China Defends Plan to Bolster Its High-Tech Industries

Source: By KEITH BRADSHER, New York Times • Posted: Tuesday, March 21, 2017

Miao Wei, China’s minister of industry and information technology, at the China Development Forum on Sunday. “In some areas, we emphasize local content,” he said. “That is forced on us.” Shu Zhang/Reuters 

BEIJING — A senior Chinese official on Sunday defended his country’s push for greater self-sufficiency in computer chipselectric cars and other industries, calling it a necessary strategy in the face of Western countries’ controls of certain high-tech gear.

As the country tries to move away from low-end manufacturing, Beijing’s plan, Made in China 2025, is designed to juice economic development in emerging industries by providing $300 billion in low-cost loans, research funds and other government aid. But big companies in the rest of the world worry that the program gives an unfair advantage to homegrown players, with the stated goal of Chinese companies’ owning as much as 80 percent of specific domestic markets in eight years.

China’s minister of industry and information technology, Miao Wei, said the new policy was not meant to wall off the country’s companies from outside competition. Yet he also conceded, without offering specifics, that the plan might need changes.

“We never thought about closing ourselves and doing it only at home, but I think we need some adjustments,” he said on the second day of the China Development Forum, a three-day gathering of senior Chinese economic policy makers with corporate leaders and top economists from around the world.

And while China may want more local suppliers in some sectors, Mr. Miao said, in most industries “we still open up and welcome foreign companies to China.”

The Chinese program plays into the increasing sensitivities over global trade.

While President Xi Jinping of China has trumpeted the merits of globalization, his country has also been criticized for protectionist policies that favor Chinese companies. Adding to the frictions, President Trump has espoused an America First strategy, specifically calling out China on trade and currency.

Workers using microscopes to assemble tiny motors for phones at a factory in central China. The stated goal of a new plan is for Chinese companies to own as much as 80 percent of specific domestic markets in eight years. Wan Sc/European Pressphoto Agency 

Western companies fear that the Made in China policy could be used to justify government demands to hand over their latest technology as the price of staying in the Chinese market. They also worry that government-backed investment funds and other resources could be used to acquire many Western companies with key technologies while subsidizing their Chinese rivals.

One of the most contentious parts of the plan is how the country wants to meet Chinese demand with Chinese products. The two main approaches — requiring that a large part of a product’s value be created in China or setting a specific market share for domestic players — are strictly prohibited by the World Trade Organization.

Such rules also have market-moving consequences.

Chinese regulators made a rule in 2005 requiring that wind turbines sold in China be made up largely of local components. The requirement prompted many of the world’s big wind turbine manufacturers to move factories to China and transfer their latest technology to domestic suppliers.

Although Beijing removed the policy four years later after protests by the United States, the competitive damage was done, with Chinese companies gaining significant scale and expertise. China has dominated production of the world’s wind turbines ever since, with 42 percent of the market last year, according to the Global Wind Energy Council.

Mr. Miao, the Chinese official, said the local content requirement in the latest plan was important, given Western nations’ own restrictions. Many governments do not allow certain high-tech products, with both military and civilian uses, to be sold to China and other countries, he noted.

“In some areas, we emphasize local content,” Mr. Miao said at the forum on Sunday. “That is forced on us — some equipment is restricted for export in developed countries, but China has the demand.”

But Jörg Wuttke, the president of the European Union Chamber of Commerce in China, dismissed Mr. Miao’s justification. While many countries, including China, do have such export rules, he noted that they affected a tiny share of high-tech goods.

“With 30 billion euros in E.U. exports of high tech to mainland China, plus another 6 billion euros’ worth to Hong Kong, it is difficult to claim that we apply any export restriction,” Mr. Wuttke said.