ECON

CHINESE MANUFACTURING IN THE SHADOW OF THE CHINA–US TRADE WAR

Kerry Liu*

Abstract A trade war between China and the US has been looming since March 2018, and effectively started on 6 July. A key to this dispute is the ‘Made in China 2025’ plan, which aims to greatly improve the competitiveness of Chinese manufacturing industry and enable China to become the world’s manufacturing powerhouse. This study examines the present state of Chinese manufacturing, including its size, structure and problems. It explains Made in China 2025, its background, and the chances of its success. It concludes that the importance of Made in China 2025 for the future of the Chinese economy means it will be very difficult for China to make substantial concessions during a trade war.

JEL codes: L52, O14.

Keywords: China; Made in China 2025; manufacturing; trade war; US.

1. Introduction

On 8 March 2018 Donald Trump, the President of the United States of America, announced global steel and aluminium tariffs to protect local producers; many nations were exempted, but not China. China retaliated with 15–25 per cent tariffs on US$3bn worth of American goods (Lee and Kaiman 2018). On 22 March, after a US Trade Representative (USTR) investigation under Section 301 of the US Trade Act 1974, President Trump announced that the US would respond to China’s unfair trade practices (USTR 2018a). On 3 April the Trump administration announced that the US was considering imposing 25 per cent tariffs on approximately US$50bn in Chinese imports across 1,300 categories of products (Davies et al. 2018).1 China matched the Trump administration’s plan dollar for dollar, issuing its own list of American products of comparable value that would be subject to duties should the US follow through with its trade sanctions. On 15 June, the Trump administration said it would impose a 25 per cent tariff on US$50bn of Chinese products that are imported into the US (BBC News 2018). Tariffs on US$34bn were imposed on 6 July, with tariffs on a further $16bn to begin at a later date. China retaliated almost immediately with its own tariffs on US$50bn of American products. On 11 July the Trump administration said it would impose 10 per cent tariffs on an extra US$200bn worth of Chinese imports (Kuo 2018). A long-looming trade war between China and the USA is under way.

The US’s list of 1,300 dutiable items includes high-definition colour video monitors, electromagnets used in magnetic resonance imaging machines, and aerospace product parts, as well as machinery used to make or process textiles, printed products and food. The USTR said that officials had identified items that benefit from Chinese industrial policies, including ‘Made in China 2025’; hence, it is believed that President Trump’s tariffs target China’s ‘Made in China 2025’ tech strategy (Delaney 2018). Made in China 2025 is generating more global headlines now than when the

*Associate at the China Studies Centre, University of Sydney, Australia. E-mail: [email protected]. The author would like to thank two anonymous referees and the Editor for their helpful comments on an earlier version.

© 2018 Institute of Economic Affairs

Chinese government announced it in 2015. USTR Robert Lighthizer stated that Made in China 2025 is ‘a very, very serious challenge, not just to us, but to Europe, Japan and the global trading system’ (Behsudi 2017). In the report on its Section 301 investigation of China, Made in China 2025 is mentioned 115 times (USTR 2018b).

China has a long history of using policies and regulations such as administrative approval processes, joint venture requirements, foreign equity limitations, and procurements to require/force foreign companies to transfer technologies and intellectual property to Chinese companies. The US 301 case has been in the offing a long time. What is different now? The main difference is that Made in China 2025 is China’s first industrial policy to indicate that China is interested in, and capable of, capturing global market share in high-tech industries traditionally dominated by Western companies.

What then is Made in China 2025? If it is the future of Chinese manufacturing, how does it relate to Chinese manufacturing past and present? This article answers these questions. Section 2 describes past and present Chinese manufacturing, including its size, structure and problems. Section 3 discusses the future of Chinese manufacturing – that is, Made in China 2025 including its content, background, the methods proposed to achieve its goals, and its chances of success. Section 4 concludes.

2. Chinese manufacturing: its past and present

At present, China has 39 large industrial categories, 191 medium categories and 525 small categories. China is the only country covering the whole industry category.2 The growth of Chinese manufacturing over recent decades is very impressive and is described below, as well as Chinese manufacturing’s size, structural changes, and problems.

2.1. Size

Figure 1 shows the gross value added (GVA) of the Chinese manufacturing sector and its share of gross domestic product (GDP). GVA measures total economic output of part of the economy, minus any costs incurred in production. The measure is US dollars at 2010 constant prices in billions. It shows that the value of China’s manufacturing output increased from around US$1 trillion in 2005 to

Figure 1: China’s manufacturing GVA and its share of GDP, 2005–16. Source: United Nations Conference on Trade and Development (UNCTAD). UNIDO data are available only until 2010.

308 K. LIU

© 2018 Institute of Economic Affairs

US$3 trillion in 2016. Its share of China’s GDP increased from 29 per cent in 2005 to 31 per cent in 2016 (although the fraction has dropped consistently since its peak in 2012). Deindustrialisation has increased in recent decades in advanced economies (Rodrik 2016), and the fall in Chinese manufacturing’s share of GDP shows that China is no exception to this trend.

The size of the total assets of the top 100 listed manufacturing firms by market capitalisation in China increased from RMB1.87 trillion (equivalent to US$256bn) in 2007 to RMB6.48 trillion (equivalent to US$995bn) in 2017, representing a compounded annual growth rate of 13.1 per cent.3

Figure 2 gives a comparison of manufacturing GVA in the top four leading manufacturing economies as shares of world manufacturing value-added (at constant 2010 prices). It shows that China accounted for almost one quarter (23.6 per cent) of world manufacturing output in 2016, followed by the US (15.6 per cent), Japan (10 per cent) and Germany (6.3 per cent). China’s share has increased consistently from 11.5 per cent in 2005, and China surpassed the US as the leading manufacturing economy in 2010. At the same time, the US share has been consistently dropping. China is clearly the world’s largest manufacturing economy.

2.2. Structural changes

During the past decade or so, the structure of Chinese manufacturing has changed. The number of both central and local state-owned enterprises (SOEs) in China’s top 100 has decreased markedly. In 2007, central SOEs comprised a quarter and local SOEs over a half of the top 100; ten years later, these proportions had dropped to less than a fifth and less than a quarter respectively. Private enterprise has taken their place, representing little more than one in ten firms in 2007 but almost half in 2017.4 The main reason is that the Chinese government encouraged private investment in areas traditionally dominated by SOEs.5 This, together with the higher efficiency of private enterprise (Liu 2018a), explains why China’s private enterprises have expanded their top 100 market share and now surpass SOEs in number.

