Made in China 2025 and Industrial Policies: Issues for Congress, CRS, Dec. 12, 2024.
The People’s Republic of China (PRC or China) aims to
gain a global economic and technology leadership position
through a range of state-led industrial and related science
and technology (S&T) policies. These policies feature a
heavy government role in directing and funding PRC firms
to acquire foreign technology and related capabilities—
including basic and applied research and talent—in areas
where the United States has long been a global leader and
has strong comparative advantages. Some Members of
Congress have expressed concern that China’s policies, if
successful, could undermine U.S. technological leadership,
further shift advanced technology, production, and research
to China, and support a wide range of China’s technological
advancements, including in defense. The scope and scale of
China’s efforts are evident in the amount of state direction
and support devoted to these efforts; PRC policies to lead
across the entire value chain (rather than just segments of it)
in key advanced and emerging technologies; and the tactics
China uses to target and acquire U.S. and allied capabilities.
Overview
In November 2022, at its 20th Party Congress, the
Communist Party of China (CPC) reiterated its focus on
technological innovation as the core driver of China’s
development, a focus it first set in its Medium- and Long-
Term Plan for Science in Technology (MLP) (2006-2020)
and reaffirmed in its MLP for 2021-2025. These MLPs call
for advancing China’s technological and scientific self-
reliance and advocate for assertive PRC corporate efforts to
acquire foreign technology and knowhow.
To implement the 2006-2025 MLP, in 2015, China’s State
Council issued Made in China 2025 (MIC2025)—a broad
set of industry plans to boost PRC competitiveness by
advancing China’s position in the global manufacturing
value chain, “leapfrogging” into emerging technologies
where there are not yet defined global industry leaders and
standards, and reducing reliance on foreign firms. PRC
plans rely on foreign technology and research to develop
PRC capabilities and talent. MIC2025 stresses “indigenous”
innovation, a process that often involves the acquisition,
absorption, and adaptation of foreign technology by PRC
entities, which may later recast these capabilities as their
own. This “indigenous” strategy obscures the extent of PRC
state ownership and control of PRC firms, and the role PRC
firms may play in advancing PRC development goals.
MIC2025 calls for technological breakthroughs in 10
sectors (Figure 1) and support for a range of sector-specific
plans. These plans aim to make China the leader in all parts
of the global value chain, and to increase the share of inputs
and finished goods produced in China and worldwide by
PRC firms. (Figure 2.) For semiconductors, for example,
this includes leadership in the full supply chain (e.g.,
design, operating systems, production, packaging, testing,
equipment, and materials) by PRC firms. MIC2025 is
focused on advanced manufacturing and on transforming
China’s economy from one that assembles goods to one that
invents the products it makes. Specific goals include the
following:
By 2025. Boost manufacturing quality, innovation, and
labor productivity; obtain an advanced level of technology
integration; reduce energy and resource consumption; and
develop globally competitive firms and industrial centers.
By 2035. Reach a level of development that is on par with
global industry at “an intermediate level,” improve
innovation, make major technology breakthroughs, lead
innovation in specific industries, and set global standards.
By 2049. Lead global manufacturing and innovation with a
competitive position in advanced technology and industrial
systems. (This date coincides with the 100th anniversary of
the founding of the PRC.)
China’s current economic development plan, the 14th Five-
Year Plan (FYP) for 2021-2025, promotes MIC2025 goals
by seeking to strengthen PRC-controlled supply chains in
order to bolster MIC2025 priority industries. The FYP also
calls for expanding the use of antitrust, intellectual
property, and technical standards tools to set market terms
and promote the export of MIC2025 priority goods and
services. The FYP also directs the expansion of foreign
research ties for the development of PRC capabilities in
MIC2025 areas. Deliberations on the 15th FYP are slated to
start in 2025.
Market Effects
China has emerged as a global leader in some emerging
manufacturing (e.g., solar panels, electric vehicles, drones)
and heavy industry (e.g., shipbuilding and high-speed rail)
sectors. Progress in developing capabilities in other sectors
(e.g., aerospace, agricultural equipment, and robotics) has
been slower. China has made gains in semiconductors, in
part through foreign ties (acquisitions, partnerships, and
technology licensing), but still depends on foreign tools and
equipment, research, and advanced chip production. As
PRC firms take a leading position in China in sectors such
as electric vehicles (EVs) and information technology,
some foreign firms are struggling to compete in China. As
MIC2025 products come to market, PRC firms are looking
to exports for growth and are facing increased scrutiny,
restrictions, and competition as foreign governments move
to promote domestic industry, restrict PRC firms, and
counter MIC2025 policies (see below). Other foreign ties
remain open to China (e.g., open-source hardware and
software technology, overseas investment, and research).
