3 Key Lessons For Global Industry From China's 2025 Strategy
President Xi Jinping’s “Made in China 2025” strategy, unveiled in 2015 and now thrust back into the limelight by President Trump’s bellicose stance on trade, holds three important lesson for global industry.
First: making things matters; and the future of making things matters even more. This should be a non-controversial statement, but it is not. Economists often mock “the manufacturing fetish” and argue there is no reason to consider manufacturing a better driver of economic growth than any other sector.
As economies get richer, they tend to shift from agriculture to industry, and then to services. Manufacturing accounted for nearly 30% of the U.S. economy in the 1950s; it was still 20% in the 1980s; today it accounts for just 11%. Yet the U.S. has continued to lead the global economy and to enjoy rising living standards.
Has China got its priorities wrong? Not at all. For one thing, China still lags well behind the U.S. in economic development—its real per capita income is less than one third of the U.S. But China does not simply aim to maintain a robust industrial base for now and then shift to services as it converges to U.S. income levels. It aims to make a stronger industrial system a crucial pillar of growth for the foreseeable future.
China understands that getting richer does not require or imply shifting almost entirely to services: in Japan and Germany, the share of manufacturing in GDP is twice as large as in the U.S.; in several other countries manufacturing plays a strong role in the economy (see chart).
Second: the future of making things matters even more. We have become fascinated with the idea that “software is eating the world”. I see it differently: software is driving the world, but the world is still largely a physical machine; the value lies in the intermeshing of digital and physical. We are still far from Ernest Cline’s Ready Player One, where life unfolds mostly in virtual reality. The most powerful technological trend of the last several years, in my opinion, is the digital-industrial revolution, digital innovation transforming the way we design and manufacture everything physical, from consumer goods to industrial machines.
Progress in new technologies like generative design and additive manufacturing (or 3D printing) hinges on the coming together of software, design and production. You can’t lead in these new technologies without making things. Generative design leverages Artificial Intelligence to expand our mind and help us come up with different possible shapes for everything from chairs to aircraft components; but exploiting its potential requires deep knowledge of production processes, from casting to CNC machining to 3D printing. Additive manufacturing opens up a universe of possibilities, from lighter and more robust car parts to new surgical implants, exploiting new geometries and materials; but at the core of additive manufacturing is a closer and faster loop of design, prototype, test and—crucially—manufacture.
Making things will be essential to lead in the most transformative and economically powerful technologies of the future.
Third: it’s what you make that matters—bet on high tech and infrastructure. China targets high tech sectors like biotech, robotics, aerospace and new materials; these areas can drive fast improvements in living conditions and power advances across industries. But Made in China 2025 also targets traditional infrastructure sectors like shipping, rail transport and energy—as well as agricultural machinery.
The emphasis on high tech does not surprise: biotech commands higher wages than textiles; if China wants its real incomes to keep rising, it needs to move up the value-added ladder. The important lesson lies in the combination of high tech with hard core traditional infrastructure. Digital-industrial innovations can bolster and transform a country’s infrastructure across transport, communication and energy. Infrastructure constitutes the connective tissue that enables efficiency across the entire economic system. And to enable rising living standards for a growing global population, infrastructure needs to be redefined for greater efficiency and sustainability—including construction and urban infrastructure.
With the digital-industrial revolution, digital does not displace manufacturing—it boosts its potential and value; it blurs the traditional distinction between manufacturing and services. Making things matters, and the future of making things will matter even more to lead in the global economy, marrying high-tech and digitally-enhanced infrastructure. China understands this, and global industry had better pay attention.
Getting this right is hard, however. In my next post I will discuss the key challenges that Made in China 2025 has to overcome.