China’s 2025 plan – a trading partner?

A Chinese government initiative : ‘Made in China 2025’.

It is a strategy expected to have a significant impact internationally as well as within China.  The current thinking highlights the key sectors in which this strategy will be implemented. If this goes ahead, it is reasonable to assume that this will turn out to be a more general initiative, deepening modernisation and encouraging fresh innovation throughout the economy.

Barriers

Serious barriers to implementing the strategy include the Chinese attitudes to innovation, and the prevailing social norms which do emphasize respect for how things are done today. Innovation is not always seen as a good thing more generally in society which makes it difficult to introduce within the work context.

The people matter

The key questions are always to do with the facts and figures – Do they have experienced technicians and engineers in large enough numbers? Certainly there are many in education.  If the numbers exist, are they likely to adopt free-ranging brainstorming, idea- swopping experimental practices within firms?  How well do they embrace new tasks and challenges?

China is not unaware of these concerns. If anything that makes them more acquisitive worldwide.

Why Chinese M&A in Europe has seen a sharp increase

It used to be all about copying technology.  However, of late the motives, targets, locations and sectors in which the Chinese are acquiring European companies are increasingly diverse. Because of the heavy asset building bias of the China 2025 plans, strategic asset seeking acquisitions aiming to strengthen their own global competencies remains the core objective – because of course that strengthen their own capacity building targets.

China needs competencies in technologies which the European Union is calling “key

enabling technologies”:

−micro and nano-electronics,

−nanotechnology,

−industrial biotechnology,

−advanced materials,

−photonics,

−advanced manufacturing technologies

As we leave the EU we should take note of these, and see where we can provide our expertise and negotiate joint ventures.  We believe that the window of opportunity for influencing technological standardization in China remains open. Our UK industry associations and larger companies should be aiming to expand their activities and capacities in influencing how these develop.

Looking at the detail

Two of their 2025 goals caught our interest: the plans actively encourage companies to develop branded products (with brand positioning a new feature) with proprietary IP rights. This they hope to learn how to do through their investment partners and companies they acquire – the thinking behind branding is peculiarly absent from traditional Chinese thinking, though of course there are superb brands in position within the country. The second strand is to draw up and implement action plans to enhance the quality of industrial products – no longer talking about copying: a real statement of an independent and broadly indigenous road.

We watch that with interest.

The Health Sector in China – possible opportunities

The Healthy China Initiative is a likely target sector for collaboration and useful input for UK interests and areas of expertise. In China, the laws Laws, regulations and standards still need to be developed, and existing regulatory frameworks and capabilities are ill-suited to an industry which covers five broad fields:

  1. Medical treatment
  2. Pharmaceuticals
  3. Health supplements
  4. Health management services
  5. Geriatric care

All these sectors are experiencing a fast pace and strong momentum of development.  Allegations of exaggerated claims of medicinal efficacy, imitation, and counterfeiting are rife within the health supplements and pharmaceutical sectors. These need to be addressed, and UK standards, expertise and support on enforcement can only help.

The geo-political project – the ‘Belt and Road initiative’ – dividing the EU

Is there a bigger geo-political project alongside these internal ambitions? Yes, with increasing evidence that the two are intertwined.

An ambition to pour money into this long standing project from the more recently joined EU members in 2017 has an intellectual expression – an international Forum. The Belt and Road Initiative (BRI) is a strand of Chinese foreign policy as is seen by the establishment of a Think Tank in collaboration with the Central and Eastern European countries in Budapest in April 2017 – with the major bidders for the BRI.

Their political goals remain uppermost – China has moved on from buying African ports and building Saudi railways, taking advantage of its economic strength and European weakness to buy up Europe. Its European acquisitions include infrastructure such as ports and railways, symbolic car companies like Volvo and MG, and high tech firms. Germany notices with increasing concern – Berlin, in fact is uneasy.

China is buying debt in the outer edges of the EU and winning government contracts but European companies can’t bid for Chinese contracts. Unfair – but consistent.

If you look at the pattern of what they are doing, it remains consistent with their central policy for accelerating the pace of change in China, through acquisitions abroad and capacity building at home.

One child policy relaxation

Does the relaxing of the one child policy (of thirty year’s standing) in 2015 mean that China is now more concerned about its ageing population? Yes.  It would seem that increasing the ‘allowance’ to two children is seen by some as a start to increasing personal freedom, but can you imagine that any EU state was restricting a couple’s ability to have children in this way ?

There is some way to go, says Amnesty International.

In all of it there remains the iron hand of the state. This is unfashionable to say, but true nevertheless. Increasingly gloved, but still very much the moving force. Their timeframes are different – while we think in terms of the next 2-3 years, China contemplates the next decade.

No change there either, then.

Britain and China

This is our prospective biggest trading partner, when we leave the EU.

China does continue to see the UK as a political partner and an important ally towards getting market economy status.

Last month Philip Hammond attended the One Bridge-One Road summit – while this country’s press is talking about Brexit and the difficulties we encounter in Brussels, Asia, where our future might well lie, is talking about investment, trade and infrastructure financing. We seemed as a country to be fielding an experienced team – KPMG, Linklaters and of course Standard Chartered and HSBC (banks with traditionally strong Far East and trading exposure) attended the summit with our chancellor. Here is some positive feedback.

We hear from time to time how our former clients are participating in looking East. Changes start in the strategic timeframes we consider when we are sitting down to imagine our futures. More and more, we have to take a longer view.

Let us know how you are preparing.