June 25, 2018
As published on Forbes.com
The U.S. and China are in a so-called ‘trade war’ at the center of which is “Made in China 2025” (MIC 2025), Beijing’s official innovation plan. It aims to strengthen the Middle Kingdom position as the global leader in manufacturing and make it the world’s greenest economy.
As a Canadian cleantech investor, I fear this trade conflict might hinder global progress towards cleaner, more intelligent manufacturing. It may also present a massive opportunity for countries willing to compete through innovation, not protectionism.
We need to reexamine MIC 2025 to understand China’s predicament, what it means for other economies and how it affects the global transition to clean energy.
Innovation Moves Eastward
Not long ago, many observers thought that breakthrough industrial technology would be developed in the West and then applied in Asian markets. The reality today is that more industrial technology is starting to come out of Asia.
China, reports Stansberry Churchouse Research, accounts for a 31% share of the world’s industrial robot manufacturing and aims to reach 50% by 2020. The country represents 20% of global R&D spending, second only to the U.S. at 26%.
Today, Chinese firms acquire market-leading robotics companies like Germany’s Kuka then leapfrog their accomplishments. Some 7,000 robotics firms are now established in China.
Revisiting MIC 2025
The opening section of MIC 2025 asserts that “Building internationally competitive manufacturing is the only way China can enhance its strength, protect state security and become a world power.” Why does China feel that it’s not “internationally competitive” yet?
Despite being the world’s manufacturer for more than a decade, China is self-conscious because it dominated the market with low labor costs. The Wall Street Journal reports that Chinese wages have climbed from as low as 60 cents per hour in 2002 to $14.60 per hour in coastal cities.
Moreover, China’s one-child policy has resulted in a shortage of cheap labor. Young, educated Chinese have no desire to perform the brutal industrial work that lifted their parents out of poverty.
Thus, China is vulnerable both to countries with lower wages and those that excel in industrial robotics. As MIC 2025 puts it, “Manufacturing in China is facing severe challenges from this ‘two way squeeze’ between developed and developing countries.” China’s plan to escape the squeeze is to maintain manufacturing dominance through excellence in artificial intelligence (AI), robotics, automation and sustainable technology.
No going it alone
One cornerstone of MIC 2025 is a “high efficiency green manufacturing system.” It is ambitious but necessary alongside intelligent manufacturing because China’s air pollution crisis kills millions annually. By a longshot, China is the world’s largest carbon emitter at 9040 million metric tons per year to the U.S.’s 4997, representing 28% of fuel combustion globally.
Yet China has by far the most renewable energy capacity worldwide – 289 GW of installed wind and solar capacity to the U.S.’s 121 GW. But, as Maxx Chatsko reports in the Motley Fool, China’s renewable systems are inefficient. Despite having 139% more installed capacity than the U.S., China produced just 38% more electricity in 2017. The quality of Chinese equipment, site selections and transmission distances may explain the gap.
Thus, when MIC 2025 insists upon “…a thousand green demonstration factories and a hundred green demonstration industrial parks” by 2020, should we not take it with a grain of salt? These parks are supposed to “…realize near zero emissions,” which seems unlikely given the inefficiency of Chinese cleantech. However, this may change quickly as China overcomes teething problems and sees the quality of its manufacturing output rapidly improve.
Yet, even so perhaps China can’t advance green manufacturing fast enough without outside help. As such MIC 2025 may be more of an opportunity for foreign innovators than a threat.
Better ways to compete
Let’s review what we now know about MIC 2025 concerning energy:
The U.S. response is not one other countries should emulate. If anything, advanced economies should be trying to lead in cleantech and trade with China, not sit idly as China wins the future with cheaper, cleaner and better products than currently available. It’s time to invest more in industrial innovation and less in consumer apps dedicated to capturing attention. The battle for global dominance in leading industries that will be the lifeblood of future economies is in full swing – and going it alone will almost certainly end up with the short end of the stick.
I therefore close with words from President Ronald Reagan, whose sage advice in a speech almost 50 years ago can help every national leader today unsure of how to deal with the trade war: “Our peaceful trading partners are not our enemies. We should beware of the demagogues who are willing to declare a trade war against our friends, weakening our economy, our national security, and the entire free world, all while cynically waving the American flag.”