The industry distribution of the top 100 Chinese manufacturing firms has also changed. The number of firms in upstream industries, including non-ferrous metal smelting and rolling, and ferrous metal smelting and calendaring, has declined significantly. Simultaneously, the number of midstream

Figure 2: Percentage of global manufacturing output (selected countries, 2005–2016). Source: UNCTAD. There are some slight differences between UNIDO data and UNCTAD data, but the rankings are the same.

ECONOMIC AFFAIRS, VOLUME 38, NUMBER 3 309

© 2018 Institute of Economic Affairs

firms has more than doubled (electrical machinery and equipment, and computer, communications and other electronic equipment). In addition, downstream industries (e.g. pharmaceutical firms) have greatly increased their representation in the top 100, consistent with the ongoing transition of the Chinese economy. For example, the fraction of GDP attributed to consumption increased from 45.3 per cent in 2007 to 58.8 per cent in 2017.6

In order to learn about the structural transformation of China’s manufacturing industry, it would be ideal to examine different manufacturing sectors’ shares of manufacturing GVA. However, the National Bureau of Statistics of China recently stopped publishing such information. The alternative is to look at the structure of exported manufacturing products (see Table 1).

Table 1 shows that over 1985–2006 the fraction of China’s exports comprised of capital-intensive products such as machinery and transport equipment increased significantly, from just a few per cent in 1985 to nearly half of total value in 2006. (For comparison, agricultural exports represented 50.6 per cent of total export value in 1985 but only 20.2 per cent in 2006; see Yu 2016.) Hence, China can no longer be regarded as an exporter of low value-added and labour-intensive products.

The pattern of Chinese exports of high-technology products is similar to that of machinery and transport equipment. The fraction of high-technology exports reached a peak in 2009, then declined slightly, and has yet to recover fully. High technology includes biotechnology, life science and technology, optoelectronic technology, computer and communication technology, electronic technology, computer integrated manufacturing technology, materials technology, and aerospace technology. High-technology industries are generally associated with a high value-added output ratio (defined as the difference between final output and intermediate inputs divided by the final output).

The above analysis of export structure suggests that the upgrading of China’s manufacturing value chain progressed until around 2010, then deteriorated slightly, but picked up somewhat after 2015.

Simola (2017) also found that during 2000–14 China’s share of low-tech industries declined and was replaced by middle- and high-tech industries, but the pace slowed in later years. China’s

Table 1: The value of China’s machinery and transport equipment exports and high-technology product exports as percentages of total export value, 1985–2017

Year Machinery & transport equipment (%) High-technology products (%)

1985 2.8 n.a. 1996 23.4 n.a. 2006 47.1 29.0 2007 47.3 28.5 2008 47.1 29.0 2009 49.1 31.4 2010 49.5 31.2 2011 47.5 28.9 2012 47.1 29.3 2013 47.0 29.9 2014 45.7 28.2 2015 46.6 28.8 2016 46.9 28.8 2017 47.8 29.5

Sources: Wind Info and National Bureau of Statistics. Data on Machinery and transport equipment exports in 1985 and 1996 are from Yu (2016).

310 K. LIU

© 2018 Institute of Economic Affairs

production and exports are still more focused on lower-tech manufacturing sectors than those of other countries.

Competitiveness data provide another perspective on China’s manufacturing upgrading. Based on a method developed by UNIDO (2013) and using data for 1992–2010, Zhang (2015) concluded that China had made significant progress in global industrial competitiveness rankings, but also noted that its manufacturing success stemmed mainly from an extraordinary performance in aggregate capacity and intensity rather than quality. The World Economic Forum’s Global Competitiveness Index provides more updated information. It shows that China’s competitiveness rank improved from 30 in 2008, reaching its peak of 26 in 2011, but has stayed below that level ever since (Schwab and Sala-i-Martin 2017). More detailed analysis about this methodology is presented in Appendix A.

Another indicator is the Revealed Comparative Advantage Index (see Appendix B for a detailed explanation), an index of the relative advantage or disadvantage of a certain country in a certain class of goods or services, based on trade flows. A comparative advantage exists if the index is greater than one; if less than unity, the country is said to have a comparative disadvantage in the commodity or industry. Figure 3 sets out the revealed comparative advantage of China’s machine and transport equipment manufacturing industry. It shows that the revealed comparative advantage of China’s machinery and transport equipment reached its peak in 2011, and gradually declined thereafter.

This analysis of the structural transformation of Chinese manufacturing industry shows that China made some progress at the beginning of the past decade, but did not improve further or even deteriorated. A further discussion of the implications of these findings is presented in subsection 3.2.

2.3. Problems

According to Schwab and Sala-i-Martín (2017), the top five obstacles to doing business in China are restricted access to finance, inefficient government bureaucracy, inflation, policy instability

Figure 3: Revealed comparative advantage for China’s machine and transport equipment, 2007–2016. Sources: Comtrade and author’s independent calculation. Note: In 2017 only 37 of 150 countries reported export information to the UN Comtrade Database, so the calculation of revealed comparative advantage for 2017 could be inaccurate. Therefore the Standard International Trade Classification, Revision 3, Code 7 (Machinery and transport equipment) was used.

ECONOMIC AFFAIRS, VOLUME 38, NUMBER 3 311

© 2018 Institute of Economic Affairs

and corruption. They are either institutional factors or institution-related factors (such as financial market development).

A further problem relates to technology. According to Schwab and Sala-i-Martín (2015), the largest gap in competitiveness between China and the Organisation for Economic Co-operation and Development average is in technological readiness. This is an indication of the agility with which an economy adopts existing technologies to enhance the productivity of its industries, with specific emphasis on its capacity to fully leverage information and communication technologies in daily activities and production processes to increase efficiency and enable innovation. Figure 4 shows research and development expenditure for China, the US, Japan and Germany as a fraction of GDP.

Figure 4 shows that although China has gradually increased its expenditure on R&D as a percentage of GDP, it still lags behind other major manufacturing economies. Moreover, based on 2012 data, China fares worse than the US, Germany and Japan on other two crucial indicators: manufacturing industry energy consumption per unit of GDP and index of recall notices for exported products (Ernst 2016).

In addition, China’s labour costs, specifically for manufacturing workers, have been rising sharply during the past decade. The compounded annual growth rate (CAGR) of the average salary in non-private Chinese manufacturing firms for 2005–16 was over 11 per cent, and over 12 per cent for private manufacturing firms (but annual growth has slowed recently).7 Although Chinese manufacturing workers’ absolute compensation is still low by Western standards, its growth rate over the past decade is the highest in the world (The Conference Board 2018). The main driver of rocketing labour costs is the changing demographic profile. The ratio of the population of working age (defined as people aged 15–59 years) to total population reached a peak of 69.8 per cent in 2011, and has decreased gradually since,8 meaning that China has a falling proportion of people of working age, resulting in increasing demand for their labour and therefore higher salaries. As Lin (2013) argued, China has been following a comparative advantage strategy. This means primarily developing labour-intensive industries, which, given China’s comparative advantage in cheap labour, leads to the accumulation of profit, which then allows upgrading of the industrial structure over time. However, it seems that China’s comparative advantage in low-cost labour is diminishing.

