MIIT: China’s manufacturing sector is currently undergoing a transformation and needs to firmly implement Made in China 2025.

On the 26th, the Ministry of Industry and Information Technology (MIIT) released a report by MIIT’s Zhang Miaowei to the National People’s Congress on advancing supply-side structural reform and accelerating the transformation and upgrading of the manufacturing sector. The report stated that China’s manufacturing industry is currently undergoing a transition from large-scale to strong-scale production, and its long-term fundamental outlook remains positive. However, it faces multiple challenges, including a shift in growth rate, structural adjustments, and a need to transform its growth drivers. Whether we can smoothly achieve the strategic shift from quantity expansion to quality enhancement—and thereby enable manufacturing to become a key pillar supporting China’s basic realization of modernization—depends on firmly implementing “Made in China 2025” and unswervingly adhering to the development of the manufacturing sector.

　　The report states that manufacturing is the backbone of the real economy and the primary battleground for technological innovation. Building a manufacturing sector with international competitiveness is an essential path for enhancing our country’s overall strength, safeguarding national security, and constructing a world-class power. The Party Central Committee and the State Council attach great importance to the development of manufacturing. The 18th National Congress of the Communist Party of China pointed out that we must promote the healthy development of strategic emerging industries and advanced manufacturing. The Fifth Plenary Session of the 18th CPC Central Committee emphasized the need to implement “Made in China 2025” and accelerate the building of a manufacturing powerhouse. The Executive Meeting of the State Council has specifically studied supply-side structural reform and the implementation of “Made in China 2025.” All relevant departments and local authorities have earnestly implemented the decisions and deployments of the Party Central Committee and the State Council, steadily and effectively advancing supply-side structural reform and the transformation and upgrading of the manufacturing sector.

　　Since the reform and opening-up, especially since the beginning of the new century, China’s manufacturing sector has achieved globally remarkable accomplishments. Its overall scale has expanded rapidly, its innovation capacity has significantly strengthened, and its industrial structure has continued to optimize. During the 12th Five-Year Plan period, China’s manufacturing sector achieved an average annual growth rate of 9%, becoming a vital pillar for weathering the global financial crisis and maintaining steady macroeconomic development. In particular, since the launch of “Made in China 2025” in 2015, under the strong leadership of the Party Central Committee and the State Council, and guided and promoted specifically by the National Leading Group for Building a Manufacturing Powerhouse—with supply-side structural reform as the main thread—various initiatives have yielded positive results. Eleven special planning guidelines for “Made in China 2025” have been released and implemented, driving the introduction of a series of supporting policies and measures. All provinces (autonomous regions and municipalities) have formulated implementation plans or action outlines, and a policy system featuring horizontal coordination, vertical integration, and multi-party collaboration has basically taken shape. In 2016, the value-added of the manufacturing sector grew by 6.8% year-on-year, laying a solid foundation for the nation’s GDP to achieve a growth rate of 6.7%.

　　(1) The supply-side structural reform in the manufacturing sector has achieved new breakthroughs.

　　First, we have actively and steadily resolved excess capacity. We established an inter-ministerial joint conference mechanism for addressing excess capacity in the steel and coal industries and for helping these industries out of difficulties. We refined and implemented action plans and conducted special supervision and inspection. In 2016, we eliminated more than 65 million tons of crude steel capacity and over 290 million tons of coal capacity—exceeding our annual targets while ensuring high-quality implementation. The overall placement of workers was smooth and orderly, and the disbursement of incentive and subsidy funds was largely completed. We also innovated industry management approaches and adopted differentiated measures to deal with “zombie enterprises.” We vigorously promoted mergers and restructuring within the industry, significantly enhancing industry concentration and enterprise competitiveness. As a result, the balance between supply and demand in the market has gradually improved. Positive outcomes are increasingly evident in areas such as boosting efficiency and accelerating transformation, establishing a fair competitive market order, improving expectations and stabilizing confidence, preventing economic and social risks, and exploring long-term development pathways.

