hen Washington announced plans to raise tariffs on a list of Chinese imports worth US$50 billion in early April, the US trade representative office specifically said the items are identified as those that “benefit from Chinese industrial policies, including Made in China 2025.” The rhetoric led to wide speculation that by launching a trade war, the Trump administration’s ultimate target is not just addressing its trade deficit with China, but also curbing China’s efforts to upgrade its manufacturing sector.
Under the Made in China 2025 initiative, which was launched in 2015, China identified 10 sectors that it will support to develop an advanced manufacturing sector – these are information technology, high-end machinery and robotics, aerospace, marine equipment and ships, advanced rail transport, new-energy vehicles, electric power, agricultural machinery, new materials and biomedical. It is no coincidence that these sectors overlap with the list of Chinese products that will be subject to higher tariffs.
As trade tensions between the US and other countries simmer, China should be aware that this could be the new normal in the foreseeable future. In response, China should avoid getting trapped in the quagmire of a trade war. Rather than resorting to protectionism, China should further open up its market, which will not only help to ease the concerns other countries have, but will also help to better integrate China’s manufacturing sector into the global supply chain.
This appears to be the strategy of the central leadership. During the China Development Forum (CDF) held on March 26, Chinese Premier Li Keqiang stressed that China welcomes the participation of foreign companies in the Made in China 2025 initiative. On the same day, Miao Wei, Minister of Industry and Information Technology, said during the CDF that China will further open up its massive manufacturing sector to foreign investors and the favorable policies that apply to the ambitious Made in China 2025 initiative will also apply to foreign companies operating in China.
Then during the Boao Forum for Asia held on April 10, Chinese President Xi Jinping promised that China will significantly lower import tariffs on vehicles, ease restrictions on foreign investment in the automobile and financial services sectors, and will impose stronger protections for intellectual property. On April 17, China’s State planner, the National Development and Reform Commission, announced it would remove foreign ownership caps for companies that produce fully electric and plug-in hybrid vehicles in 2018, for makers of commercial vehicles in 2020, and the wider car market by 2022.
At the same time as it further opens its market to foreign companies, China should also continue to provide a better business environment for domestic firms. On March 30, the State Council, China’s cabinet, released a guideline to encourage high-tech companies to list on China’s stock market. Observers believe the move will prompt many companies that conducted their IPOs in other countries, including in the US, to return to China.
China should not allow its Made in China 2025 initiative to suffer over the prospect of a trade war. After 40 years of reform and opening-up, China’s manufacturing industry is integrated into the global supply chain. Many “Made in China” products, especially high-tech ones, such as smartphones, are actually produced elsewhere. China should continue to open its market to foreign companies, and nurture a healthy and fair business environment for both foreign and domestic companies. This is the only way that China will become a leader in free trade, as well as ensuring the sustainability of the Chinese economy.