Figure 4: Research and development expenditure in selected countries (percentage of GDP), 2005–2015. Source: World Bank.

312 K. LIU

© 2018 Institute of Economic Affairs

Structural/institutional reform is a drawn-out process, as is changing a country’s demographic profile. China shifted to a two-children-per-couple policy in 2016 (Xinhuanet 2015), but the only other option for the Chinese government to improve economic growth may be the implementation of policies to step up industrial upgrading, which is discussed in detail in section 3.

3. The future of Chinese manufacturing

Relying on a static comparative advantage risks freezing a country at a certain stage of development (Amsden 1989), so the government needs to facilitate change. As Zhang (2015) argued, the Chinese government has been playing a pivotal role in industrial development in fostering dynamic comparative advantages. In particular, it has directed investment towards specifically targeted sectors as soon as comparative advantages began to appear. Investment promotion has mainly assumed the form of (public) investment in physical infrastructure, the provision of credit at preferential interest rates, and fiscal incentives. Zhang (2015) also stated that in addition to the comparative advantage-following strategy, China’s industrial policy in the past emphasised principles of developing through industrialisation and long-term policy goals rather than random and short-term behaviours.

In response to the problems Chinese manufacturing is facing, in May 2015 the Chinese government launched Made in China 2025, a ten-year strategic plan to comprehensively upgrade China’s manufacturing industry (ChinaDaily.com.cn 2015). It is the first time that China has launched a national strategy outlining the routes and targets of manufacturing transformation.

3.1. Brief description

The strategic goal of Made in China 2025 is to make China a manufacturing powerhouse in terms of quality as well as quantity. It has five principles: innovation-driven; quality; eco-development; structural optimisation; and talent-oriented.9 These principles can be summarised as follows.

China will establish a system to attract and educate a large number of manufacturing specialists, who will focus on innovation such as digitisation, networking and rendering Chinese manufacturing smarter. At the same time, quality will be a special focus, helping build China’s brands. The core of upgrading manufacturing is structural adjustment, meaning more advanced manufacturing and less traditional manufacturing; promoting the transition from production-oriented manufacturing to service-oriented manufacturing; and nurturing certain industry clusters. Sustainable development (the circular economy, improving resource recycling efficiency) is another focus.

The plan has nine strategic tasks:

1. improving manufacturing innovation; 2. deep integration of information technology and industrialisation; 3. strengthening the foundations of manufacturing industry; 4. fostering Chinese brands; 5. enforcing green manufacturing; 6. promoting breakthroughs in key sectors; 7. restructuring manufacturing industry; 8. promoting service-oriented manufacturing and manufacturing-related service industries; and 9. internationalising manufacturing.

ECONOMIC AFFAIRS, VOLUME 38, NUMBER 3 313

© 2018 Institute of Economic Affairs

Made in China 2025 also lists ten key sectors:

1. new information technology; 2. high-end numerical control machine tools and robotics; 3. aerospace and aviation equipment; 4. oceaneering equipment and high-tech ships; 5. advanced railway equipment; 6. energy saving and new energy vehicles; 7. power equipment; 8. agricultural machinery and equipment;

Table 2: Made in China 2025: key objectives for 2020 and 2025

Category Indicator 2013 2015 2020 2025

Innovation ability R&D expenditure/Main operating revenue (%)a

0.88 0.95 1.26 1.68

Number of patents per RMB 100 m main operating revenuea

0.36 0.44 0.70 1.10

Quality and efficiency Manufacturing Quality Competition Indexb

83.1 83.5 84.5 85.5

Manufacturing GVA/GDPc 2 percentage points higher than 2015

4 percentage points higher than 2015

Growth rate of manufacturing total labour productivity (%)d

- - Around 7.5 Around 6.5

Integration of IT and industrialisation

Broadband penetration rate (%)e 37 50 70 82 Digital R&D design tool penetration rate (%)f

52 58 72 84

Key process numerical control rate (%)g

27 33 50 64

Eco-developmenth Energy Consumption per unit of industrial value added

– – 18% lower than 2015 34% lower than 2015

Carbon dioxide emissions per unit of industrial value added

– – 22% lower than 2015 40% lower than 2015

Water usage per unit of industrial value added

– – 23% lower than 2015 41% lower than 2015

Comprehensive utilisation of industrial solid waste (%)

62 65 73 79

aApplies only to enterprises above designated size, namely with main operating revenue over RMB20m. bThe Manufacturing Quality Competition Index assesses the overall quality of Chinese manufacturing. Detailed reports are on the website of the General Administration of Quality Supervision, Inspection and Quarantine of China. http://www.aqsiq.gov.cn/zjsj/tjsj/tjsj4/ (in Chinese; accessed 17 April 2018). cChina had not published the 2015 manufacturing GVA/GDP ratio when Made in China 2025 was launched in May 2015. Figure 1 shows that the manufacturing GVA/GDP in 2015 is 31.7%, so the estimated target ratio for 2020 is 33.7%, and for 2025, 35.7%. The Chinese government is trying to reverse the declining trend in manufacturing GVA’s fraction of GDP. dTotal labour productivity = GDP/employed population in average. eBroadband penetration rate = no. of fixed broadband home users/total no. of family households. fDigital R&D design tool penetration rate = no. of enterprises above designated size using digital R&D design tools/total no. of enterprises above designated size (survey data are from around 30,000 sample firms). gThe key process numerical control rate is the average for industrial enterprises above designated size. hIndicators of energy consumption per unit of industrial value added, carbon dioxide emissions per unit of industrial value added and water usage per unit of industrial value added refer to industrial enterprises above designated size. The Chinese government had provincial but not national benchmark values in 2015. Sources: State Council of China. http://www.gov.cn/zhengce/content/2015-05/19/content_9784.htm (in Chinese; accessed 17 April 2018); author’s independent analysis.

314 K. LIU

© 2018 Institute of Economic Affairs

9. new materials; and 10. biomedicine and high performance medical devices.

