High tech manufacturing still top priority to boost China's economy

The government is set to pursue efforts in developing smart factories to enhance efficiency and quality control.

China’s manufacturing sector will remain a key part of the country’s economy amidst ongoing headwinds faced by the sector following uncertainties brought about by the escalating trade tensions between China and US, according to a report by Fitch Solutions.

The sector accounts for approximately 30% of the economy and authorities are expected to push for a structural shift towards high tech and increased value-added manufacturing. According to the firm, China’s president Xi Jinping sees this move as part of the roadmap which will lead to China becoming a leading global power by 2050.

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According to Fitch Solutions, China’s placement of high-quality development of the manufacturing sector as a top priority suggests that the government will continue to pursue its key policy objective in 2019 and over the coming years despite reports that references to the Made in China (MIC) 2025 initiative have been dropped.

“We do not see this move as a substantive change in policy but rather as an attempt by China to soften its rhetoric to avoid antagonising the US amidst the ongoing trade conflict,” the firm said in its report.

The firm pointed out that China’s high tech manufacturing production growth remained relatively steady at approximately 11.8% YoY for the first 11 months of 2018, with its outperformance relative to headline manufacturing output growth coming in at 6.6%.

“Our expectations for the Chinese government to continue to encourage innovation in the manufacturing process through the increased usage of information technology is supported by announcements made during the Ministry of Industry and Information Technology’s national work conference,” Fitch Solutions added. The conference which was held during the last week of December 2018 mentioned that the government would strongly push forward with smart manufacturing by using data to improve production.

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Other plans will include using artificial intelligence (AI) to enhance manufacturing processes in a bid to increase productivity through higher efficiency and better quality checks. Fitch Solutions also noted that investment into telecommunications equipment, computers and other electronic equipment will continue to be one of the fastest growing categories over the coming quarters as private manufacturers attempt to grow their smart manufacturing capabilities.

The report noted how this category rose 19.1% YoY in the first 11 months of 2018 which was almost double of the headline private fixed-asset investment (FAI) expansion rate of 10.3% in 2017.

Meanwhile, steps to improve intellectual property (IP) protection will continue to also remain a key focus as a strong legal framework is expected to incentivise innovation, according to the report. Fitch Solutions pointed out how recent progress has been made in this area through the establishment of the IP Court under the Supreme People’s Court and the drafting of a new law banning forced technological transfers in December 2018.

“In addition, we believe that China’s traditional manufacturing powerhouse Guangdong province will gradually transform into a key part of the country’s innovation centre for intelligent manufacturing, playing to the competitive advantages of the various cities that are included in the Greater Bay Area integration plan,” Fitch Solutions highlighted.