　　Second, we will promote cost reduction and efficiency enhancement in industrial enterprises. We will fully roll out the pilot program of replacing business tax with value-added tax, implement the policy of additional deduction for R&D expenses, advance reforms to streamline fees and charges, abolish or reduce administrative fees levied on enterprises, strengthen information sharing between banks and enterprises, guide the financial sector to increase support for manufacturing, steadily advance pilot programs for investment-loan linkage, improve supply-chain finance, and lower financing costs. We will deepen the “delegation, regulation, and service” reform, removing various implicit barriers such as “glass doors” and “ceilings.” We will vigorously promote mass entrepreneurship and innovation, supporting large manufacturing enterprises, major internet companies, and basic telecom enterprises in establishing platforms for mass innovation and entrepreneurship. We will establish guarantee compensation mechanisms in six provinces and cities, develop government-backed guarantee institutions, and foster the development of small and medium-sized enterprises.

　　Third, we will address the shortcomings in the quality of physical products. We will launch a special campaign focused on “three priorities”—expanding product variety, enhancing product quality, and building brands—to improve the industry ecosystem and boost consumer confidence. We have approved 23 industrial product quality control and technical evaluation laboratories, and released 55 national standards for consumer goods and 208 industry standards. We are also promoting mergers and restructuring within the infant formula milk powder industry, as well as strengthening quality traceability systems.

　　(2) New progress has been made in the development of advanced manufacturing and the cultivation of new growth drivers.

　　First, we must deepen the development of industrial innovation capabilities and build a robust innovation system. We will refine the manufacturing standards system and innovation networks, and accelerate the establishment of manufacturing innovation centers at both the national and provincial levels. Currently, the National Power Battery Innovation Center has been officially established, broadly attracting universities and upstream and downstream enterprises across the industry chain, and operates under a market-oriented model based on the “company-plus-alliance” approach. The National Additive Manufacturing Innovation Center is currently being set up, and localities have also fostered and established 19 provincial-level manufacturing innovation centers. By innovating institutional mechanisms and integrating resource elements, we will transform these manufacturing innovation centers into key platforms for research on critical common technologies and for demonstrating their industrial application.

　　Second, we are continuously strengthening the foundational capabilities of the industrial sector. We will continue to implement the Industrial Foundation Strengthening Project, focusing on addressing the shortcomings in the “four foundations” of industry—namely, core basic parts and components, advanced basic processes, critical basic materials, and industrial technological foundations—and carry out demonstration applications of key products and processes. As a result, we have achieved positive outcomes in several key products and processes.

　　Third, we are making solid efforts to enhance the level of intelligent manufacturing. Guided by the principle of "establishing common standards first and prioritizing urgent needs," we have proposed a comprehensive framework for an intelligent manufacturing standards system and launched research on 81 pilot verification projects. Taking the intelligentization of key products and complete sets of equipment as a breakthrough point and promoting the widespread adoption of smart factories as an entry point, we are organizing and implementing intelligent manufacturing projects and carrying out pilot demonstrations of intelligent manufacturing. Preliminary assessments show that, on average, pilot demonstration projects have achieved more than a 30% increase in production efficiency, more than a 10% improvement in energy utilization, and more than a 20% reduction in operating costs, continuously boosting the digitalization, networking, and intelligentization levels of the manufacturing sector.

　　Fourth, we are promoting innovative development of high-end equipment. Taking equipment upgrading as a key priority under the “Made in China 2025” initiative, we are actively advancing the industrialization of major equipment and have achieved a number of landmark breakthroughs in fields such as aerospace, rail transit equipment, high-end CNC machine tools, ships, and marine engineering equipment. The China Aviation Engine Group has been successfully established; products like high-precision CNC gear grinding machines have risen to world-leading levels. The C919 large passenger aircraft is about to make its maiden flight; the Long March-5 heavy-lift carrier rocket, manned spaceflight programs, and the world’s first quantum satellite have all been successfully launched; the “Haidou” unmanned submersible has been successfully deployed; and China’s standard high-speed trainsets have successfully completed the world’s first-ever intersection test at 420 km/h.

