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The Impacts of "Made in China 2025" on Taiwan's Industrial Development 

No.: PR2096

Author: Wen, Fang-I

Price: Not for Sale

Publication: 2019.05


Abstract:

"Made in China 2025" is an important guideline for China's medium and long term development of the industry. The purpose of “Made in China 2025” is to bring mainland China into a manufacturing powerful nation in 2025, and even establish China as a leading global manufacturing power by 2049. The "Made in China 2025" document has been published for nearly four years, and its strategy has received much attention. 

The purpose of this study is to conduct research on the impact and future direction of “Made in China 2025”. This study analyzes the policy connotation of "Made in China 2025" and the development strategies of “ten key sectors”. It also discusses recent investment restrictions as well as the trade instruments to figure out the influences of international measurements on “Made in China 2025”. Finally, the study analyzes the possible impact of “Made in China 2025” on global and cross-strait supply chains and proposes policy recommendations for the government. "Made in China 2025" has set up nine strategic tasks and five major projects for the development of China's industry. 

It also identifies “ten key sectors”, including (1)next-generation information technology, (2) high-end numerical control machinery and robotics, (3) aerospace and aviation equipment, (4) maritime engineering equipment and high-tech maritime vessel manufacturing, (5) advanced rail transportation equipment, (6) energy-saving and new energy vehicles, (7) electrical equipment, (8) agricultural machinery and equipment, (9) new materials, and (10) biopharmaceuticals and high-performance medical devices. 

By implementing “Made in China 2025”, China seeks to increase the market share of domestic and global markets for certain industries. It also promotes the development of 10 key sectors through financial support, talent development, intellectual property acquisition, and the establishment of standards systems. Most of the criticism of "Made in China 2025" focused on the government’s control role in industrial policy planning, including government-backed investment funds, promotion through national enterprises or sovereign funds, and private enterprises with official backgrounds. These national interferences lead to unfair market competition and national security concerns to other countries. To respond to “Made in China 2025”, the United States has passed Foreign Investment Risk Review Modernization Act (FIRRMA) in 2018 to prevent state-backed purchases of U.S. technology companies from China. FIRRMA Act provides the Committee on Foreign Investment in the United States (CFIUS) a longer review period to review mergers and acquisitions cases. It allows CFIUS to give stricter review treatment for certain countries as well. In terms of trade sanctions, the United States of America began the section 301 investigation and imposed tariffs on certain Chinese goods (especially tech goods) sold in the US. The United States also adopted export restrictions on ZTE and JHICC while the Department of Commerce’s Industrial Security Bureau in United States had 44 Chinese entities enrolled in “Exportation Administration Regulations” in August 2018. 

In terms of procurement restrictions, the United States "2019 fiscal year national defense authorization bill" prohibits United States government from purchasing, leasing or using telecommunications or video surveillance from Huawei, ZTE or other companies related to the mainland China government. The response of EU to “Made in China 2025” mainly focuses on the reform of investment screening. The council of the EU approved a new framework to screen foreign direct investments in March 2019. The framework establishes a more transparent review mechanism for foreign investment in the EU, and provides a clear definition of terms such as “public safety”, “national interest” and “key techniques”. Some EU countries also reform their investment review mechanisms according to their own investment management needs. 

With regard to the influences of “Made in China 2025” on the global and cross-strait industrial chain, this study focuses on semiconductor industry, industrial robots, and the medical and pharmaceutical industries. In semiconductor industry, China-based fabless chipmakers grew very fast. Overseas mergers and acquisitions have gradually increased China’s role in global supply chain in the past few years. However, China has not yet made a breakthrough in leading advanced logic technologies. In the near future, Mainland China will focus on 5G, artificial intelligence (AI), automotive electronics, core wafer in cloud computing. The catching up with semiconductor industry in China has not been significantly affected Taiwan semiconductor industry. However, the increase in China’s fab capacity might cause over-capacity of chip manufacturing in China and may gradually manifest on the expected importation substitution. As for the industrial robots, Mainland China’s technologies still fall behind international enterprises, but several leading companies have been established in different fields. 

As for the development of medical materials and medical industries, China has production advantages for low-end products. However, the key technique of the mid-to-high end products still relies on international companies. The investment restrictions and the trade policy instruments will slow down the speed of "Made in China 2025" because it would be much more difficult for the Chinese company to acquire advanced technologies from foreign countries. It is noticed that China has been trying to play down "Made in China 2025" after the China-US trade war started. But at the same time it continues to promote the key industries of “Made in China 2025” through local governments’ industrial policies. And, most importantly, China will try to dominate and internationalize industrial technology by taking a new strategy: “China Standard 2035.” 

This study concluded the research results and proposed policy recommendations as follows: (1) To respond to China’s implementation of “Made in China 2025” and the industry competition from China, our government should assist the industry to develop core technology to maintain advantage. (2) The overseas merger and acquisition involves acquiring technologies and associated patents. Taiwan government should pay more attention to the international intellectual property management (especially the countries associated with the New Southbound Policy) in order to gain the market opportunities. (3) Knowledge and talent are the key factors in industrial development. Government should emphasize the cultivation of talents. (4) Under circumstances of the ongoing US-China trade war, Taiwan government has to re-adjust the overseas marketing strategy in order to increasing the export competiveness. (5) The ongoing trade war between the US and China push more Taiwanese companies back to Taiwan. Taiwan government should establish a mechanism to guide the resource allocation and use it efficiently. (6) The government should seek the “public-private-partnership” to develop the emerging industries.