Distinguished Sinologist James McGregor says China is vigorously encouraging domestic R&D and innovation to strengthen its global competitiveness. In an interview he says China’s economic goals as stated in the 13th Five Year Plan (2016-2020) are meant to help the country shed its tag as a ‘low cost, low quality’ maker of goods and services and develop a modernised manufacturing and technological base. McGregor is Greater China Chairman for APCO Worldwide, an independent global public affairs and strategic communications consultancy operating in 35 worldwide locations
As a distinguished China expert James McGregor observations are followed by corporate and political leaders with great seriousness. His prognostications are guideposts of decision-makers. As China Chairman for APCO Worldwide, an independent global public affairs and strategic communications consultancy, his insightful analyses and research are valuable.
In an interview with Tyre Asia, he shared his views on the recently announced 13th Five Year Plan (2016-2020) that will guide the country’s economic and industrial activities. As a former Chairman of the American Chamber of Commerce in China and currently a member of the Council on Foreign Relations, Atlantic Council, Asia Society Global Council and National Committee on US-China Relations, he has a ring-side view of China’s economy.
Chinese President Xi Jinping, who is also the General Secretary of the Communist Party, has reiterated his vision for the country in the 13th Five-Year Plan.
His vision reveals that a major thrust of his plan will be on innovation, R&D, etc. to enhance China’s global competitiveness. From this perspective, there will be a new growth paradigm in sectors such as automobile, tyre and rubber where cutting-edge technology and manufacturing processes will be introduced.
“One of the main focuses of the 13th FYP is on innovation and R&D, particularly in high-tech industries, to increase China’s global competitiveness and encourage domestic industry growth,” said Mc Gregor, who is also author of definitive books on China such as No Ancient Wisdom, No Followers: The Challenges of Chinese Authoritarian Capitalism (2012) and One Billion Customers: Lessons from the Front Lines of Doing Business in China (2005).
This policy push has seen the government announcing various innovation and R&D-related policies, with R&D investment set to account for 2.5% of GDP by 2020 (up from 2.1% in 2015).
Through these policies, Xi’s ‘innovation-driven development’ is aimed at propelling economic growth. This goal to promote the domestic industry’s innovation capabilities is already translating into high investment in cutting-edge technologies for various critical sectors of the Chinese economy, such as the telecom and semiconductors industries.
Informatization is also expected to promote innovation among more traditional industries, increasing productivity and the competitiveness of Chinese companies, he emphasised.
Noting the closing gap between urban and rural areas that would see greater vehicle penetration, McGregor commented that the urbanization rate is expected to keep increasing over the coming years.
“One of the goals of the 13th FYP is to move 100 million rural residents into Chinese cities, bringing urban residents to comprise 60% of the total population,” he noted.
In addition, closing the income inequality gap between urban and rural residents and modernizing the countryside are core tenets to realize the government’s goal of building China into a moderately well-off society.
The 13th FYP also outlines a significant amount of infrastructure spending for expressways, as well as airports and bullet trains, for instance, in the coming five years.
“These initiatives, coupled with efforts to boost consumption and increase incomes across the country, might create opportunities for greater vehicle penetration in the rural areas,” he elaborated.
When asked about the impact of such a shift on the environment and efforts at cutting carbon emission and automotive pollution, McGregor commented that the latest Five Year plan is touted as the ‘greenest’ plan to date and the first one with a specific Fine Particles (PM2.5) target.
“However, policies promoting carbon emission cuts will be balanced against the prominence of economic growth targets. A greater emphasis on environmental protection will, nevertheless, offer opportunities for companies involved in renewable energy or energy efficiency,” McGregor felt.
Automobile producers should identify the goals of the government in these areas, and develop their future business in China to meet the energy efficiency and environmental goals of the government.
With regard to ‘Made in China’ 2025 policy, he said it is meant to push forward the nation’s industrial upgrading and intelligent manufacturing over the next decade and cultivate national champions that can compete on a global scale.
In a number of sectors such as telecom equipment, high-speed rail, and nuclear and wind power, state-sponsored firms are receiving government subsidies and support, resulting in a situation where multinationals are gradually being pushed out of the market.
Increasingly, requests for MNCs to cooperate with Chinese partners often come associated with aggressive government demands for technology transfers. Against this background, MNCs are often walking a tightrope to pursue success in the Chinese market while protecting their competitive advantage globally.
China is also striving hard to shed its tag as a ‘low cost, low quality’ maker of goods and services. The economic goals as stated in the 13th FYP are meant to help China shed this tag and develop a modernized manufacturing and technological base.
“As such, China will continue to push its economy away from the cheap export and investment-driven growth model of the past, and towards a consumption and innovation-driven growth model,” McGregor emphasised.
Progress in this direction is already being made in certain sectors such as telecom solutions and equipment but it remains to be seen how effective these policies will be across the board.
“Xi’s administration will expectedly devote increasing regulatory and financial support to advance a new ‘innovation-driven’ development pattern that should make China into a high-end manufacturing powerhouse by 2049.