U.S. Concerns and Policy Response
MIC2025 has been a U.S. policy focus because of the PRC
tactics it has incentivized, such as technology transfer,
licensing and JV requirements, IP theft, and state-funded
acquisitions of foreign firms in strategic sectors. U.S. and
foreign industry groups have expressed concerns that MIC
2025 policies distort competition in strategic industries,
create overcapacity, and systematically drive foreign
technology transfer to China. Some say that its tight market
controls enable the PRC government to pressure foreign
firms to adhere to its demands. The scope and scale of PRC
state-led efforts are unprecedented as to the amount of state
funding involved; stated ambitions to lead in all parts of
global supply chains; and targeting of foreign capabilities.
The U.S. government has sought to counter MIC2025 and
related practices that it assessed unfairly advantaged China,
distorted trade, and strengthened PRC technology and
military capabilities. In 2018, for example, the Trump
Administration invoked Section 301 of the Trade Act of
1974 and imposed tariffs on most imports from China, after
finding that China’s policies harmed U.S. stakeholders. In a
January 2020 bilateral agreement, China agreed to some IP
and technology transfer commitments; other U.S. concerns
were unresolved. The U.S. government has not reported on
enforcement of these commitments. The Biden Administra-
tion continued most of these tariffs and raised tariffs on
some PRC goods (e.g., EVs, EV batteries, semiconductors,
medical products, cranes, solar cells, and aluminum and
steel items). The U.S. government also ramped up IP
enforcement and scrutiny of China’s role in federally
funded research. New rules seek to ban PRC-connected
vehicle technology from U.S. markets and restrict advanced
semiconductor technology exports to China.
China’s Industrial Policy Approaches
Tax, trade, and investment measures. China uses tax
preferences to incentivize foreign firms to invest in production
and research and development (R&D). It uses standards, IP,
competition, and procurement policies, and other terms to
facilitate the transfer of foreign know-how to PRC entities and
use PRC suppliers for key components.
Forced joint ventures (JVs) & partnerships. China’s formal
regulations and informal practices require a foreign firm to
partner with a PRC entity to operate in China and drive foreign
firms into JVs. In many sectors (e.g., aerospace), China leverages
its role as a major purchaser to press for JVs and technology
transfer in order to develop indigenous capabilities. In most cases,
the foreign firm’s partner is a state firm or the PRC government.
Government subsidies. PRC government guidance funds
(GGFs) channel state funding to PRC firms for domestic R&D and
overseas acquisitions. Almost 1,800 GGFs tied to MIC2025
sought to raise $1.5 trillion and by 2020 had secured $627 billion
toward this target. GGFs often take a stake or board seat in firms
they fund, and can influence corporate decisionmaking.
Foreign acquisitions. GGFs target and fund acquisitions of
foreign firms and use foreign firms’ expertise, IP, talent pools, and
business networks to build China’s capabilities.
Technology licensing & equipment. Foreign technology and
equipment fill key gaps in China’s current capabilities. PRC firms
are members of U.S.-led open-source technology platforms (e.g.,
RISC-V, the Open Compute Project, and the ORAN Alliance).
Since 2014, U.S. semiconductor equipment exports to China have
increased nearly five-fold as China seeks to make its own chips.
Talent recruitment and training. China encourages the
return of PRC expatriates and the hiring of foreign talent. Many
PRC and PRC-tied technology firms (e.g., Alibaba, Baidu, Tencent,
and TikTok) have U.S. R&D centers that partner with U.S.
universities. Many PRC nationals participate in U.S. federally
funded research in areas that overlap with MIC2025 technologies.
Issues for Congress
Some Members have sought to restrict trade, investment,
trade, technology, and research ties with China; shift supply
chains out of China; and prohibit PRC firms in federal
procurement and infrastructure. Congress has enacted
legislation to strengthen foreign investment review (P.L.
116-801) and export controls (P.L. 115-232); support U.S.
capabilities in semiconductors (P.L. 117-167), EVs, and
renewables (P.L. 117-169); and penalize China for IP theft
(P.L. 117-336). Congress may deliberate:
• The efficacy of U.S. policies (in design and in practice)
in countering China’s industrial policies;
• Whether a growing state role in PRC companies calls
for treating PRC firms differently;
• How U.S.-PRC trade, investment, technology, and
research ties affect U.S. competitiveness and U.S.
capacity and options to counter PRC policies.
Karen M. Sutter, Specialist in Asian Trade and Finance
https://crsreports.congress.gov/product/pdf/IF/IF10964