Made in China 2025 and China’s Industrial Policies
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Updated December 12, 2024
Made in China 2025 and Industrial Policies: Issues for Congress
The People’Made in China 2025 and China's Industrial Policies
state-led industrial and related science and technology (S&T) policies. Theseplans. Such plans inform PRC economic, industrial, S&T, and foreign trade and investment policies. They also guide PRC government and corporate strategies and activities at the national, local, and global levels. The industries, projects, and technologies featured in the plans reflect co-developed PRC civilian and military priorities that are to receive preferential financial and policy support. PRC plans and related policies feature a heavy government role in directing and funding PRC firms to acquire foreign technology and related capabilities— including basic and applied research and talent—in areas where in areas in which China has gaps and the United States has long been a global leader and has strong comparative advantages. Some Members of Congress have expressed concern that China’sPRC policies, if successful, could undermine U.S. technological leadership,; further shift advanced technology, production, and research to China,; and support a wide range of China’s technological China's advancements, including in defense. The scope and scale of China’sPRC efforts are evident in the amount of state direction and support devoted to these efforts; PRC policies to lead across the entire value chain (rather than just segments of it) in key advanced and emerging technologies; and the tactics China uses to target and acquire U.S. and allied capabilities.
Overview In November 2022, at its 20th Party Congress, the Communist Party of China (CPC) reiterated its focus on technological innovation as the core driver of China’s development, a focus it first set in its Medium- and Long- in all parts of global supply chains; and the targeting of foreign capabilities.
MIC2025
In 2015, China's State Council issued Made in China 2025 (MIC2025)—a broad set of industry plans designed to implement key goals set out in China's Medium- and Long-Term Plan for Science in Technology (MLP) (2006-2020) and reaffirmed in its MLP for 2021-2025. These MLPs call for advancing China’s technological and scientific self- reliance and advocate for assertive PRC corporate efforts to acquire foreign technology and knowhow.
To implement the 2006-2025 MLP, in 2015, China’s State Council issued Made in China 2025 (MIC2025)—a broad set of industry plansChina's Innovation-Driven Development Strategy, issued in 2016, and the subsequent MLP for 2021-2035. A technology roadmap set targets for 2025-2030.
At its core, MIC2025 seeks to boost PRC competitiveness by advancing China’'s position in the global manufacturing value chain, “leapfrogging”"leapfrogging" into emerging technologies where there are not yet defined global industry leaders and standardsleaders, boosting advanced manufacturing, and reducing reliance on foreign firms. PRC plans rely on foreign technology and research to develop PRC capabilities and talent. MIC2025 stresses “indigenous” in core technologies and strategic industries. The plan stresses "indigenous" innovation, a process that often involvescan involve the acquisition, absorption, and adaptation of foreign technology by PRC entitiesfirms, which may later recast these capabilities as their own. This “indigenous” strategy obscures the extent of PRC state ownership and control of PRC firms, and the role PRC firms may play in advancing PRC development goals.
MIC2025goals, and the role that foreign ties play in developing PRC capabilities.
MIC2025 calls for technological breakthroughs in 10 sectors (Figure 1) and support forsupports a range of sector-specific plans. These plans aim to make China thea leader in all parts of the global value chain,chains and to increase the share of inputs and finished goods produced in China and worldwide by PRC firms. (Figure 2.) For semiconductors, for example, this includes leadership in the full supply chain (e.g., design, operating systems, production, packaging, testing, equipment, and materials) by PRC firms. MIC2025 is focused on advanced manufacturing and on transforming
China’s economy from one that assembles goods to one that invents the products it makes. Specific goals include the following: MIC2025 set targets for PRC firms to meet a defined share of domestic demand between 2025 and 2030: agricultural machinery and basic materials (90+%); advanced ships, electric vehicles (EVs), batteries, medical device components, mobile devices, and high-performance computers (80%); and industrial robots and advanced medical devices (70%). Broad goals include the following:
By 2025. Boost manufacturing quality, innovation, and labor productivity; obtain anreach advanced levellevels of technology integration; reduce energy and resource consumption; and develop globally competitive firms and industrial centers.
By 2035. Reach a level of development that is on par with global industry at “"an intermediate level,”"; improve innovation,; make major technology breakthroughs,; lead innovation in specific industries,; and set global standards.
By 2049. Lead global manufacturing and innovation with a competitive position in advanced technology and industrial systems. (This date coincides with the 100th anniversary of the founding of the PRC.)
Figure 1. China’s China's Industrial Priorities (2015-2025)
Source: Notice of the State Council on Issuing “"Made in China 2025,”," May 8, 2015, Guofa [2015] No. 28.