Table 2 shows Made in China 2025’s key objectives. Besides the plan itself, in October 2015 the Chinese government published a technology road

map compiled by specialists from a variety of institutions including corporates, universities and research institutes.10 In January 2018, this road map was further updated by analysing the main developments in the ten key sectors during 2015–17.11 Furthermore, in July 2015 China’s State Council unveiled its Internet Plus Plan,12 and in November 2017 China launched the Internet Plus Advanced Manufacturing plan.13 China intends to create new information technology solutions such as cloud computing, big data, the internet of things, e-commerce and artificial intelligence, which will benefit industrial production as well.

China’s Made in China 2025 and Internet Plus plans share three fundamental objectives:

1. to upgrade China’s industry through flexible automation and computer-based network integration with knowledge-intensive services;

2. to accelerate investment in required digital infrastructure such as enhancing network convergence, accelerating fibre optic network construction, and improving broadband speed, while strengthening cyber security; and

3. to strengthen the capacity of domestic firms to develop intellectual property rights for critical core technologies, materials, components, and software, and for scaling up cost-effective production and incremental innovations (Ernst 2016).

The third objective addresses so-called ‘indigenous innovation’, which aims to achieve technological catch-up and import substitution. For example, Made in China 2025 states that by 2020 40 per cent of the core basic components and key basic materials will be independently produced by Chinese firms, and by 2025 70 per cent will be independently produced by Chinese firms. The technology road map provides more detailed targets. For example, indigenous new energy vehicles are to achieve an 80 per cent domestic market share by 2025; indigenous industrial robots and their key domestic components are to achieve a 70 per cent domestic market share by 2025; and renewable energy equipment with indigenous intellectual property is to achieve an 80 per cent domestic market share by 2025.

Besides aiming to dominate the domestic market, Made in China 2025 also sets the goal of capturing global market share. In April 2018 President Xi Jinping reiterated the importance of indigenous innovation, saying that ‘the core technologies are the pillars of a great power’14 and ‘the core technologies can only come from self-reliance’.15 The controversial part of this programme is that its strategy is to create a domestic industry that will replace foreign suppliers; this includes some de facto technology transfer requirements to the Chinese partner as a precondition for market access. The latter has been discussed at length by various Western commerce chambers in China and in the US 301 report, and is a major concern for Western companies (USTR 2018b).

3.2. Why this plan?

As discussed in subsection 2.2, China made some progress in further upgrading the structure of its manufacturing industry at the beginning of the past decade, but little thereafter. Some indicators have even deteriorated recently. This pattern is consistent with the development of China’s

ECONOMIC AFFAIRS, VOLUME 38, NUMBER 3 315

© 2018 Institute of Economic Affairs

macroeconomic situation. After a massive stimulus programme in response to the global financial crisis, the Chinese economy rebounded sharply in 2010, growing by 10.6 per cent. After that, China’s economic growth rate declined continuously, to 6.7 per cent in 2016.16 The World Bank now defines China as a middle-income country, and concerns are rising that China is, or will be, confronted with the middle-income trap (Glawe and Wagner 2017). Countries so trapped have raised their per capita income substantially but not into the high-income category. As Zhou (2017) argued, development of the manufacturing sector and technological capacities are important for a country to avoid the middle-income trap. Wong (2016) also argued that, to sustain stable growth, the Chinese government needs to accelerate industrial restructuring. Therefore, the current manufacturing industry needs to play a significant role in China’s long-term development, and its structural upgrading is the key.

The change of China’s growth trend reflects both cyclical and structural problems, but mainly structural ones. The main reason for China’s economic slowdown is the decline of its potential GDP growth rate. From the supply-side viewpoint, the potential GDP growth rate is determined by three factors: labour, capital and total factor productivity.

First, China’s ongoing transition from a relatively young workforce to a more elderly population is affecting China’s demographic dividend. As noted earlier, the working-age population began shrinking in 2011, and the dependence ratio began rising in the same year. Given that population has such far-reaching impacts on the determinants of China’s economic growth, including labour supply, the savings rate, the marginal return on capital and total factor productivity, such a change in the population age structure is bound to reduce China’s potential GDP growth rate (Cai and Lu 2013). Second, much evidence shows China has been overinvesting in many sectors (in fact, reducing overcapacity has been a key task for the Chinese government since 201517). History shows that the marginal return on capital diminishes as countries grow richer and accumulate more capital per worker (Dorrucci et al. 2013). China’s capital accumulation growth rate was just 3.3 per cent in 2015, the lowest since 1999. Third, over the past 30 years of rapid economic growth in China, the impressive performance in total factor productivity has largely been attributed to resource allocative efficiency through labour mobility from agricultural to non-agricultural sectors (Cai and Lu 2013). As the surplus labour force has become gradually absorbed by the expansion of secondary and tertiary sectors, mass labour migration has slowed, and the opportunity to enhance resource allocative efficiency has decreased.

Various measures can be adopted to enhance the potential GDP growth rate, such as supplying more labour and improving productivity. In November 2013 Chinese leaders held a summit meeting, known as the Third Plenum, to construct a master plan for putting the economy on a sustainable growth path. The Decision on Some Major Issues Concerning Comprehensively Deepening Reform (hereafter ‘the Decision’) provided a road map for change that would span 15 broad areas and 60 specific tasks including economic, financial, social and environmental policies (China.org.cn 2014). While abolishing the one-child-per-couple policy to increase labour supply and further opening up China’s domestic market are positive initiatives, overall progress is very small. For example, the Decision states that ‘the market should play a decisive role in resource allocation’, while in fact there has been more government intervention in the Chinese economy since then. There is essentially no progress on land system reform. The National New Urbanization Plan18 launched by China’s State Council shortly after the Third Plenum, which aimed to further promote labour migration from rural to urban areas, was almost at a standstill or de facto abolished. Rather than further privatising the SOE sector, in September 2015 the Communist Party of China and the State Council jointly issued a guideline on SOE reform stating that China should ‘unswervingly make SOEs stronger, bigger and

316 K. LIU

© 2018 Institute of Economic Affairs

better’.19 In terms of financial system reform, there is still no timetable for full capital account convertibility, and the RMB exchange rate remains under the strict control of China’s central bank. Institutional reforms, which are assumed to improve total factor productivity, are proceeding very slowly.20

Development of the manufacturing sector and technological capacity is very important for China to avoid the middle-income trap. Specifically, China can increase its total factor productivity through technological advancement in the manufacturing sector; this is the fundamental purpose of Made in China 2025. From this point of view, Made in China 2025 is very important for sustainable economic development and China’s transition towards advanced-economy growth drivers.

3.3. How to achieve the goals?

The Chinese government has adopted two main strategies to achieve the goals of Made in China 2025. One is massive government support in the form of policies, government funding and subsidies; the other one is internationalisation.

