The continued importance of China’s economy to global growth seems as certain a trend as can be in this year of uncertainty.
The ‘Golden Decade’ of UK-China relations declared in 2015 is still going strong as the two economies have become far more complementary than in the past, leading to potential for bilateral trade and investment in almost all sectors. British manufacturers would benefit from paying special attention to the Made in China 2025 strategy and the micro level opportunities that have begun to flow from this macro policy.
Made in China 2025 (MiC) is a State Council national strategy that aims to move China from a volume manufacturer to first class manufacturing power. The idea behind the strategy is to influence global supply chains and drive global innovation, raising the standards of manufacturing across the world.
Although this is a centrally driven project aimed at improving China’s manufacturing capabilities, there are many concrete opportunities for British SMEs that will come out of MiC.
1) More export opportunities. There will be increased demand from China for high-technology solutions, most of which aren’t currently domestically available. So these products will need to be imported from abroad, which will benefit high-end British exporters.
2) Technical management and consultancy services. In trying to upgrade their capabilities, Chinese manufactures will need foreign expertise to improve productivity, quality, efficiency, project management, optimisation etc.
3) Joint R&D. There are and will continue to be many opportunities for UK companies to jointly develop IP with Chinese partners. This R&D activity can lead to strong working partnerships with Chinese companies and cooperation in bidding for major projects in China and globally.
4) Tech transfer. UK companies with technology that is in demand in China will find many cash rich Chinese companies willing to purchase their IP. There are also numerous examples of such companies winning significant investment from China.
10 key sectors
MiC focusses on 10 key sectors, in which China aims to compete globally and foster innovation:
• Advanced marine equipment
• Advanced rail equipment
• Agricultural machinery and technology
• Aviation and aerospace
• Biopharmaceuticals and high-end medical equipment
• Integrated circuits and new generation IT
•New energy and autonomous vehicles
• New materials
• Power equipment and technology
Industry 4.0 Made in China?
Cynics may look at MiC and think that is simply a Chinese rip-off of Germany’s Industry 4.0 plan and indeed, MiC is certainly to some extent inspired by its German forbearer. Both plans focus on better use of technology and inclusion of SMEs in value chain.
However, rather than copying Germany, the purpose of MiC is to answer specific issues relevant to China, such as China’s declining competitive advantages in manufacturing and overcapacity in some sectors.
Risks and Challenges
Opportunity is, of course, always accompanied by risk and that is, unsurprisingly, the case for UK companies looking to take advantage of the micro opportunities opened up by a large scale macro project as MiC.
IP infringement. As previously mentioned, China’s drive for technological progress will increase demand for foreign IP. This increased demand brings an increased risk of infringement, so companies should seek legal advice and register relevant IP in China before engaging in the market.
Picking the right partners. Due to top level government support for MiC, many Chinese companies will look to take advantage of short term gains that favourable policies produce, but not all of these companies will have a long-term strategy. It is important for British companies to conduct proper due diligence and carefully pick partners whose long-term vision matches their own.
Future competition. As MiC’s principal aim is to upgrade China’s own manufacturing sector, this will lead to many fast-growing Chinese players becoming internationally competitive. British companies need to pay close attention to avoid their current customers becoming future competitors.
Although MiC is a China-focussed policy and any opportunities for foreign companies that come out of it will be ancillary, the opportunities are real nevertheless. Short term gains will be relatively easy to come by, but forming a long term strategy and establishing strong partnerships with local companies will be the key to success.