Although it is unclear if the United States and China will be able to meet a 90-day deadline and strike a deal on trade by March 2, the tussle is clearly adding to uncertainty about the future fate of the Chinese government’s strategic plan named “Made in China 2025.”
The plan itself is much like other countries’ goals to move up the industrial value chain. According to Beijing’s plan, China aims to make the country a world leader in 10 key sectors such as robotics, information technology, and artificial intelligence by 2025.
However, what has raised concerns is how China is going about reaching that goal.
Foreign companies and governments have voiced growing concern about the plan and the Chinese policy and practice of forcing companies to hand over technology in exchange for access to the country’s massive economy.
At the same time, analysts believe Beijing has done little to stop Chinese companies from stealing technology through their operations overseas.
Dilute or delay?
Pushback from abroad has already impacted the implementation of Made in China 2025, said Anna Holzman, a junior research associate with the Berlin-based Mercator Institute of China Studies (MERICS).
“The tough stance followed by actions taken by the United States has notably increased the sense of urgency amongst Chinese policymakers to speed-up the development of domestic capabilities,” she said.
Aside from the trade deficit, forced technology transfers are a key reason why President Donald Trump launched the trade war. It is also the main component of ongoing negotiations between the world’s two biggest economies.
During last week’s talks, China said the two sides made progress on addressing the issue of technology transfers as well as other structural problems.
But the trade dispute, rising investment restrictions on its companies in western countries, and declines in its own industrial economy have some arguing that Beijing may be forced to either dilute or delay the plan.
Over the past few months, officials have stopped mentioning the plan. Beijing recently ordered Chinese companies not to force foreign firms based in China to surrender their technologies. And for the first time in years, the Made in China 2025 plan did not figure in the list of development priorities outlined by the central government for 2019.
Great leap forward
The move by officials to downplay and stop mentioning the plan and other recent measures to open up China's economy are positive signals, said Scott Kennedy, deputy director of the Freeman Chair in China Studies at the Center for Strategic & International Studies in Washington.
“But they are going to need to be backed up by a much more broad, clear, transparent, change in policies that everyone can see, that are across the board, if you really want to convince the United States and others that China is taking a great leap forward in economic liberalization,” he said.
But while Washington waits for China to change its tune, it is unlikely to shift its increasingly tough stance on technology that has already impacted major Chinese tech firms such as Huawei and ZTE. A growing number of countries have taken steps to ban Huawei from participating in the build of fifth-generation networks or 5G.
“Technology issues will continue to be there. President [Donald] Trump has a very confrontational position against Huawei as well as ZTE. So this will continue,” Lourdes Casanova, director at Cornell’s Emerging Markets Institute, said while referring to two major Chinese technology companies.
Last week, Poland arrested a Huawei employee on spying charges. Polish authorities say there is no connection between the arrest and the company, but at the same time, they have taken steps to urge the EU and NATO to jointly ban Huawei products.
The arrest of the Huawei employee in Poland follows the detention of the company’s chief financial officer Meng Wanzhou in Canada.
Chinese investments slump
Chinese companies often pour money into investments in the U.S. to acquire new technologies and learn new ways of doing business. But now, stepped up scrutiny of investments imposed by Washington and the deterioration of U.S.-China trade relations has led to a sharp decline.
Last year, according to data compiled by the research firm Rhodium Group, Chinese investments in the U.S. hit a seven-year low of $4.8 billion, a steep drop of 84 percent from $29 billion in 2017.
And 2019 is likely to be equally dismal.
“Washington is moving to implement tougher screening of venture capital and other high-tech acquisitions; and the dark cloud over U.S.-China relations is unlikely to disappear, although a major deal between China and the U.S. could help revitalize investor appetite in sectors with low national security sensitivities,” said New York-based Rhodium Group.
Digging in
However, some analysts believe that Western restrictions and criticisms has made the 2025 program a lot more important for China than in the past. Instead it has pushed Beijing to step up its pursuit of technological leadership and self-sufficiency.
China is merely reducing the propaganda around the 2025 program and talking less about it, said Xiaoyu Pu, author of a recent book, “Rebranding China: Contested Status Signaling in the Changing Global Order.”
“Regardless of any re-branding exercises and concessions made by the Chinese government to appease Western minds, efficient policy implementation in industries and technologies listed under the Made in China 2025 scheme remains a top priority,” Holzman at Merics said.
