The Chinese government is positioning the country as the next global power through incentives, infrastructure, investment, and a move toward independence, but in so doing, is China irreparably damaging its relationship with global partners? Can other global innovation and technology leaders compete at the same pace of development? Is your supply chain safeguarded against tariffs, trade wars, and intellectual property theft?
In a recent CAPS Research whitepaper, “China: Reassessing the Middle Kingdom in Global Supply Management,” our researchers offer a comprehensive look at China’s aggressive plan to shift from “factory to the world.” China no longer wants to be known for supplying low-cost parts to their global customers, and instead has started to focus on becoming a world leader in manufacturing, battery technologies, cloud services, and smartphones.
China’s President Xi Jinping has put into place sweeping supply chain and infrastructure policies (namely Made in China 2025 and the Belt and Road Initiative) that encourage innovation and enable the country to become more independent of global suppliers.
MIC2025 is the Chinese government’s 10-year industrial development and innovation plan to push forward the country’s influences as a tech superpower through financial and fiscal tools and manufacturing innovation centers. It targets information technology, robotics, green energy and green vehicles, aerospace equipment, ocean engineering and high-tech ships, railway equipment, power equipment, new materials, medicine and medical devices, and agricultural equipment.
The government has budgeted $300 billion to support these targeted industries through rent-free land, low-interest loans, subsidies, and tax breaks. MIC2025 is largely criticized for violating the World Trade Organization’s open-market rules, requiring foreign companies to establish joint ventures with Chinese companies in order to do business in China. This results in shared intellectual property (IP) regardless of initial investments. Often, these ventures will fail, yet China retains the IP.
The Belt and Road Initiative (BRI) is China’s long-term global supply chain infrastructure development strategy, designed to create a cohesive economic area through trade agreements and enforcement measures, as well as physical infrastructure investment in road, rail, and sea routes.
One example of China’s enterprise innovation is the electric car industry, targeting 20 percent of all new vehicle sales in China to be electric by 2025. In working toward this goal, the Chinese government helped to develop a robust end-to-end supply chain for Li-ion batteries. Their strong relationship with the Democratic Republic of Congo, the primary source of Cobalt, is critical in sourcing exotic minerals necessary for Li-ion production. China is currently responsible for 60 percent of global Li-ion battery production, whereas Tesla’s Gigafactory is the only significant U.S. producer of Li-ion batteries with comparatively underdeveloped lithium sources.
The whitepaper discusses in-depth and cites extensively China’s innovation development and acquisition of IP through forced technology transfer in joint ventures, localization, regulatory pressure, and corporate espionage. According to an Oct. 10, 2017 Reuters article China’s theft of U.S. IP has been called “the greatest transfer of wealth in history.”
The whitepaper also explores China’s unilateral involvement in the World Trade Organization, its emergent innovation center in the Pearl River Delta area, violation of trade embargos, well-documented cybersecurity violations, tariffs, current and timely information on the trade war, and more. We also offer managerial best practices for Chinese supply chains, as well as options for best case, worst case, and neutral scenarios in the midst of a U.S./China trade war.
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