China’s current economic development plan, the 14th Five- Year Plan (FYP) for 2021-2025, promotes MIC2025 goals by seeking to strengthen PRC-controlled supply chains in order to bolster MIC2025 priority industries. The FYP also calls for expanding the use of antitrust, intellectual property, and technical standards tools to set market terms and promote the export of MIC2025 priority goods and services. The FYP also directs the expansion of foreign research ties for the development of PRC capabilities in MIC2025 areas. Deliberations on the 15th FYP are slated to start in 2025.
Made in China 2025 and Industrial Policies: Issues for Congress
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Figure 2. Select Made in China 2025 Domestic Content Goals
MIC2025 is part of a continuum of PRC plans and policies that seek to advance core S&T and industrial objectives. For example, China's 15th Five-Year Plan for National Economic and Social Development (FYP) (2025-2030) and the Outline of Long-Term Goals to 2035 deepens PRC efforts in MIC2025 sectors in which China still has capability gaps (e.g., advanced equipment, tools, and machinery; aerospace; biotechnology; robotics; and semiconductors). See CRS In Focus IF13204, China's 15th Five-Year Plan: S&T and Economic Priorities. PRC firms have met some MIC2025 goals by acquiring foreign firms in sectors such as biotechnology, robotics, and semiconductors, and through trade, foreign investment in China, technology licensing, and ties to foreign research and talent. Some foreign firms have separated their China operations from global headquarters and moved certain R&D and advanced production to China to qualify for MIC2025 preferences. In aerospace, Boeing and Airbus suppliers have partnered with and transferred technology to PRC state firms to develop a PRC single-aisle aircraft (C-919). PRC procurement rules in pharmaceuticals and medical devices have set fixed prices, which has increased cost pressures and encouraged foreign firms in these sectors to produce in China. Since 2014, U.S. SME exports to China have increased nearly fourfold as China seeks to make its own chips. PRC firms in MIC2025 sectors have benefited from government support and the ability to build to scale and optimize industrial processes in a large protected market. As PRC products have become viable, the PRC has imposed more market restrictions, constraining foreign firms. PRC industrial policies have also fostered overcapacity and reliance on exports in sectors such as EVs. MIC2025 has been a U.S. policy focus because of the PRC tactics it has incentivized, such as technology transfer, licensing and joint venture (JV) requirements, intellectual property (IP) theft, and state-funded acquisitions of foreign firms in strategic sectors. U.S. and foreign industry groups have expressed concerns that MIC2025 policies distort competition, create overcapacity, and systematically drive foreign technology transfer to China. Some say that the PRC government's tight market controls enable it to pressure foreign firms to adhere to its demands. Source: U.S.-China Business Council, Navigating the ‘Made in China 2025’ Roadmap and China’s Market Share Goals, February 2016. Note: Dates for domestic content goals range from 2020 to 2030. Market Effects China has emerged as a global leader in some emerging manufacturing (e.g., solar panels, electric vehicles, drones) and heavy industry (e.g., shipbuilding and high-speed rail) sectors. Progress in developing capabilities in other sectors (e.g., aerospace, agricultural equipment, and robotics) has been slower. China has made gains in semiconductors, in part through foreign ties (acquisitions, partnerships, and technology licensing), but still depends on foreign tools and equipment, research, and advanced chip production. As PRC firms take a leading position in China in sectors such as electric vehicles (EVs) and information technology, some foreign firms are struggling to compete in China. As MIC2025 products come to market, PRC firms are looking to exports for growth and are facing increased scrutiny, restrictions, and competition as foreign governments move to promote domestic industry, restrict PRC firms, and counter MIC2025 policies (see below). Other foreign ties remain open to China (e.g., open-source hardware and software technology, overseas investment, and research). U.S. Concerns and Policy Response MIC2025 has been a U.S. policy focus because of the PRC tactics it has incentivized, such as technology transfer, licensing and JV requirements, IP theft, and state-funded acquisitions of foreign firms in strategic sectors. U.S. and foreign industry groups have expressed concerns that MIC 2025 policies distort competition in strategic industries, create overcapacity, and systematically drive foreign technology transfer to China. Some say that its tight market controls enable the PRC government to pressure foreign firms to adhere to its demands. The scope and scale of PRC state-led efforts are unprecedented as to the amount of state funding involved; stated ambitions to lead in all parts of global supply chains; and targeting of foreign capabilities.
