China's New Era: Explained

October 5, 2018

The first in a four-part series, Fulcrum looks at some of the key ways the China of the past is quickly being thrown out the window. 

 

Forget what you think you know about China. The country is undergoing a reinvention. This touches on everything from domestic operations to global public perception. During last year's 19th Communist Party Congress, President Xi Jinping proclaimed this reinvention as a New Era for China.

 

“This is a new historic juncture in China’s development. The Chinese nation…has stood up, grown rich, and become strong – and it now embraces the brilliant prospects of rejuvenation…It will be an era that sees China moving closer to center stage and making greater contributions to mankind.”

 

While given plenty of airtime on the mainland, outside observers would be forgiven if Xi’s proclamation went unnoticed. Since Li Keqiang’s 2014 announcement waging war on pollution, China has had a string of significant moments on the world stage. Many will remember Xi’s 2017 Davos speech or the crackdowns on factories violating environmental law. Others are fixated on the Belt and Road Initiative or Tencent’s recent valuation. The flurry of media coming out of China recently makes it very difficult to prioritize the signal from the noise. Be assured, Xi’s New Era is the most important announcement to date.

 

In reality, though, this New Era is simply the culmination of work undertaken by China for a number of years. Much of this centers on an image shift from the world’s factory to more of its premier service provider. The Made in China 2025 Plan, moves towards industrial optimization, and a self-proclaimed robot revolution have all set the groundwork for China’s New Era.

 

 

Made in China 2025

 

 

The foundation of China’s New Era is the Made in China 2025 Plan. Announced in 2016, the Plan aims to advance Chinese industry from manufacturing to service. Innovation, quality, and technological investment will drive this in the short term, while growth of domestic competitiveness will sustain the initiative over time.

 

Made in China 2025 calls for comprehensive upgrades to industry efficiencies so China can occupy the highest parts of global production chains. The initiative seeks higher levels of domestic production for export, raising the domestic content of core components to 40 percent by 2020 and 70 percent by 2025 according to State Council documents. There are also a number of focal areas in the Plan. Although the goal is to upgrade all Chinese industries, the initiative prioritizes 10 sectors, including advanced information technology, automated machine tools and robotics, high-tech shipping, modern rail transport, and new-energy vehicles and equipment. Businesses in these industries can expect to see a boost to their operations, but also a rise in domestic competitiveness.

 

 

Industrial Optimization

 

 

China recently began experimenting with what it is calling “supply-side structural reform” to inject life into the economy and move toward domestic independence. Reforms include measures to cut excess capacity, shutter inefficient companies, and reward high-performing firms. While the government has left room for interpretation, Chris Buckley of the New York Times wrote that, like Reaganomics, Xi’s changes “include lowering taxes and reducing the government burden on investors.” These reforms will help Chinese companies make products that can compete with imported goods. Smaller entrepreneurs see the reforms as a way to upgrade operations, turning roadside restaurants into competitors to KFC and McDonalds.

 

 

A Robot Revolution

 

 

To spur domestic productivity, President Xi has called for a transformative “robot revolution.” The country’s most recent Five-Year Plan includes initiatives to free up billions of renminbi for technology upgrades and industrial robotics. Officials also want to see a dramatic increase in the country’s robot-to-worker ratio. While still comparatively low at 54 robots per 10,000 workers, by 2020, Beijing wants to see this number jump to 100 robots per 10,000 workers. The provinces are following Beijing’s lead. The southern province of Guangdong, China’s chief manufacturing center, announced a US$150 billion investment over three years to subsidize the sale of industrial robotics at 2,000 of the province’s largest manufacturers. The aim? Automate 80 percent of the province’s factories by 2020. China also hopes to inspire domestic robot production dominance. The government wants to reach sales of 100,000 Chinese-made robots by 2020. This is a 49 per cent increase over sales in 2015.

 

Gudrun Litzenberger, general secretary of the International Federation of Robotics, said the pace of China’s growth is “unique in the history of robots.”

It’s clear China’s New Era is the product of a series of well-measured initiatives taken with a long-term strategic perspective. More recently, shifting sectoral and funding priorities, as well as stronger regulatory enforcement, are fast-tracking China’s development. We’ll explore these in more detail as part of this series. Much of these measures are still evolving as we speak, but the trajectory is exponential rather than linear. Perhaps this is why Xi made his declaration now. With the rate of change happening, this New Era may well be underway before we know it. In the final installment of this series, we’ll discuss ways business can prepare today for the China of tomorrow.

 

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