Source: Blog – Alliance for American Manufacturing

Mechanical arms weld a car body at a factory in China’s Jiangsu Province in December 2024. | Getty Images

A pair of recently released reports examine the results of Beijing’s big industrial policy. In the future, we should expect more of the same.

Last week the Financial Times ran a big piece on the results of the Made in China 2025 plan, Beijing’s sweeping industrial policy that has targeted 10 advanced manufacturing industries for domination. Informed by a pair of reports about the effort – one from the Rhodium Group and the other from the European Union Chamber of Commerce in China – the article summarizes the plan’s successes and failures and concludes with a look ahead, listing what Chinese leadership should do before forecasting what it will do instead in setting future industrial policies.

In short: There have been more successes than failures, and Chinese President Xi Jinping is already placing more bets in the form of investments in emerging industries.

“Not only was the plan more comprehensive than earlier industrial policy programmes, it came with detailed targets for market share, domestic self-sufficiency and technological development,” reads the article. And the various vehicles for state support are listed: the tax benefits, loans for firms from state-controlled funds, direct investment, market restrictions for foreign companies, joint venture rules, the formation of national champions. All make an appearance, and all inform the grades that the two reports essentially produce.

And yet! Do the grades really matter? From the article: 

Yet measuring the plan’s performance against China’s targets fails to capture the programme’s real purpose, says Max Zenglein, chief economist at Merics, a Beijing-based think-tank. “It misses the entire goal which [Made in China] is supposed to achieve, which is to become a manufacturing superpower.”

There are a remarkable number of thoughtful academics interviewed in the piece who argue that it hasn’t; that the leaps its manufacturing sector has taken in recent years have been too difficult to link back to the policy inputs that presumably made them possible.

But the results are hard to ignore. China accounts for roughly 30 percent of global manufacturing. The generosity its industrial policy has showered on its factories have created examples of massive overcapacity, and it’s deindustrialized its trading partners – specifically, the United States. The Alliance for American Manufacturing wrote an entire report about China’s export-led growth model last year, which goes back well beyond it 2025 plans. We wrote:

Overcapacity and overproduction are problems across China’s vast manufacturing sector, where dedicated state support combines with low rates of household consumption to create an environment where many industries produce far more than the Chinese market will absorb. And it is not a new phenomenon. Examples of Chinese industrial overcapacity can be found over the years in sectors from paper and steel to car tires.

But the result is almost always the same: The excess is exported, often at a loss. It is manufacturers and workers in market economies around the world that receive the sharp end of this largesse.

The article offers policy recommendations for the country’s leadership. If, instead of pouring its resources into cementing its manufacturing dominance, it were to build out a social safety net for its vast workforce, China’s citizens would be more free to spend down their high household savings, thereby generating domestic demand and greatly alleviating some of the tensions it has created via the chronic trade surpluses plans like Made in China 2025 encourage. That account, the article points out, reached close to $1 trillion last year.

But it won’t. Instead, Xi’s rhetoric shows the government is instead targeting areas of relative weakness, and throwing gobs of money at robotics now. So U.S. policymakers, take note! China is not letting up on the throttle. And tariffs alone will not be enough to defend against the overcapacity problems it industrial policies will produce.

You can read the whole Financial Times article here.

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