MIC2025 Advancements and Gaps
China has emerged as a global manufacturing leader with about a 29% share of global manufacturing output as of 2023. (U.S. output is about 16%; U.S. and European Union combined output is about 33%.) China now leads globally in key emerging technologies—such as solar panels, EVs, communications equipment, and drones—and in heavy industries such as rail, advanced marine equipment, and shipbuilding. China has mostly localized production of agricultural, communication, power generation, electrical transmission, and rail equipment. Progress in other sectors has been slower (e.g., aerospace) or mixed (e.g., medical devices and semiconductors). China has moved up the value chain in many sectors but still relies on high-end foreign equipment, products, and inputs even as it works to reduce such reliance. In autos, China lags in combustion engines and automotive systems/electronics. While China has built a mature-node chip market, it lags in producing advanced logic chips. Other areas in which China relies on foreign firms and targets their capabilities include aerospace and jet engines, advanced machinery and CNC machine tools, medical devices, new materials, semiconductor manufacturing equipment (SME) and tools, scientific instruments/tools, and industrial software.
U.S. Concerns and Policy Response
, for example, the Trump Administration invoked Section 301 of the Trade Act of 1974 (19 U.S.C. §2411) and imposed tariffs on most imports from China, after finding that China’s policies harmed U.S. stakeholders. In a January 2020 bilateral agreement, China agreed to some IP and technology transfer commitments; other U.S. concerns were unresolved. The U.S. government has not reported on enforcement of these commitments. The Biden Administra- tion continued most of these tariffs and raised tariffs on some PRC goods (e.g., EVs, EV batteries, semiconductors,
medical products, cranes, solar cells, and aluminum and steel items). The U.S. government also ramped up IP enforcement and scrutiny of China’s role in federally funded research. New rules seek to ban PRC-connected vehicle technology from U.S. markets and restrict advanced semiconductor technology exports to China.
China’s Industrial Policy Approaches
China's Industrial Policy Approaches
Tax, trade, and investment measures. China uses tax preferences to incentivize foreign firms to invest in production and research and development (R&D). ItR&D. China introduces market access restrictions as domestic products become viable. China uses standards, IP, competition, and procurement policies, and other terms to facilitate the transfer of foreign production and know-how to China and to require the use of PRC suppliers.
Forced JVs and partnerships. China'know-how to PRC entities and use PRC suppliers for key components. Forced joint ventures (JVs) & partnerships. China’s formal regulations and informal practices require a foreign firm to partner with a PRC entity to operate in China and drive foreign firms into JVs. In many sectors (e.g., aerospace), China leverages its role as a major purchaser to press for JVs and technology transfer in order to develop indigenous capabilities. In most cases, the foreign firm’'s partner is a state firm or the PRC government.
Government subsidies. PRC government guidance funds (GGFs) channel state funding to PRC firms for domestic R&D and overseas acquisitions. Almost 1,800 GGFs tied to MIC2025 sought to raise $1.5 trillion and by 2020 had secured $627 billion toward this target. GGFs often take a stake or board seat in firms they fund, and can influence corporate decision-making.
Foreign acquisitions. GGFs target and fund acquisitions of foreign firms and use foreign firms’' expertise, IP, talent pools, and business networks to build China’'s capabilities.
Technology licensing &and equipment. Foreign technology and equipment fill key gaps in China’'s current capabilities. PRC firms are members of U.S.-led open-source technology platforms (e.g., RISC-V, the Open Compute Project, and the ORAN Alliance). Since 2014, U.S. semiconductor equipment exports to China have increased nearly five-fold as China seeks to make its own chips.
Talent recruitment and training. China encourages the return of PRC expatriates and the hiring of foreign talent. Many PRC and PRC-tied technology firms (e.g., Alibaba, Baidu, Tencent, and TikTok) have U.S. R&D centers that partner with U.S. universitiesthe O-RAN Alliance).
Talent recruitment and training. China encourages the return of PRC expatriates and the hiring of foreign talent. Many PRC technology firms have U.S. R&D centers. Many PRC nationals participate in U.S. federally funded research in areas that overlap with MIC2025 technologies.
Issues for Congress
Some Members have sought to restrict trade, investment, trade, technology, and research ties with China; shift supply chains out of China; and prohibit PRC firms in federal procurement and infrastructure. Congress has enacted legislation to strengthen foreign investment review (P.L. 116-801) and export controls (P.L. 115-232); restrict certain outbound investment (Title LXXXV of P.L. 119-60P.L. 115-232); support U.S. capabilities in semiconductors (P.L. 117-167), EVs, and renewables (P.L. 117-169); and penalize China for IP theft (P.L. 117-336). Congress may deliberate: • Thethe efficacy of U.S. policies (in design and in practice)
in countering China’'s industrial policies;
• Whether
whether a growing state role in PRC companies calls
for treating PRC firms differently;
• How
how U.S.-PRC trade, investment, technology, and
research ties affect U.S. competitiveness and U.S. capacity and options to counter PRC policies.
Karen M. Sutter, Specialist in Asian Trade and Finance
IF10964
Made in China 2025 and Industrial Policies: Issues for Congress
https://crsreports.congress.gov | IF10964 · VERSION 11 · UPDATED
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