the increase in installed robotic machinery in China has been dramatic. In 2016, China overtook the US and Japan, the previous leaders in installed robotics systems, with an estimated 340,000 industrial robots installed across the country, and that has grown significantly from the 17,000 installed robotics units estimated by the International Federation of Robotics in 2006, implying a CAGR of 90%2.

As well as installing the largest base of robotics systems in the world, Chinese companies are rapidly acquiring the knowhow to create robots of their own. For example, Midea, a Chinese electricals manufacturer, spent USD 4.7 billion in acquiring the German robot specialist Kuka, which has been regarded as one of the world’s leading robotics manufacturers.

And China is expected to dominate the global robotics industry by 2020, supplying 40% of all robots produced globally, according to IFR projections.

Installed robotics systems: China, Japan & United States compared, 2015-2020 (f)

Source: International Federation of Robotics (IFR): How robots conquer industry worldwide, September 27th 2017