Business China

Made in China 2025': What Will It Mean for FDIs in China

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China is leading the revolution in its technology and development sectors. The “Made in China 2025” initiative aims to put the country ahead of the US and other giant economies, especially in the fields of high-tech production and manufacturing.

Currently, China is recognized globally for manufacturing cost-friendly products for every industry. However, “Made in China 2025” will move away from that policy and toward high-end products that cost more and offer better quality. From introducing state-led enterprises to catching-up with the technological advancements—currently happening in the western countries—and offering government subsidies to domestic firms involved in the initiative, investors and industrialists have shown concerns about its effects on global trade.

What does this mean for foreign firms and the global economy?

China wants to be a global champion. With the “Made in China 2025” program, it’s hoping to provide home industries approximately 80% of ownership and benefits achieved through the program. Currently, domestic companies own less than 40% of the content in technology and high-end goods. The goal is to achieve 40% of local ownership by 2020, and 70% of the ownership by 2025.

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With this, foreign firms will lose a majority of their business and currently more than 50% of the high-tech business in China comprises FIEs. Not only high-tech but industries such as hydraulic components and digital control systems are completely dependent on foreign firms. The “Made in China 2025” could prove to be disadvantageous to these companies.

Not only this but China is also building local innovation and incubation centers to encourage local startups and small businesses to become the foundation of futuristic industrial development. With smart manufacturing pilot cities, the goal is to match and then further advance in the international standards of high-end manufacturing and production process.

While many foreign investors have voiced their issue regarding state funding and treatment of domestic firms, the Chinese government has reassured them that it’ll treat both domestic and foreign firms to the same standards—especially in the process of applications, license approval and government procurement.

There’s still a number of obstacles in achieving the true objective of “Made in China 2025” and meanwhile, FIEs can rely on the words of the Chinese government regarding fair treatment and assurance on following the rules of global trade.

If you’re thinking of setting up a business in China through a WFOE or a joint venture, get in touch with us for smooth registration and verification.
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