In early March 2024, the Chinese government held its annual economic summit alongside its annual week-long session of Parliament. The Chinese government declared it is aiming for GDP growth of 5%.

This goal is set against a property sector crisis, record youth unemployment of 21.3% and a slowdown in global demand for Chinese goods. The slowdown is due in part to a global slowdown in consumer demand, but also to increasing reluctance by international companies to embed value chains in China due to rising tensions over Taiwan, China’s support for Russia in Ukraine, and tariff and trade tensions with the United States.

It is also set against a fall in foreign investment in China, which has fallen from 190 billion dollars in 2022 to just 33 billion dollars in 2023, a fall of 80%.

China’s main plan to spur growth, increase living standards throughout the country and reignite foreign investment is through industrial modernisation and nationwide adoption of industry 4.0 technologies and methods.

Technologies designed for society-wide change

China’s industrial strategy is not limited to manufacturing or industrial infrastructure. The modernisation of Chinese manufacturing through the creation of cloud driven IoT infrastructure is aimed also at creating technology and infrastructure for modernising healthcare, transportation, energy, logistics, education and defence. Methods, technologies and ecosystems that are being developed for manufacturing are designed ultimately to be replicated into the Chinese education, transportation and health care systems, among other sectors.

The cornerstone of China’s industrial policy is its Made in China 2025 strategy.

Drawing heavily on Germany’s industry 4.0, Made in China 2025 aims at the creation of cloud driven IoT and industrial automation systems tailored to specific target industrial sectors. These include electric cars, IT and telecoms, robotics, agricultural technology, aerospace, synthetic materials, biomedicine, rail infrastructure and high-tech ship building and maritime engineering.

Top of the pile in terms of priority is semiconductor engineering and production, which the Chinese government has designated as its most important strategic industry. The Government’s aim is to achieve 70% self-sufficiency in high-tech industrial design and production, including semiconductors.

As part of the CCP’s wider strategy, the cloud and IoT ecosystem infrastructures developed for individual industrial sectors will be extended to healthcare, transportation, energy, logistics and education.

In order to achieve these goals, the Chinese government has developed a number of policies to support the creation of a world leading industrial infrastructure. These include: explicit targets; direct subsidies; foreign acquisitions and investments; forced transfer agreements; and mobilising state backed companies.

In order to drive forward the programme, the government is setting explicit sectoral and implicit company growth targets, using both public statements and back channel communications.

The government is backing up its target setting with direct subsidies to companies to help them modernise. These are believed to run into hundreds of billions of dollars.

State backed and private companies are also acquiring companies overseas in order to gain access to technology as well as port and logistics facilities, and key foreign components of industrial value chains. In the United States, acquisitions have targeted technology companies, while in Europe there has been a focus on logistics, port and transportation hubs.

The government has also used forced transfer agreements. Companies wanting to do business in China are required to form joint ventures with Chinese companies. These joint ventures require both intellectual property and technology sharing. In March 2024, the Chinese government announced it was extending state secrets laws to include “work secrets”. It is unclear exactly what this means, but appears to include anything relating to industrial and economic development, science and technology, as well as the more conventional areas of military and state secrets. The new law comes into effect on May 1, 2024.

Three Major Goals

China’s industrial strategy has three major goals, each of which is underpinned by a wider strategic imperative.

The first goal is to modernise Chinese manufacturing and industrial infrastructure not only in the coastal zone, but throughout the country’s vast interior, as well as the country’s north Eastern rust belt, which the CCP wants to transform from 1950s style heavy industry to modern electronics and auto production.

This primary goal also aims not only at modernisation of infrastructure, but the creation of multiple industrial ecosystems across the breadth of the country.

100 Industrial IoT Platforms

The Chinese industrial strategy has overseen the creation of around 100 separate industrial IoT platforms. This is enabling the development of continent scale industrial ecosystems defined by sector and process.

Another key goal of industrial modernisation is to drive up and maintain industrial quality. This has been a primary goal of Chinese state industrial policy for well over our decade, and has been successful in the coastal zone. However, Chinese industrial policy aims for that success to spread from the main five industrialised provinces (Guangdong, Jiangsu, Shanghai, Shandong and Zhejiang) to all of China’s 34 provinces.

Industrial Up-Skilling

A second strategic goal is – through modernisation of infrastructure, logistics and transportation as well as an up-skilling of regional workforces – to attract foreign investment and encourage the growth of offshoring manufacturing and industrial development in interior and northern provinces beyond the established south eastern five.

This goal is most evident at present in the province of Liaoning and surrounding region.

Exporting IoT and Industrial Know-How

A third goal of development and adoption of industry 4.0 technologies and methods is the scope to export these technologies abroad in order to widen China’s manufacturing base beyond the Chinese mainland into new global regions, such as the Indian Ocean and Latin America.

China’s industrial internet policy has a strong emphasis on quality improvement and control. This contrasts with the German vision, which emphasises increasing quality production at volume. China has historically been able to manufacture at unrivalled scale, but is challenged regionally, especially by Japan, Taiwan and Korea in quality manufacturing. This challenge, perceived in the early 2000s, has formed a central core of Chinese industrial and social strategy.

Driving up quality is especially important for China reaching its goals of self-sufficiency in semiconductor production.

There has also been a strong emphasis on industrial 5G. China has now initiated over 1,500 “5G plus Industrial Internet” projects. The advantage of “5G plus Industrial Internet” in a Chinese setting is the speed that industrial automation and internet technologies can be rolled out across very large regions in the country’s interior, as well as supporting rapid modernisation of industrial supply chains.

Measuring Success

Can the Made in China policy be deemed a success? It achieved some early success, but looks likely to miss its goals of high tech self-sufficiency.

The programme’s methods have created international suspicion and have accelerated a commercial and business withdrawal from China by international companies. Although heralded when launched, China’s leaders have stopped talking about it at international meetings due to the suspicion that the policy has given rise to. But in China, the programme is still very much alive and part of the Chinese Government’s larger goal of strategic autonomy.

It is too early to tell if the policy will succeed or not. Early successes have been offset by later challenges and problems. China’s goal with Made in China 2025 is long-term, much longer term than the target date of the programme, which is really just a call for action. The success of the programme is not dependent on progress by 2025, but progress by 2035.

A key measure of whether China does succeed with the strategy will be if it can expand high quality manufacturing and foreign investment beyond the south eastern coastal zone and spread it successfully throughout the interior of China. If it can do that, then the standard of living for China’s population as a whole, and their quality of life, should rise significantly — which is the strategic goal of the government.

Another key measure of success for the initiative is if China can successfully transfer technology, infrastructure and approaches developed through the programme into other areas such as health, education, smart cities and transportation. This has been a stated aim of the programme from the outset, and whether China can achieve this, rather than depend on separate development, will be a measure of the programme’s success.