This piece was written by Godfrey Yeung, an Associate Professor of Economic Geography at the National University of Singapore.
“Made in China 2025” has appeared in the public media frequently during the last few months, partly due to ongoing trade disputes between the US and China. What is it and should anyone outside China concern it?
“Made in China 2025” is a ten-year action plan implemented by the Chinese government back in 2015. It aims to upgrade the prioritized Chinese industrial sectors by improving its manufacturing efficiency and fostering Chinese brands by 2025. The Chinese central government committed US$3.1 billion to support various initiatives in ten high-tech manufacturing sectors. The ultimate aim is to compete with the world’s manufacturing powerhouses by 2035 and to be at the forefront of world manufacturing by 2049.
The new energy vehicle (NEV, but largely battery electric vehicle BEV in reality) sector is one of ten high-tech manufacturing sectors identified by the Chinese central government as ones to become a dominant global player. Specifically, the government targets are:
- Sales of one million domestic NEVs (70% of market share) by 2020 and three million by 2025 (80% of market share).
- Domestic automakers are in the top 10 models by 2020 and the top 10 NEV-makers by 2025.
- Domestic suppliers account for 80% of the domestic market for electric vehicle batteries and electric motors by 2020.
These are extremely ambitious targets for even the earlier movers in BEVs, such as Norway and the US. In China, the sales of NEVs were a tiny 50,000 in 2014!
Perhaps what rattle the incumbent automobile giants is that China has somehow managed to achieve (or on track to achieve) some of the above ambitious targets within 3-4 years. Most importantly, foreign automakers have to fulfil the ‘credit score’ requirement demanded by the Chinese government in two-year time. Instead of local-content requirements in the 1980s, foreign automakers have to ensure NEVs to reach a set of pre-determined production quota to earn enough credits in order to stay in the Chinese market: the largest automobile market in the world. This lead to fanatic actions among automobile giants, from forming new joint ventures with Chinese automakers to launch new BEVs models in China (see my recent paper for further details and discussion).
Chinese government relaxed the long-standing restrictions on equity requirements and reduced the import tariff on imported vehicles and parts from 25 to 15 percent in April 2018. (One can argued that this is a response to the ongoing trade disputes with the US.) Importantly, the Chinese government phrased out the 50 percent equity ceiling for Sino-foreign joint ventures and allowed foreign automakers to establish wholly-owned subsidiaries making plug-in hybrid and BEVs in 2018, commercial vehicles in 2020, and other passenger vehicles by 2022. The signing of an MOU between Tesla and Shanghai government to establish a wholly-owned plant creates a buzz among some analysts.
I don’t think the relaxation of equity control on Sino-foreign joint ventures will have significant impacts on automobile giants. This is especially the case for the existing arrangements between foreign and Chinese automakers. First, all Sino-foreign joint ventures have signed long-term contracts. Second, it is very costly (and time consuming) to build a new assembly plant and reach the scale production. Third, all automobile giants are volume automakers and they need to access the distribution channels and after-sales services provided by their Chinese partners.
Chinese automakers does have the capacities to scale up their production within a relatively short period of time. Nonetheless, the long-term competitiveness of BEVs is determined by the advancement and adoption of technologies in the whole supply chains, from the electric motors, electric vehicle batteries, battery management system to power distribution module (or even autonomous driving), etc. Although there are a few Chinese firms may have a higher chance to catch up with the automobile giants in the BEV sector, one also has to separate hypes from the reality. Chinese firms are not taking over the world, at least not yet.
Godfrey Yeung is an Associate Professor of Economic Geography in the Department of Geography and a Standing Committee member at the GPN@NUS (http://gpn.nus.edu.sg/), National University of Singapore. His research outputs are published in a number of business, economics and geography journals: Journal of World Business, Journal of Economic Studies, Managerial and Decision Economics, Cambridge Journal of Economics, Regional Studies, Economic Geography, Journal of Economic Geography, Journal of Contemporary China, etc.
E-mail: geoykyg@nus.edu.sg
Web: http://profile.nus.edu.sg/fass/geoykyg/
Further reference:
Yeung, Godfrey. (forthcoming) “Made in China 2025”: The Development of a New Energy Vehicle Industry in China. Area Development and Policy, doi: https://doi.org/10.1080/23792949.2018.1505433