Domestic champions

The Merics report, which was based on an examination of policy documents, expert journals and newspaper articles, as well as more than 60 interviews with Chinese experts, finds that one clear aim of the industrial strategy is to cultivate domestic champions to replace the sales by foreign companies in China.

"Industrial policy in China often entails measures to discriminate against foreign enterprises," the Merics report said. "For instance, the national and local governments restrict access to public procurement and limit the possibility of inward-directed foreign-direct investment."

Such measures are not yet prevalent in the areas of "smart" manufacturing, including robotics, industrial software, sensors and others, because most Chinese companies are currently too backward to benefit. But this could change as domestic companies climb the technology ladder and move into direct competition with foreign corporations in China.

Such an intent, the report says, can be seen in a semi-official document called Made in China 2025 Key Area Technology Roadmap, which has been endorsed by Ma Kai, a vice-premier and the official heading the interministerial Leading Small Group for Constructing a Manufacturing Superpower.

The semi-official document shows aggressive targets for market share in selected industries as well as the range of industries targeted.

State support

Indications of strong state support are reinforced by funding being made available to spur Chinese innovation in smart manufacturing. The Advanced Manufacturing Fund, established this year, was approved by the State Council (cabinet) and is charged with spending its Rmb20bn ($US3bn) allocation on upgrading the technology of important industries.


Another fund, the National Integrated Circuit Fund, has capital of Rmb139bn at its disposal and the Emerging Industries Investment Fund, which was also approved by the State Council, has Rmb40bn to spend on promising domestic companies.

The Merics report suggests that such assistance, plus the ability of some companies to undertake acquisitions of industry leaders overseas, is likely to catapult some Chinese manufacturing giants into the vanguard of global technology.

Home appliance firms such as Haier, Hisense, Midea and Gree are potential frontrunners, with each of them already engaged in turning their fridges, televisions, air conditioners, washing machines and other gadgets into "smart" products by adding internet connectivity that allows, for instance, consumers to order shopping from their fridge or control their washing machine from a mobile phone.

In the construction industry, companies such as Sany and Zoomlion, for example, possess advanced production processes while car component maker, Weichai, owns advanced hydraulic technology, and steelmaker Baosteel has developed several advanced techniques that make for greater precision and efficiency in steel smelting.

The confluence of funding for innovation, official support and access to overseas acquisitions is set to galvanise an already active patent application process among Chinese companies.

Although questions persist over the quality of Chinese patent applications filed, the predominance of filings outstanding for traditional robots and communications devices such as wireless sensors and smart sensors shows a correlation with state support in these areas, according to the report. In advanced robots, however, Chinese technology remains well behind US and German technology.

Financial Times