Policies, government funding and subsidies. The Chinese government has been very good at adopting preferential policies for industries that it wants to support. In February 2016, in line with Made in China 2025, the People’s Bank of China (China’s central bank) and other powerful government agencies such as the National Development and Reform Commission, the Ministry of Industry and Information Technology, and the Ministry of Commerce, and regulatory authorities such as the China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission, issued a guideline on how to financially support the industrial sector.21 The main polices are: the adoption of differentiated industrial credit policies with special support for the key sectors mentioned in the Made In China 2025 and Internet Plus projects; adoption of preferential treatment for advanced manufacturing firms’ direct financing activities such as initial public offering and bond issuance;22 various measures supporting private equity/venture capital investing in advanced manufacturing industries; new insurance products covering the key sectors mentioned in the Made in China 2025 plan, such as new materials, new energy-efficient vehicles and so forth; and financially supporting industrial firms to invest abroad.

Several government funds directly targeting the Made in China 2025 sectors have been launched. In July 2016 the Advanced Manufacturing Investment Fund was established, sponsored by the National Development and Reform Commission, the Ministry of Finance, the Ministry of Industry and Information Technology and two other government investment firms. It manages RMB20bn (equivalent to US$3bn) in assets.23 In May 2017 the State Development and Investment Corporation launched the National Emerging Industry Venture Capital Investment Guidance Fund.24 Its assets under management are valued at RMB17.9bn (equivalent to US$2.6bn). In March 2018 the National Integrated Circuit Industry Investment Fund was launched with assets under management of RMB150bn–200bn (equivalent to US$23.7bn–31.6bn).25 In 2014 a similar fund was launched with assets under management of RMB138.7bn (equivalent to US$22.4bn). In addition, large amounts of non-government funding supplemented these government funds. Under the influences of policy and demonstration effect, local government-supported funds also boomed, reaching RMB2 trillion26

(equivalent to US$308.8bn) as of April 2016, although these funds may not exclusively target Made in China 2025 sectors.

ECONOMIC AFFAIRS, VOLUME 38, NUMBER 3 317

© 2018 Institute of Economic Affairs

Internationalisation. Made in China 2025 clearly states that Chinese enterprises will enhance their multinational operating capabilities and international competitiveness by ‘going global’, including outbound acquisition, establishing overseas R&D centres, and building international marketing and service networks. This involves two approaches, which may not be mutually exclusive.

The first approach is capacity collaboration. Shortly after the launching of Made in China 2025, in May 2015 China’s State Council issued the Guiding Opinions on Promoting International Cooperation in Industrial Capacity and Equipment Manufacturing (hereafter ‘the Opinions’). The Opinions state that China should facilitate cooperation in core sectors including steel, non-ferrous metals, construction materials, railways, electricity, chemical engineering, textiles, the automotive industry, communications, engineering machinery, aerospace and aviation, and shipping and ocean engineering.27 Some industries are listed in Made in China 2025, some are not. China has established bilateral capacity cooperation mechanisms with Kazakhstan and another 16 countries, and is negotiating a framework agreement with 33 countries. Furthermore, China’s tax and financial policy framework has been built, including the China-initiated Asian Infrastructure Investment Bank, the Silk Road Fund, the New Development Bank, the China– Latin America Industrial Capacity Cooperation Fund, and the China–Africa Industrial Capacity Cooperation Fund. China is also setting up industrial cooperation funds with Kazakhstan, Europe, France and Brazil (EY 2016).

The second approach is outbound acquisition of high-tech companies. Wübbeke et al. (2016) presented 12 cases of attempted Chinese investments in high-tech firms in the US and the European Union (mainly in Germany) in 2016. The European Union Chamber of Commerce in China stated that during 2015 and 2016 an unprecedented wave of outbound investments into firms in Europe and elsewhere in industries of relevance to Made in China 2025 have been either completed or attempted (EUCCC 2017). In the USTR’s report on its Section 301 investigation into China’s trade practices, around 90 pages are about China’s direct investment in the US. It details Chinese investors’ acquisitions of American technology companies in sectors such as semiconductors, robotics, aviation and biotechnology, which are closely associated with Made in China 2025 (USTR 2018b).

Chinese outward direct investment in the manufacturing industry reached a peak of US$29bn in 2016, growing at a CAGR of 41.9 per cent during 2008–16. In 2017 China’s outward direct investment in manufacturing dropped to justUS$19.1bn as the resultof the Chinese regulatory authorities’crackdown on capital outflow.28 Also, it seems that the US Trump administration is adopting stricter rules to screen Chinese investments in the US, especially in Made in China 2025-related high-tech sectors. For example, during January 2017–April 2018, the Committee on Foreign Investment in the United States blocked nine deals involving Chinese companies (Johnson 2018). It was also reported in March 2018 that the Trump administration is considering a crackdown on Chinese investments in technologies the USAdeems sensitive byinvoking a lawreserved for nationalemergencies(Mayeda etal. 2018). It seems that China’s strategy of reducing the technological gap between domestic and foreign competitors and accelerating the learning process by outward acquisitions is hitting obstacles, at least for now.

3.4. Will Made in China 2025 succeed?

The most important question for China watchers and investors is: will Made in China 2025 succeed? While there is no easy answer to this question, because there are many uncertainties ahead, including

318 K. LIU

© 2018 Institute of Economic Affairs

how the China–US trade dispute will affect Made in China 2025, it is still possible to analyse the strengths and weaknesses of the plan and evaluate the possible scenarios.

Wübbeke et al. (2016) argued that a series of powerful instruments can help implement this plan. For example, the mobilisation capacity of China’s policy campaign is substantial; China is very strong in long-term planning as Chinese leaders are less exposed to the pressures of public opinion than leaders in Western democracies (furthermore, in March 2018 China’s parliament removed term limits for Chinese President Xi Jinping; Needham 2018); Chinese industrial policy includes large government funds and subsidies and the ability to channel them into priority areas; China has demonstrated through its industrial policy that it is very good at experimenting with new business models and new technologies; and the rush of local governments to support smart manufacturing accelerates and amplifies Made in China 2025. These are all reasonable arguments that the history of modern China verifies.

Wübbeke et al. (2016) also identified weaknesses in the plan. They argued that a catch-all approach misses specific enterprise demands; this may be true, but it is not the essential part of the process. The key point is that the Chinese market is different from the Western markets with which we are familiar. As Ringen (2016) argued, the Chinese system is like no other known to man, now or in history. Liu (2018b) presented a novel analysis of the Chinese system, arguing that ‘China Inc.’, under the leadership of President Xi Jinping, resembles family ownership and family management. The Chinese public and private sectors are under the total control of the Communist Party of China, with Xi Jinping as the ultimate leader. The relation between the government and enterprise is more like a relationship within a firm, characterised by obedience and strict hierarchy. Under this system, when the Chinese government advocates something, enterprises are, to some extent, obliged to obey. Moreover, due to government incentives in the form of tax deductions and preferential interest rates, and in the interests of good relations with a powerful government, enterprises generally choose to follow government policies.

