Page 30 - 2019 White Paper on the Business Environment in China
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9 White Paper on the Business Environment in China
productivity economy. Made in China 2025 accelerates huge profits from producing and selling goods in the
preexisting efforts by devoting more resources and massive Chinese market, then the country should be
intensifying centralized policy planning to coordinate able to harness that investment to aid its own national
across government, private companies, and academia. development. The US relied on similar state intervention
The plan includes setting explicit targets, direct subsidies, and protectionist policies during its own processes of
foreign investment, acquisitions, and forced transfer economic development. President Trump has explicitly
agreements. Chinese companies, both private and state- stated the US tariffs are designed to impede the Made
backed, have been encouraged to invest in foreign in China 2025 program because China’s continued
companies to gain access to advanced technology. Much economic development would bring the country
of this investment comes from SOEs, or companies or increasingly into direct competition with the US, but this
funds backed by the Chinese government. strategy is unlikely to be effective and risks undermining
rather than boosting US manufacturing. Most of the
Policymakers and security officials in the US and other Made in China 2025 advanced industries are still in
developed countries increasingly see China’s efforts to development and not yet exporting to the US. Currently,
become a dominant player in advanced technology the US imports only limited high-tech products from
as a national security problem. The Pentagon warned China, for the most part inputs used to manufacture
in 2017 that state-led Chinese investment in US firms high-tech goods in the US. The bottom line, according to
working on facial-recognition software, 3-D printing, Kristen Hopwell, senior lecturer in international political
virtual reality systems, and autonomous vehicles is a economy at the University of Edinburgh and author of
threat because such products have blurred the lines Breaking the WTO: How Emerging Powers Disrupted the
between civilian and military technologies. In April 2018, Neoliberal Project, is that tariffs on “high-tech” imports
US intelligence agencies claimed Chinese recruitment from China will only harm the US industries by increasing
of foreign scientists, its theft of US intellectual property, the cost of inputs and making its own products less
and its targeted acquisitions of US firms constituted competitive compared to its rivals. And if China slaps
an “unprecedented threat” to the US industrial base. retaliatory tariffs on US goods, US manufacturers face
Basically, policymakers worry that China’s state-led the double-whammy of increased costs alongside
model and its ambition to control entire supply chains reduced access to the Chinese market, the largest market
means that entire industries could come under control for many US exports. Moreover, Trump’s tariffs are unlikely
of a rival geopolitical power. A June 2018 White House to significantly disrupt China’s industrial development via
report warned that China’s economic moves threaten the Made in China 2025 program. Hopwell’s research on
“not only the US economy but also the global innovation international trade negotiations has shown that the US no
system as a whole”. Economic critics say that China longer has the leverage to dictate trade terms to China.
is distorting global markets by prioritizing political Trump’s strategy overestimates China’s dependence on
considerations over economic incentives. Its subsidies, the US market, which accounts for just 18 percent of
they say, skew markets and lead to overproduction and China’s exports. More than 80 percent of China’s exports
the dumping of cheap products in the global market. go elsewhere. China’s own domestic market will provide
Meanwhile, companies based in the US, Europe, and the primary catalyst for its industrial upgrading. Even if
elsewhere complain of an asymmetry in which China is Trump cut off access to the US market entirely, it would
free to invest in foreign countries, but foreign companies not stop the development of China’s advanced industries.
selling to and operating in China are highly constrained In short, Trump’s tariffs are unlikely to achieve their stated
by investment requirements and other regulations goals, but a trade war between the two countries could
(McBride, Is Made). rapidly spiral out of control and cause immense damage
to the global economy (Hopewell).
