- China increases credit and tax support for manufacturers
- Focuses on high tech industries to move up the value chain
- China relies on manufacturing, not services, to accelerate its rise
- Pandemic highlights China’s dominant role in supply chains
- U.S. tech brakes bolster China’s resolve to spur innovation
TIANJIN, China, September 22 (Reuters) – Workers at a factory in northern China are busy testing an automated vehicle designed to move bulky items around industrial spaces, one of the next-generation robots Beijing wants move the country’s manufacturing up the value chain.
The Tianjin-based robot maker has benefited from tax breaks and government-guaranteed loans to build products that modernize China’s vast industrial sector and advance its technological expertise.
âThe government is paying great attention to the manufacturing sector and the real economy – we can feel it,â said Ren Zhiyong, general manager of Tianjin Langyu Robot Co, as he gave Reuters a tour of his factory.
China is supporting the R&D efforts of high-tech manufacturers like Langyu, driven by an urgent desire to reduce reliance on imported technologies and strengthen its dominance as a global industrial power, even as it grows stronger. attack on other sectors of the economy.
Beijing Pivot emphasizes advanced manufacturing, rather than the service sector, to push the world’s second-largest economy past the so-called “middle-income trap” where countries lose productivity and stagnate in lower value economic production.
âPressure is the driving force, and without pressure it is difficult for businesses to grow,â Ren said.
It expects revenues to more than double to 100 million yuan ($ 15.52 million) this year from 2020, due to increased demand for high-tech products such as guided vehicles. automated systems from Langyu.
More generally, the city of Tianjin plans to invest 2,000 billion yuan ($ 311 billion) between 2021 and 2025, 60% of which is reserved for strategic emerging industries, Yin Jihui, head of the Bureau of China, told Reuters. Tianjin Information Technology and Industry.
The investment, including business and government spending, will help grow the manufacturing sector to 25% of the economy in 2025, up from 21.8% in 2020, Yin said.
The share of strategic industries in the output of the Tianjin plant will also increase to 40 percent, Yin said, from 26.1 percent last year.
âIt will be very difficult and challenging to achieve these goals, (because) we need to ensure stable economic development while transitioning from the old to the new engines,â Yin said.
China’s five-year plan in March pledged to keep the manufacturing sector’s share of GDP “essentially stable,” unlike the 2016-2020 plan which emphasized services to create jobs.
The coronavirus and the Sino-U.S. Trade war have reframed the way policymakers view factories: no longer just grubby relics of an old economy, but assets of strategic value.
During the pandemic, Chinese factories manufactured everything from masks and ventilators to work-at-home electronics, propelling the economic recovery from its record-breaking crisis in early 2020.
Moreover, the trade war with the United States and Washington’s technological brakes have exposed China’s lack of high-tech know-how, reinforcing Beijing’s resolve to accelerate innovation.
“Growing external pressure since the start of the trade war has made policymakers more determined to develop the mid-to-high-end manufacturing industry in China,” said Qu Hongbin, chief economist for China at HSBC.
“The higher the external pressure, the more emphasis they put on manufacturing. That will turn into real political support.”
Tianjin-based Ringpu Biotech (300119.SZ), which manufactures animal vaccines, has faced critical delays in importing American equipment and materials used for R&D and quality control.
“We have taken some steps, including increasing our own R&D capacity and cooperating with other companies and universities,” Ringpu vice president Fu Xubin said.
“We will seek to strengthen our ability to find replacements in areas where we are facing problems.”
‘SENSE OF CRISIS’
The share of manufacturing in China’s GDP fell to 26.2% in 2020 from 32.5% in 2006, while the service sector increased its contribution to 54.5% from 41.8%, according to the World Bank.
Officials fear that too rapid a shift towards services, which employ more people but are less productive than manufacturing, could undermine long-term growth, as has been the case in some Latin American economies.
Beijing does not want the manufacturing sector to drop below 25% of GDP, which roughly matches South Korea’s economic profile, government advisers have said.
“Governments at central and local levels are stepping up their support for advanced manufacturers, but the industrial upgrade will not be smooth,” said a government adviser who requested anonymity.
From 2021 to 2025, China aims to increase R&D spending by more than 7% per year, focusing on âfrontierâ technologies such as artificial intelligence, quantum computing and semiconductors.
The plan, which largely replaces the âMade In China 2025â initiative of 2015, targets nine emerging sectors: new generation information technologies, biotechnology, new energies, new materials, high-end equipment, new energy vehicles, environmental protection, aerospace and marine equipment.
The central bank has funneled more credit to the manufacturing sector, especially high-tech companies, to the detriment of the real estate sector, which faces new restrictions against speculative investment.
Langyu, the robotics company, plans to spend around 20 million yuan on R&D this year, or 20% of expected revenue in 2021, thanks to larger tax breaks for R&D, Ren said.
Ringpu spends 8-12% of its revenue on R&D and will spend 1.3 billion yuan between 2020 and 2023 to improve automation and production.
“For China, achieving technological autonomy in certain sectors is a matter of survival,” said Tu Xinquan, director of the China Institute of WTO Studies at the University of International Affairs and Economics. .
“The sense of crisis is a great driving force.”
($ 1 = 6.4333 Chinese yuan)
Reporting by Kevin Yao; Editing by Sam Holmes
Our Standards: Thomson Reuters Trust Principles.