Wübbeke et al. (2016) argued that economic slowdown would affect China’s willingness to invest. In fact, as argued before, the main purpose of Made in China 2025 is to improve total factor productivity and help economic transition through technological advancement in manufacturing. Furthermore, China may not set a goal of doubling its GDP starting in 2021 so it can focus more on higher-quality, long-term growth (Reuters 2017), thereby reducing short-term economic challenges. Also, corporate debt issue improved greatly in 2017 (Australian Financial Review 2018), and the Chinese banking sector’s intra-financial system debt issue also improved (Liu 2018d). Therefore, the systemic risk in the Chinese financial system has been reduced. Finally, overcapacity in the steel and coal industries has been reduced significantly (Liu 2018c). Therefore, the current economic situation in China does not hinder the implementation of Made in China 2025.

Wübbeke et al. (2016) asserted that Made in China 2025 underestimates the role of enterprise organisation and gradual improvement of production processes as ways to realise smart manufacturing, and that it involves inefficient allocation of funds and duplication of effort by local governments, and is weakened by a lack of skilled workers and impending lay-offs due to automation. These criticisms may be true to some extent. However, the fundamental issue is that the governance model of China Inc. has changed, from a firm controlled by external managers with limited supervision from shareholders to a firm controlled by owner–managers (Liu 2018b). The negative effects, if any, may not be as large as we think.

Finally, Wübbeke et al. (2016) concluded that while Made in China 2025 is likely to succeed in elevating a small vanguard of Chinese manufacturers to a higher level of efficiency and productivity,

ECONOMIC AFFAIRS, VOLUME 38, NUMBER 3 319

© 2018 Institute of Economic Affairs

it will probably fail in its endeavour to catalyse comprehensive, broad-scale technological upgrading across the Chinese economy. The reality may be much brighter than this prediction. Under the new governance model, Chinese government has become more efficient. Besides the overcapacity issue, the Chinese government’s intervention significantly reduced the liquidity of Chinese real estate as an asset class and to some extent changed the investment style of Chinese stock markets from momentum investing to value investing (Liu 2018c). This is not about economic liberalism but a change of governance model and, correspondingly, the changing role of government and relations between government and enterprises in China.

The usual criticism of industrial policy is that governments cannot pick winners and therefore should not try; however, as Rodrik (2016) stated, this is not the right way to think about industrial policy. In environments rife with uncertainty and with technological and informational spillovers, markets may under-provide investment in non-traditional products. It can be argued that the appropriate role for industrial policy is to fill in this market incompleteness by subsidising investments in new products. At the same time, it is also worth noting that industrial policies like Made in China 2025 have potentially negative effects as well. Made in China 2025 may cause overcapacity by inappropriately protecting inefficient enterprises. Heavy subsidies and investments could distort market pricing mechanisms.

4. Conclusion

The China–US trade war has attracted extensive attention from global media and investors. One of the keys to this dispute is China’s Made in China 2025 plan, initiated in 2015. This article has presented a comprehensive analysis of the present and future of Chinese manufacturing and an evaluation of the probable outcomes of Made in China 2025.

By fraction of GVA, China is the world’s largest manufacturing economy and is accurately nowadays described as ‘the world’s factory’.

Although Chinese manufacturing is transitioning to more consumption-oriented products, it has some structural problems. China’s manufacturing value-chain upgrading has not advanced recently, and the revealed comparative advantage of machine and transport equipment has declined. Responding to these problems, and the possibility of becoming stuck in the middle-income trap, China launched Made in China 2025, aiming to transform China into a manufacturing powerhouse focusing on quality and high-tech products. Through Made in China 2025, China aims to increase its total factor productivity to enhance economic growth. Hence, Made in China 2025 is very important for the future of the Chinese economy. This author believes that Made in China 2025 can succeed, although achieving all the goals set by the Chinese government might prove difficult.

To return to the topics discussed at the beginning of this article, it was reported in April 2018 that the US Trump administration had demanded that Made in China 2025 be rolled back (Bradsher and Perlez 2018). In view of the importance of this plan to China’s economic future, it will be very difficult for China to make substantial concessions during a trade war.

320 K. LIU

© 2018 Institute of Economic Affairs

Appendix A

Global Competitiveness Index

The Global Competitiveness Report is a yearly report published by the World Economic Forum. According to this

report, competitiveness is defined as the set of institutions, policies, and factors that determine the level of productivity of

a country. The productivity level determines the rates of return obtained by investments in an economy, which in turn are

the fundamental drivers of its growth rates.

The Global Competitiveness Index includes a weighted average of many different components, each measuring a

different aspect of competitiveness. The components are grouped into 12 categories, the pillars of competitiveness:

Institutions; Appropriate infrastructure; Stable macroeconomic framework; Good health and primary education;

Higher education and training; Efficient goods markets; Efficient labour markets; Developed financial markets; Ability

to harness existing technology; Market size – both domestic and international; Business sophistication; and Innovation

(Schwab and Sala-i-Martín 2017).

The datasets can be obtained from TCdata360, an initiative of the World Bank Group’s Macroeconomics, Trade &

Investment Global Practice.29

Appendix B

Revealed Comparative Advantage Index (RCA)

The RCA is also called the Balassa index, introduced by Balassa (1965). In particular, the RCA of country c in

product/commodity/good p is defined by:

RCAcp ¼ Ecp=∑p’∈PEcp’

Ec’∈CEc’p=∑c’∈C;p’∈PEc’p’

where E = exports, c, c’ = country index, C = set of countries, p, p’ = commodity index, and P = set of commodities.

A comparative advantage is ‘revealed’ if RCA > 1. If RCA is less than unity, the country is said to have a

comparative disadvantage in the commodity or industry. For example, in 2007 machinery and transport equipment

represented 36.99 per cent of world trade with exports of $5.04 trillion. Of this total, China exported nearly $577bn, and

since China’s total exports in 2007 were $1.22 trillion, machinery and transport equipment accounted for 47.29 per cent

of China’s exports. Because 47.29/36.99 = 1.28, China exports 1.28 times its ‘fair share’ of machinery and transport

equipment exports, and so we can say that China has a high revealed comparative advantage in machinery

and transport equipment.