President Trump argues that Made in China 2025
unfairly disadvantages US companies, but these policies New Foreign Investment Law
aren’t unique to China. Such national policies are
standard for developing nations. Japan, South Korea, Foreign businesses are skeptical that China’s new
Taiwan, Hong Kong and Singapore all used similar legislation banning forced technology transfer will
policies to foster economic growth and raise incomes. reduce confrontation with the US, saying the new
The principle today is also straightforward, from Beijing’s laws may not change current practices. The draft
perspective: If foreign multinationals are going to reap foreign investment law was released late in 2018 as
30
productivity economy. Made in China 2025 accelerates huge profits from producing and selling goods in the
preexisting efforts by devoting more resources and massive Chinese market, then the country should be
intensifying centralized policy planning to coordinate able to harness that investment to aid its own national
across government, private companies, and academia. development. The US relied on similar state intervention
The plan includes setting explicit targets, direct subsidies, and protectionist policies during its own processes of
foreign investment, acquisitions, and forced transfer economic development. President Trump has explicitly
agreements. Chinese companies, both private and state- stated the US tariffs are designed to impede the Made
backed, have been encouraged to invest in foreign in China 2025 program because China’s continued
companies to gain access to advanced technology. Much economic development would bring the country
of this investment comes from SOEs, or companies or increasingly into direct competition with the US, but this
funds backed by the Chinese government. strategy is unlikely to be effective and risks undermining
rather than boosting US manufacturing. Most of the
Policymakers and security officials in the US and other Made in China 2025 advanced industries are still in
developed countries increasingly see China’s efforts to development and not yet exporting to the US. Currently,
become a dominant player in advanced technology the US imports only limited high-tech products from
as a national security problem. The Pentagon warned China, for the most part inputs used to manufacture
in 2017 that state-led Chinese investment in US firms high-tech goods in the US. The bottom line, according to
working on facial-recognition software, 3-D printing, Kristen Hopwell, senior lecturer in international political
virtual reality systems, and autonomous vehicles is a economy at the University of Edinburgh and author of
threat because such products have blurred the lines Breaking the WTO: How Emerging Powers Disrupted the
between civilian and military technologies. In April 2018, Neoliberal Project, is that tariffs on “high-tech” imports
US intelligence agencies claimed Chinese recruitment from China will only harm the US industries by increasing
of foreign scientists, its theft of US intellectual property, the cost of inputs and making its own products less
and its targeted acquisitions of US firms constituted competitive compared to its rivals. And if China slaps
an “unprecedented threat” to the US industrial base. retaliatory tariffs on US goods, US manufacturers face
Basically, policymakers worry that China’s state-led the double-whammy of increased costs alongside
model and its ambition to control entire supply chains reduced access to the Chinese market, the largest market
means that entire industries could come under control for many US exports. Moreover, Trump’s tariffs are unlikely
of a rival geopolitical power. A June 2018 White House to significantly disrupt China’s industrial development via
report warned that China’s economic moves threaten the Made in China 2025 program. Hopwell’s research on
“not only the US economy but also the global innovation international trade negotiations has shown that the US no
system as a whole”. Economic critics say that China longer has the leverage to dictate trade terms to China.
is distorting global markets by prioritizing political Trump’s strategy overestimates China’s dependence on
considerations over economic incentives. Its subsidies, the US market, which accounts for just 18 percent of
they say, skew markets and lead to overproduction and China’s exports. More than 80 percent of China’s exports
the dumping of cheap products in the global market. go elsewhere. China’s own domestic market will provide
Meanwhile, companies based in the US, Europe, and the primary catalyst for its industrial upgrading. Even if
elsewhere complain of an asymmetry in which China is Trump cut off access to the US market entirely, it would
free to invest in foreign countries, but foreign companies not stop the development of China’s advanced industries.
selling to and operating in China are highly constrained In short, Trump’s tariffs are unlikely to achieve their stated
by investment requirements and other regulations goals, but a trade war between the two countries could
(McBride, Is Made). rapidly spiral out of control and cause immense damage
to the global economy (Hopewell).
President Trump argues that Made in China 2025
unfairly disadvantages US companies, but these policies New Foreign Investment Law
aren’t unique to China. Such national policies are
standard for developing nations. Japan, South Korea, Foreign businesses are skeptical that China’s new
Taiwan, Hong Kong and Singapore all used similar legislation banning forced technology transfer will
policies to foster economic growth and raise incomes. reduce confrontation with the US, saying the new
The principle today is also straightforward, from Beijing’s laws may not change current practices. The draft
perspective: If foreign multinationals are going to reap foreign investment law was released late in 2018 as
30