　　Fifth, we will deepen the promotion of green manufacturing. We will build a green manufacturing system centered on green standards, green factories, green products, green industrial parks, and green supply chains. We will implement green manufacturing projects, establish 44 demonstration projects for the comprehensive utilization of industrial resources in the Beijing-Tianjin-Hebei region, and promote the creation of 51 national low-carbon industrial parks. We will also introduce management measures for industrial energy conservation and carry out special inspections and supervision on energy conservation in 20 provinces, autonomous regions, and municipalities. In 2016, the energy consumption per unit of industrial value added by enterprises above designated size nationwide decreased by 5.47% compared to the previous year, and water consumption fell by 6% year-on-year.

　　(3) New achievements have been made in the transformation and upgrading of traditional industries.

　　First, we will refine policies and measures for technological transformation and upgrading. We will deeply implement the innovation-driven development strategy, promote mass entrepreneurship and innovation by all, and fully leverage China’s advantages in human resources. We have issued the “Notice on Implementing the Major Project Package for Upgrading and Transforming Manufacturing,” as well as the “Investment Guide for Technological Transformation and Upgrading of Industrial Enterprises,” to guide enterprises in leveraging new technologies, processes, materials, and equipment to transform and upgrade traditional industries, thereby continuously enhancing industrial technological levels and increasing the proportion of advanced production capacity. During the 12th Five-Year Plan period, the average annual growth rate of labor productivity per employee in the industrial sector reached 12%. New materials such as lithium-ion battery materials, nanomaterials, high-performance alloys, and composite materials have been successfully industrialized, and the capability for manufacturing high-end equipment—including petrochemical machinery, high-speed trainsets, CNC machine tools, smart instruments, and marine engineering equipment—has significantly improved.

　　Second, we are actively guiding social investment into the industrial sector. We have issued the “Notice on Further Strengthening Work Related to Private Investment,” treating the promotion of healthy development of private investment as an important component of supply-side structural reform. We have conducted special inspections and follow-ups to address shortcomings and provided guidance to local authorities for improving their work. Since 2010, China’s industrial investment has grown from 13 trillion yuan to 22.8 trillion yuan, and the share of manufacturing investment in total industrial investment has risen from 79.5% to 82.5%.

　　Third, we will continue to optimize the spatial layout of industrial development. We will deeply implement the three major regional strategies and promote coordinated development across the four key sectors in a well-planned manner. Fully leveraging the initiative from both the central and local governments, we will launch pilot and demonstration cities (or city clusters) under the “Made in China 2025” initiative, striving to develop a set of replicable and scalable best practices. We will annually revise and update the provincial and municipal guidelines for “Made in China 2025.” Furthermore, we will deepen the construction of national demonstration bases for new industrialization, fostering a new pattern of manufacturing development that is tailored to local conditions and features regional collaboration.

　　Fourth, we must open up a new chapter for Chinese manufacturing’s “going global” strategy. Leveraging bilateral and multilateral cooperation mechanisms, we will strengthen strategic alignment and industrial collaboration with countries such as Germany, the United States, and Russia. Relying on the Belt and Road Initiative, we have signed capacity cooperation agreements with more than 20 countries. Driven by cooperation in end-product capacity and turnkey project contracting for major infrastructure projects, we will promote the systematic and clustered “going global” of upstream and downstream enterprises in the industrial chain, advanced technology standards, and supporting services. We will also appropriately address trade frictions in industries such as steel, safeguarding the rights and interests of Chinese manufacturing enterprises.

　　(4) The integrated development of manufacturing and information technology has reached a new level.