Notes 1. A full list of products can be found at https://ustr.gov/sites/default/files/files/Press/Releases/301FRN.pdf (accessed 30 July

2018). 2. United Nations Industrial Development Organization (UNIDO). For more information, see http://www.fao.org/fileadmin/

templates/ess/documents/meetings_and_workshops/faounido/3a._The_UNIDO_industrial_statistics_databases.pdf 3. Source: Wind Info. Wind Info (www.wind.com.cn/en) is the mostly widely used Chinese economic and financial data and

information provider. It serves more than 90% of the financial firms in the Chinese market, and 75% of the Qualified Foreign Institutional Investors in China.

4. Wind Info. 5. For example, on May 2010 China’s State Council (China’s central government) issued documents encouraging private

investment. See http://www.gov.cn/zwgk/2010-05/13/content_1605218.htm (in Chinese; accessed 13 April 2018).

ECONOMIC AFFAIRS, VOLUME 38, NUMBER 3 321

© 2018 Institute of Economic Affairs

6. Source: Wind Info. 7. Wind Info. 8. Wind Info; National Bureau of Statistics of China. 9. State Council of China. http://www.gov.cn/zhengce/content/2015-05/19/content_9784.htm (in Chinese; accessed 17 April 2018). 10. http://www.cae.cn/cae/html/files/2015-10/29/20151029105822561730637.pdf (in Chinese; accessed 18 April 2018). 11. http://epaper.cena.com.cn/content/1/2018-01/30/02/2018013002_pdf.pdf (in Chinese; accessed 18 April 2018). 12. http://www.gov.cn/zhengce/content/2015-07/04/content_10002.htm (in Chinese; accessed 18 April 2018). 13. http://www.gov.cn/zhengce/content/2017-11/27/content_5242582.htm (in Chinese; accessed 18 April 2018). 14. http://www.xinhuanet.com/politics/2015-02/16/c_1114383845.htm (in Chinese; accessed 4 June 2018). 15. http://www.yicai.com/news/5417230.html (in Chinese; accessed 4 June 2018). 16. Wind Info. 17. http://www.xinhuanet.com/politics/2015-11/10/c_1117099915.htm (in Chinese; accessed 20 April 2018. More information on

overcapacity issue can be found at Liu (2018c). 18. http://www.gov.cn/zhengce/2014-03/16/content_2640075.htm (in Chinese; accessed 19 April 2018). 19. http://news.xinhuanet.com/politics/2016-07/04/c_1119162333.htm (in Chinese; accessed 19 April 2018). 20. The possible explanation for this slow progress is that China’s President Xi Jinping had only limited power when he started

his first-term administration in 2013. After a five-year-long anti-corruption campaign, he has significantly consolidated his power and become the ‘emperor of China’ (Liu 2018b). It is likely that he will implement these market-oriented reform measures in due course.

21. http://www.gov.cn/xinwen/2016-02/16/content_5041671.htm (in Chinese; accessed 20 April 2018). 22. In China, all initial public offering and bond issuance need approval from the China Securities Regulatory Commission

(Liu 2018b). 23. http://www.mof.gov.cn/zhengwuxinxi/caizhengxinwen/201607/t20160715_2358336.htm (in Chinese; accessed 20 April 2018). 24. http://www.sasac.gov.cn/n2588025/n2588119/c4294290/content.html (in Chinese; accessed 20 April 2018). 25. https://cn.reuters.com/article/%E4%B8%AD%E5%9B%BD%E5%9F%BA%E9%87%91%EF%BC%9A%E9%

9B%86%E6%88%90%E7%94%B5%E8%B7%AF%E4%BA%A7%E4%B8%9A%E5%9F%BA%E9%87%91% E4%BA%8C%E6%9C%9F%E5%91%BC%E4%B9%8B%E6%AC%B2%E5%87%BA%EF%BC%8C%E8% A7%84%E6%A8%A1%E9%80%BE1%2C500%E4%BA%BF%E5%85%83-%E6%8A%A5%E8%BD%BD- idCNL4S1QJ70N (in Chinese; accessed 20 April 2018).

26. http://www.financialnews.com.cn/zq/jj/201604/t20160407_95235.html (in Chinese; accessed 20 April 2018). 27. http://www.gov.cn/zhengce/content/2015-05/16/content_9771.htm (in Chinese; accessed 20 April 2018). 28. Wind Info. 29. https://tcdata360.worldbank.org/indicators/gci?country=AUS&indicator=631&viz=line_chart&years=2007,2017 (accessed

16 April 2018).

References

Amsden, A. (1989) Asia’s Next Giant: South Korea and Late Industrialization. Oxford: Oxford University Press. Australian Financial Review (Sydney) (2018) ‘Reasons not to worry about China’s credit boom’, 10 January. Balassa, B. (1965) ‘Trade Liberalisation and “Revealed” Comparative Advantage’, The Manchester School 33(2),

99–123. BBC News (2018) ‘Trump puts 25% tariff on Chinese goods’, 15 June. https://www.bbc.com/news/business-44498484

(accessed 13 July 2018). Behsudi, A. (2017) ‘Lighthizer: “Made in China 2025” a threat to global system’, Politico: Morning Trade, 11 June.

https://www.politico.com/tipsheets/morning-trade/2017/11/06/lighthizer-made-in-china-2025-a-threat-to-global- system-223188 (accessed 13 April 2018).

Bradsher, K. and J. Perlez (2018) ‘Is Trump Serious About Trade War? China’s Leaders Hunt for Answers’, New York Times, 12 April.

Cai, F. and Y. Lu (2013) ‘Population Change and Resulting Slowdown in Potential GDP Growth in China’, China & World Economy 21(2), 1–14.

ChinaDaily.com.cn (2015) ‘“Made in China 2025” plan unveiled’, 19 May. http://www.chinadaily.com.cn/bizchina/2015- 05/19/content_20760528.htm (accessed 17 April 2018).

China.org.cn (2014) Communiqué of the Third Plenary Session of the 18th Central Committee of the Communist Party of China. 15 January. http://www.china.org.cn/china/third_plenary_session/2014-01/15/content_31203056.htm (accessed 19 April 2018).

Davies, B., J. Zumbrun and L. Wei (2018) ‘U.S. announces tariffs on $50 billion of China imports’, Wall Street Journal, 3 April.

Delaney, R. (2018) ‘Donald Trump’s US$50b tariffs target Beijing’s “Made in China 2025” tech strategy’, South China Morning Post (international edn), 4 April.

Dorrucci, E., G. Pula and D. Santabárbara (2013) China’s Economic Growth and Rebalancing. Banco de Espana Occasional Paper No. 1301. https://doi.org/10.2139/ssrn.2256838 (accessed 26 July 2018).

