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1 1 (April 12, 2019)

handle is hein.crs/govzha0001 and id is 1 raw text is: Cogrsioa Reeac Senc 0 Updated April 12, 2019 The Made in China 2025 Initiative: Economic Implications for the United States Summary China's incomplete transition to a free market economy stands out as one of the biggest sources of trade friction with the United States. Recent proposals by the Chinese government, such as its Made in China 2025 (MIC 2025) initiative, appear to signal an expanded role by the government in the economy, which many fear could distort global markets and negatively affect U.S. firms. The Trump Administration has made MIC 2025 a major focus of its Section 301 actions (including increased tariffs) against China over its alleged distortive policies related to technology transfer, intellectual property, and innovation. What Is MIC 2025 and Why Did China Propose It? Introduced by China's State Council (the highest Chinese executive organ of state power) in May 2015, the MIC 2025 initiative is the latest in a series of ambitious state-led programs introduced by the Chinese government that seek to modernize the Chinese economy, boost productivity, and make innovation a driver of economic growth. One key Chinese motivation for MIC 2025 is to avoid hitting the so- called middle-income trap, a phenomenon that often occurs to low-income countries that initially experience rapid economic growth after implementing certain reforms. Many such countries are able to reach middle-income levels, but eventually the factors that produced that growth can no longer be sustained or the economic returns began to diminish. Without new sources of growth, much slower economic growth rates (or stagnation) can occur, preventing a country from transitioning to a high-income economy (hence the trap). While China is currently a high middle- income economy, it faces several economic challenges, including unbalanced economic growth, high corporate debt, severe pollution, and a declining working age population, which could sharply slow future growth. The MIC 2025 plan notes that China's manufacturing sector is large but not strong, with obvious gaps in innovation capacity, efficiency of resource utilization, quality of industrial infrastructure and degree of digitalization. The task of upgrading and accelerating technological development is urgent. China seeks to upgrade its economic model from a system where products are largely assembled in China by foreign multinational firms to a system where products made in China are invented there. MIC 2025 seeks to move China up the manufacturing value chain by utilizing innovative manufacturing technologies or smart manufacturing. MIC 2025 is the first stage of a larger three-step strategy to transform China into a leading manufacturing power. The first step is for China to improve the overall quality of manufacturing, boost innovation and labor productivity, obtain an advanced level of information technology integration, reduce energy and material consumption, and develop multinational enterprises and industrial clusters with strong international competitiveness. Next, by 2035, China seeks to reach an intermediate level among world manufacturing powers, greatly improve innovation capability, make breakthroughs in major areas, boost competitiveness, and become a global leader in various innovation industries. By 2049, and coinciding with the 100th anniversary of the founding of the People's Republic of China (PRC), China aims to become the leader among the world's manufacturing powers, have the capability to lead innovation and possess competitive advantages in major manufacturing areas, and develop advanced technology and industrial systems. China's government is aggressively working to undermine America's high-tech industries and our economic leadership through unfair trade practices and industrial policies like Made in China 2025- USTR Robert Lighthizer, June I5, 2018 The MIC 2025 establishes nine priority tasks, including (1) improving manufacturing innovation, (2) integrating technology and industry, (3) strengthening the industrial base, (4) fostering Chinese brands, (5) enforcing green manufacturing, (6) promoting breakthroughs in 10 key sectors, (7) advancing restructuring of the manufacturing sector, (8) promoting service-oriented manufacturing and manufacturing-related service industries, and (9) internationalizing manufacturing. The 10 sectors identified in the State Council's 2015 plan are (1) next-generation information technology, (2) high-end numerical control machinery and robotics, (3) aerospace and aviation equipment, (4) maritime engineering equipment and high- tech maritime vessel manufacturing, (5) advanced rail equipment, (6) energy-saving and new energy vehicles, (7) electrical equipment, (8) agricultural machinery and equipment, (9) new materials, and (10) biopharmaceuticals and high-performance medical devices. The plan also seeks to establish 40 manufacturing innovation centers by 2025. Why Has the MIC 2025 Generated Concern Among U.S. Policymakers and Stakeholders? While the MIC 2025 plan states as a basic principle that the government will comprehensively deepen reform and give markets the decisive role in allocating resources, critics contend that the plan represents a state-directed industrial policy intended to reduce not only China's dependence on foreign technology but to help Chinese firms become dominant global players in numerous advanced industries. Concerns have been raised that the Chinese government will provide extensive financial assistance to Chinese firms involved in the plan, such as through state-directed investment funds and preferential access to credit from state banks. Another concern is that https:I/crsreports.conc -- -q

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