China: Opportunities and risks for German industry
Comprehensive study from MERICS to Made in China 2025
"Made in China 2025" is the 2015 formulated industry strategy of China, and who still believes that this is mainly propaganda, will be taught better by a study released in December 2016. Mercator Institute for China Studies (MERICS) in Berlin has published it. And nearly like a supplement, an article entitled "Manufacturing Upgrade moves from theory to action in 2017" appeared in the Chinese Global Times on December 26, 2016. See a critical outlook to this story at the end of the article.
China will maintain its focus on innovation as a new growth driver and "fully" implement the "Made in China 2025" strategy in 2017. For example, Minister of Industry and Information Technology Miao Wei is quoted from a meeting with the top "industrial policymakers" in the Global Times. Five key projects would receive special financial and policy support: innovation centers, intelligent manufacturing, industrial foundation improvements, green development and advanced manufacturing equipment, said Zuo Shiquan, an expert at the Beijing-based CCID Institute under the ministry.
Both domestic and foreign companies will receive support from the government, according to Liu Xuezhi, a macroeconomist with Bank of Communications: "The manufacturing upgrading is a top priority for China, and I expect a considerable amount of resources, financial and policy, will be put into these areas."
Based on 60 experts and numerous documents, the MERICS study examines on more than 70 pages in detail, what the leading industries, especially in Germany and the USA, have to deal with. In short, the Chinese Government's incredible investments and a rapidly growing number of serious competitors from China.
China's huge money reserves have begun to shrink, but for the time being, financial support is still available only for industrial subsidies at an amount, which in the West is simply incredulous. The study cites some examples. The "Advanced Manufacturing
Fund", which was set up with the release of "Made in China 2025", is worth 2.6 billion euros, the "National IC Fund" more than 19 billion euros, the "Emerging Industries Investment Fund" 5.4 billion euros. By way of comparison, the Federal Government in Germany has so far invested about 200 million euros in subsidies for industry 4.0.
Nevertheless, MERICS doubts that the Chinese strategy will be successful in the broad range. Most companies would not understand the importance, and many, as state-owned companies, would feel little pressure from the market, at least not comparable to the one felt in the open competition in the West. In addition, the flood of money pose the risk that bubbles and new overcapacities are created that could even counteract the actual goal.
An example is the robot industry. At present there are only 19 industrial robots per 10,000 industry employees in China, while Germany with 301 robots is more or less equal to Japan, South Korea even counts 531, the United States only 176. MERICS now estimates with subsidies for industrial robots in 21 cities and 5 Chinese provinces in the amount of a further 5.4 billion euros, that already by 2020 there will be six to seven times more robots produced as actually needed.
Very revealing is the study, when it divides China's current industry into a small group of absolute "frontrunners", a relatively large number of "hopefuls", and the vast majority of the "latecomers".
To the frontrunners, at a very high level of automation according to Industrie 3.0, large manufacturers of home appliances and computers such as Haier, Hisense or Midea are counted. They have a high interest in Industrie 4.0, regardless of government policy, and are already internationally established and competitive.
The group of "hopefuls" is the most interesting according to MERICS, because here "Made in China 2025" will have the greatest impact. Anyone who understands the effective use of the funding measures in this group will rise very quickly to serious competition, for example, to German industry companies, in the coming years. At the moment, however, this group is just on the way from Industrie 2.0 to Industrie 3.0 and still far away from the state of the art.
Picture on the right: A discussion about Industrie 4.0 with employees and company management of the ceramics sector of the Wonderful Group in Dongguan in December 2016. Member of the group of the "hopefuls"? (Photo Sendler)
The largest group has little prospect of success according to the study. Their situation is characterized by a lot of manual work and simplest automation, so more Industrie 1.0 or 2.0. Here little attention is paid to the great plans of the government. They will continue to try to make money with cheap labor and fall back even further behind the other groups.
Even if this division is essentially true, it already shows the problem: even approximate numbers are not mentioned, also an allocation of the groups to regions, provinces and cities. It is an attempt to analyze the industry in a country with 1.36 billion poeple, based on 60 experts. It will take more analysis to get a clearer picture.
More importantly, however, is another shortcoming: Just like in Germany, Industrie 4.0 is equated with "smart factory" or intelligent manufacturing. The comparisons between the Chinese and the German automotive industry show the misjudgement this is leading to. The latter is thought to be immensely superior, the former to be very backward. The fact that the major automotive manufacturers in Germany are ranked worst in terms of digitalization, even with the healthcare sector, is just as little matching as the enormous progress made by Chinese electromobility.
If you look at Industrie 4.0 as a step of the industry on the way to the Internet of things, nearly all current infrastructure measures in China, especially the large project Internet +, are to be regarded as additional support measures. And the Internet affinity of the Chinese as a great advantage compared to the anxiety about the future in our country. The study does not make any connection between these facts and the degree of digitalization of manufacturing.
Image left: 20,000 such share bikes were placed in Guangzhou within a few weeks. And out of a sudden the bike comes back to the big cities. Via scan with a smartphone. (Foto Sendler)
The study recommends to policymakers and economy to protect German industry against the growing competition. The best protection, however, would instead be the advice to the industry not to concentrate almost only on production, but to head for the Internet of things and services. Then, products, processes, technologies and services from Germany could continue to rely on a huge market in the Far East.