322 K. LIU

© 2018 Institute of Economic Affairs

Ernst, D. (2016) Advanced Manufacturing and China’s Future for Jobs. East–West Center Working Papers: Innovation and Economic Growth Series, No. 8. https://doi.org/10.2139/ssrn.2820433 (accessed 26 July 2018).

EUCCC (European Union Chamber of Commerce in China) (2017) China Manufacturing 2025: Putting Industrial Policy Ahead of Market Forces. Beijing: EUCCC.

EY (2016) Going Out – The Global Dream of a Manufacturing Power. 2016 China Outbound Investment Outlook. March. Ernst and Young China. https://www.ey.com/Publication/vwLUAssets/ey-2016-china-outbound- investment-outlook-en/$FILE/ey-2016-china-outbound-investment-outlook-en.pdf (accessed 26 July 2018).

Glawe, L. and H. Wagner (2017) The People’s Republic of China in the Middle-Income Trap?. ADBI Working Paper Series No. 749. Tokyo: Asian Development Bank Institute. http://hdl.handle.net/11540/7185. https://www.adb.org/ publications/prc-middle-income-trap (accessed 23 April 2018).

Johnson, F. (2018) ‘Fair Play: CFIUS Is No Joke’, Corporate Transactions Blog, 18 March. Bloomberg. https://www.bna. com/fair-play-cfius-b57982092955/ (accessed 20 April 2018).

Kuo, L. (2018) ‘China retaliates with tariffs after US begins trade war’, Guardian, 6 July. Lee, D. and J. Kaiman (2018) ‘China retaliates against U.S. tariffs, escalates trade war’, Los Angeles Times, 4 April. Lin, J. Y. (2013) ‘Demystifying the Chinese Economy’, Australian Economic Review 46(3), 259–268. Liu, K. (2018a) ‘The Relation Between Government Ownership and Firm Performance: Evidence from Cross-Country

Datasets’, International Journal of Business 23(2), 183–197. Liu, K. (2018b) Emperor Xi Jinping: Good? Bad? A Perspective from Financial Economics. Working paper. China

Studies Centre, University of Sydney, Australia. Liu, K. (2018c) China’s Visible Hand: The Role of Government During 2015–2017. Working paper. China Studies

Centre, University of Sydney, Australia. Liu, K. (2018d) Chinese Banking Sector’s Intra-Financial System Debt Issue. Working paper. China Studies Centre,

University of Sydney, Australia. Mayeda, A., S. Mohsin and D. McLaughlin (2018) ‘U.S. Weighs Use of Emergency Law to Curb Chinese Takeovers’,

Bloomberg, 27 March. https://www.bloomberg.com/news/articles/2018-03-27/u-s-said-to-weigh-use-of-emergency- law-to-curb-china-takeovers (accessed 20 April 2018).

Needham, K. (2018) ‘China votes to allow President Xi Jinping to rule for life’, Sydney Morning Herald, 11 March. Reuters (2017) ‘China says will not set target to double GDP from 2021, in change from the past’, 26 October. https://

www.reuters.com/article/us-china-congress-growth/china-says-will-not-set-target-to-double-gdp-from-2021-in- change-from-the-past-idUSKBN1CV07S (accessed 17 January 2018).

Ringen, S. (2016) The Perfect Dictatorship: China in the 21st Century. Hong Kong: Hong Kong University Press. Rodrik, D. (2016) ‘Premature Deindustrialization’, Journal of Economic Growth 21(1), 1–33. Schwab, K. and X. Sala-i-Martín (2015) The Global Competitiveness Report 2015–2016. Geneva: World Economic

Forum. http://reports.weforum.org/global-competitiveness-report-2015-2016/ (accessed 16 April 2018). Schwab, K. and X. Sala-i-Martín (2017) The Global Competitiveness Report 2017–2018. Geneva: World Economic

Forum. http://reports.weforum.org/global-competitiveness-index-2017-2018/ (accessed 16 April 2018). Simola, H. (2017) China’s Growing Role in Global Production Boosted by Strong Competitiveness – Evidence from

International Input–Output Tables. BOFIT Policy Brief 2/2017. Helsinki: Bank of Finland/Institute for Economies in Transition.

The Conference Board (2018) International Labor Comparisons. https://www.conference-board.org/ilcprogram/ (accessed 17 April 2018).

UNIDO (United Nations Industrial Development Organization) (2013) Industrial Competitiveness of Nations: Looking Back, Forging Ahead. Vienna: UNIDO.

USTR (Office of the United States Trade Representative) (2018a) President Trump Announces Strong Actions to Address China’s Unfair Trade. Press Release, March. https://ustr.gov/about-us/policy-offices/press-office/press- releases/2018/march/president-trump-announces-strong (accessed 13 April 2018).

USTR (2018b) Findings of the Investigation into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation Under Section 301 of the Trade Act of 1974. Washington, DC: Office of the United States Trade Representative, Executive Office of the President. https://ustr.gov/sites/default/files/Section% 20301%20FINAL.PDF (accessed 13 April 2018).

Wong, J. (2016) ‘China and the Middle-Income Trap’, East Asian Policy 8(3), 78–86. Wübbeke, J., M. Meissner, M. J. Zenglein, J. Ives and B. Conrad (2016) Made in China 2025: The Making of a High-

Tech Superpower and Consequences for Industrial Countries. Merics Papers on China No. 2. Berlin: Mercator Institute for China Studies. http://www.documentcloud.org/documents/3864881-Made-in-China-Paper.html (accessed 26 July 2018).

Xinhuanet (2015) ‘Top legislature amends law to allow all couples to have two children’, 27 December. http://www. xinhuanet.com/english/2015-12/27/c_134955448.htm (accessed 17 April 2018).

ECONOMIC AFFAIRS, VOLUME 38, NUMBER 3 323

© 2018 Institute of Economic Affairs

Yu, M. (2016) Industrial Upgrading, Job Creation, and Poverty Reduction in China. Peking University, 2 June. UNHQ. http://www.un.org/esa/socdev/egms/docs/2016/Poverty-SDGs/Yu-ppt.pdf (accessed 30 July 2018).

Zhang, K. (2015) ‘China’s Manufacturing Performance and Industrial Competitiveness Upgrading: International comparison and Policy Reflection’, ch. 12 in L. Song et al. (eds), China’s Domestic Transformation in a Global Context. Canberra: ANU Press.

Zhou, H. (2017) Will China Avoid the Middle-Income Trap? MPRA Paper No. 82688. Munich Personal RePEc Archive, University Library of Munich.

Legislation cited

Trade Act of 1974 (US). https://legcounsel.house.gov/Comps/93-618.pdf (accessed 26 August 2018).

324 K. LIU

© 2018 Institute of Economic Affairs