In a document addressing China’s key strategic issues released in 2020, Xi Jinping advocated that China should build a “new supply chain mode” for the post-pandemic recovery, which should be “autonomous and reliable”. This strategic target found its way into the 14th FYP – the first time ever such an objective is mentioned in a FYP. This accentuated concern for supply chain security is not only due to its national and industrial security concerns, but also to build new retaliatory capacities in case of future foreign sanctions.
Assessment
To pursue what policymakers call a “more innovative, more value adding and more secure supply chain”, the 14th FYP has been advancing several measures:
To bolster existing strengths in select sectors’ supply chains such as in clean energy or high-speed rail, China is on the one hand intensifying its research into new industrial trends such as 5G and new materials, on the other hand, policymakers want to optimize the regional allocation of supply chains and transfer some traditional industries to less advanced areas in China, instead of to other Asian countries. In 2021, the Ministry of Commerce (MOFCOM) said it would provide more financial support to “economic zones” in Mid-Western China for receiving transferred industries from the East.
Since 2019, China has been intensifying research on “bottleneck technologies” such as semiconductors and key medical equipment, mostly via state-funded projects. For example, China built four National Manufacturing Innovation Centers in 2021, including the 5G Mid-high Frequency Components Innovation Center. The leadership wants to accelerate the technological catch-up to ensure that there is a contingency technology in case of foreign sanctions.
In that vein, the 14th FYP for the first time provides the basis that public procurement should support domestic innovative products. As such, the Ministry of Finance (MOF) together with the Ministry of Industry and Information Technology (MIIT) in 2021 – based on the Public Procurement Law – issued the standards for mandatory purchase of ‘Made in China’ products in public procurement and requirement of approval for purchasing imported goods, numerous medical devices included (‘Made in China’ Products include those by MNCs in China).
Moreover, the 14th FYP stipulates that China should deepen supply chain cooperation with BRI countries to increase its supply chain stability and security. It is also planning to stabilize its regional supply chain via the RCEP trade bloc. However, so far, no specific actions have been taken.
Finally, official policy sees MNCs as part of China’s supply chain strategy. The 14th FYP has thus reiterated the promise to further cut the negative list for foreign investment and enhance post-establishment national treatment for MNCs in China. In 2021, MOF required all its local departments to conduct self-examination to ensure national treatment for MNCs in China in public procurement.
Implications
Most importantly, MNCs in China might have to further increase their degree of localization, as China is accelerating the process of substituting imported goods with ‘Made in China’ ones. Thereby, products made by MNCs in China seem to be treated broadly as ‘Made in China’ today, at least in some sectors. For example, to promote Chinese Made medical equipment, the National Health Commission (NHC) has been annually publishing the list of “Excellent Chinese Made Medical Equipment”, which included MNC products in 2020.
MNCs that manufacture national and industrial security related products such as electrical equipment and machine tools are expected to be most affected by China’s supply chain security campaign and likely face stronger competition from Chinese companies. It is still unclear whether China wants to keep relying on MNCs for certain products potentially affecting the country’s core security. Clear is, though, that China is strengthening its own research for such technologies.
Xi Jinping (Qiushi): 国家中长期经济社会发展战略若干重大问题