　　First, we must deepen the integrated development of manufacturing and the internet. We have issued the "Guiding Opinions on Actively Promoting the 'Internet Plus' Initiative" and the "Guiding Opinions on Deepening the Integrated Development of Manufacturing and the Internet." Through policy guidance and concerted efforts from all parties, the internet has been widely integrated into every stage of research and development as well as design. The pace of intelligent transformation of key products and equipment has accelerated. In 2016, the penetration rate of digital R&D tools among Chinese enterprises reached 61.8%, the networking rate of digital production equipment reached 38.2%, and the CNC rate for key processes reached 33.3%. A number of new business models and formats based on emerging applications and new models are rapidly emerging. We should also do a good job in top-level design for the development of vehicle-to-everything (V2X) networks and the industrial internet.

　　Second, we will continue to enhance the level of military-civilian integration. We will promote two-way technology transfer between the military and civilian sectors, foster mutual sharing of military and civilian resources, and steadily advance the construction of the national public service platform for military-civilian integration. We will also release annual catalogs highlighting technologies and products for “military-to-civilian” and “civilian-to-military” transitions. In 2016, the “military-to-civilian” catalog covered 160 advanced technologies across six fields—including intelligent manufacturing, information technology, new materials, and new energy—while the “civilian-to-military” catalog included 155 technologies and products in 14 key areas, such as command and control. We also held the inaugural China Military-Civil Dual-Use Technology Innovation and Application Competition.

　　Third, we will accelerate the development of service-oriented manufacturing. We will launch a special action on service-oriented manufacturing and initiate a selection process for demonstration enterprises in this field, guiding manufacturing companies to shift from production-based manufacturing toward “manufacturing + services” and “products + services.” Taking the establishment of national-level industrial design centers as a key driver, we will focus on enhancing the capabilities and standards of industrial design. We will also guide and support the accelerated development of supply chain management, information technology services, and energy-saving and environmental protection services.

　　China’s manufacturing sector possesses the foundational strengths and conditions necessary to become a global manufacturing powerhouse. However, compared with advanced countries, there still remains a significant gap. The overall characteristic is that while China’s manufacturing sector is large in scale, it lacks true strength, and the development model centered on sheer expansion has yet to be fundamentally reversed. Specifically, this manifests itself in the following ways: First, overall innovation capability is relatively weak, and the manufacturing innovation system remains incomplete. Second, the overall level of product quality and technical standards is not high, and brand value has yet to be fully realized. Third, resource and energy utilization efficiency is low, and environmental pollution remains a prominent issue. Fourth, structural adjustments within the industrial sector still need to be deepened. Fifth, the breadth and depth of integration between information technology and industrialization are insufficient.

　　Moreover, influenced by multiple domestic and international factors, the manufacturing sector is currently facing ever-increasing downward pressure, and rising costs pose a real challenge to its development. The prices of traditional factors—such as resources, the environment, labor, and land—are continually climbing, making it a long and arduous task to reduce enterprises’ institutional transaction costs. At the same time, China finds itself caught in a “two-way squeeze” within the global manufacturing landscape: on one hand, high-end manufacturing is returning to developed countries, and on the other, low-end manufacturing is shifting to emerging economies. Since the onset of the global financial crisis, developed countries have been vigorously pursuing “reindustrialization” strategies, aiming to revitalize their manufacturing sectors and seize the initiative in global competition. Meanwhile, many emerging economies have also elevated the development of manufacturing to the status of national strategy.

　　China’s manufacturing sector is currently undergoing a transformation—from large-scale to strong—yet its long-term, fundamentally positive outlook remains unchanged. However, it faces multiple challenges, including a shift in growth rate, structural adjustments, and a transition in growth drivers. Whether we can smoothly achieve the strategic shift from quantity expansion to quality enhancement and enable manufacturing to become a key pillar supporting China’s basic realization of modernization hinges on firmly implementing “Made in China 2025” and unswervingly pursuing the development of manufacturing. We must fully leverage the decisive role of the market in allocating resources and further enhance the government’s role. We should make good use of manufacturing’s existing foundations and advantages, and promote coordinated advancement in both the upgrading and transformation of traditional industries and the cultivation and development of emerging industries. Moreover, we must implement a higher-level opening-up strategy and accelerate the development of new international competitive advantages for China’s manufacturing sector.