With the 14th Five-Year Plan (FYP), Beijing’s economic policymakers in March last year formally adopted the “dual circulation” strategy, the overarching policy framework for the “new development stage” that succeeds the prior model that predominantly focused on rapid growth.
As per this new plan, Beijing puts renewed emphasis on its intention to wean itself off its dependence on foreign key technologies and transform itself into an S&T powerhouse. The sectoral Smart Manufacturing FYP (2022) for instance talks about a “market sufficiency rate” (市场满足率) of 70% for smart manufacturing equipment and 50% for industrial software by 2025.
But what does “market sufficiency rate” mean?
How Beijing defines terms and concepts like “self-sufficiency”, “self-reliance” or “market share” carries substantive strategic and – ultimately – practical relevance for foreign companies operating in China. We analyzed recent policy documents and plans with regards to their “self-sufficiency” (自立自强) objectives. The different terms used for “self-sufficiency” and their underlying rationales and interpretations are broadly in line with Beijing’s drive for vertical industrial policies that were deemed necessary around 2005 due to a perceived insufficient technological upgrading after joining the WTO in 2001. They can broadly be divided into three phases:
Phase 1: (2000-2006)
A hybrid plan of top-down and bottom-up activities to boost S&T development, the “National Medium- and Long-Term Program for Science and Technology Development (2006-2020)” (MLP) formally adopted the novel concept of “indigenous innovation” (自主创新能力) as top-level policy priority under the Hu-Wen administration.
China was on its way to become the manufacturing workbench for the world, but innovation took place largely outside of China. The plan thus vowed to “reduce dependence on foreign technology by <30%”, but did not provide more clarity as to how foreign or domestic technology were defined. In practice, China’s public procurement and “buy China” policies, however, often prioritized Chinese domestic firms, and hence overtly discriminated foreign enterprises.
Phase 2: (2007-2015)
After the Global Financial Crisis (GFC), and as China increasingly recognized a window of opportunity to leapfrog in certain key technologies of the fourth industrial revolution, China adopted more targeted sectoral industrial policies in Strategic Emerging Industries (SEIs).
At the same time, the “self-reliance” rhetoric was toned down in response to foreign complaints of the country practicing unfair techno-nationalism. The objective to become less dependent on foreign technology, however, did not fade, but the terms used for it did. The “Made in China 2025” program issued in 2015 talked about “technology self-assurance” (自主保障), defined domestic and global “market share targets” (市场古有率) for ten key industries, and vowed to reduce “foreign dependence on core technologies” (对外技术依存度).
While discrimination in practice remained, the focus seemed to have shifted to “innovation that occurs in China”, and not strictly “innovation realized and spearheaded by Chinese companies”.
Phase 3: (after 2016)
With Donald Trump assuming power in 2016, he quickly turned up the heat on China due to its perceived mercantilist practices and in 2018 accelerated his “technology containment”, starting with restrictions on the Chinese technology giants ZTE and Huawei.
In response, China again adjusted its rhetoric, largely dropping the use of the “Made in China 2025” policy banner (not the policy substance, though) or the term “dependence on foreign technology”.
This time, the change appears to be more substantial. All relevant Chinese economic plans after 2016 have been emphasizing “supply capacity” (供给能力) and “market sufficiency” (市场满足率), hence the focus now seems to have fully shifted to targeting an ability of China’s domestic market to provide the relevant critical resources, inputs and technology for its continued development, without relying on “insecure or unstable industrial and supply chains” as mused by Xi in a speech he gave in April 2020 to the CCP Central Financial and Economic Affairs Commission.
To sum up the above using the example of the 14th FYP on Smart Manufacturing issued in December 2021, the “self-sufficiency” rationale has evolved and Beijing understands self-sufficiency – formally – increasingly as “made or innovated in China”, regardless of corporate ownership or the share of Chinese firms in international markets – all terms that have been dropped.
So, albeit on the basis of casuistic evidence only, there is little to no formal discrimination of foreign companies in the specific context of “self-sufficiency” and “Made in China” criteria, as long as foreign businesses localize their manufacturing for their products to qualify as “manufactured in China” – in itself undeniably already a very strong impact for companies.
In fact, looking at it from Chinese policymakers’ perspective, this policy approach is in line with the “Dual Circulation” framework and Xi’s policy concept of China wanting to become a “large gravitational field” – both putting emphasis on China’s domestic market and its aspired significance in the global economy.
However, in the broader perspective, distortive effects from China’s economic system, other industrial policy measures or specific market interventions continue to be a reality affecting foreign business..