China’s struggling to be a ‘great manufacturing power’

It could take 30 years for the country to catch up with the United States, Germany and Japan

China will need to break through the technology barrier if it is to become a “great manufacturing power.”

But closing the high-tech gap and edging ahead of major rivals, such as the United States, Germany and Japan, could take at least 30 years.

Miao Wei, who was Minister of Industry and Information Technology for a decade before stepping down in 2020, last week outlined the challenges ahead.

As polluting smoke-stack factories are being mothballed, manufacturing output as a share of the world’s second-largest economy has declined. 

“Basic capabilities are still weak, core technologies are in the hands of others, and the risk of ‘being hit in the throat’ and having ‘a slipped bike chain’ has significantly increased,” Miao said as reported by the Reuters news agency.

The facts:

  • Last year, manufacturing accounted for roughly a quarter of gross domestic product, the lowest since 2012.
  • Sanctions rolled out by Washington in the past two years have denied American technology to China.
  • The country is also suffering a shortage of semiconductors or chips, the building blocks of high-tech manufacturing.
  • Research and development spending will increase by more than 7% during the next five years.
  • Basic research will jump by 10.6% in 2021.
  • Research and development companies will get preferential lending rates and massive tax breaks of up to 75%.

What was said: “China’s manufacturing industry has made great [strides] in recent years, but the situation of being ‘big but not strong’ and ‘comprehensive but not good’ has not been fundamentally changed,” Miao said in a speech to delegates in Beijing’s Great Hall of the People as part of the Two Sessions.

Why Miao’s view is important: He has been at the forefront of China’s technology policy when it comes to manufacturing. But as the nation has moved from low-cost industries to high-tech sectors, the problems have only increased. Friction between the US and other western and Asian democracies has underlined the country’s reliance on foreign technology.

Key problems: “The ratio of manufacturing output to GDP has been declining too early and too quickly. [This] not only weighs on economic growth and affects employment, but also brings security loopholes to our industries. [In turn, this will] diminish our economy’s ability to withstand risks,” Miao said.

Challenges ahead: “We must maintain our strategic resolve, stay clear-headed, and deeply understand the gaps and deficiencies,” he added.

China Factor comment: Hardly a day’s goes by without President Xi Jinping and members of his inner circle talking about the “risks” of relying on foreign technology and the need to boost innovation. But a key drag on this approach is the overreliance on massive state-run companies and their fusion with parts of the private sector. Still, in the next five-year plan, China aims to establish a world-class domestic chip sector, and boost spending on AI or artificial intelligence, quantum computing, neuroscience, aerospace and robotics.