China will only turn into an advanced manufacturing powerhouse in over 35 years at the current rate of progress despite the magnitude of the government's industrial policy support for new domestic industries, according to a study by Renmin University of China in Beijing.
Excess use of industrial subsidies, particularly by local governments, as well as poor implementation of anti-pollution standards, and the inability of the government to help small, private firms deal with short term operational difficulties is stunting the innovation process necessary to upgrade the nation's manufacturing base, the study found.
Over the last decade, the Chinese government has launched several industrial plans, including the controversial "Made in China 2025" project, aimed at development of hi-tech industries that would hope to make China the world leader in a series of cutting-edge manufacturing fields as it looks to move up the value chain away from its traditional reliance on mass production of low-end goods.
The United States has complained that the large subsidies China has used to develop these industries are examples of the country's unfair trade practises which have hurt American companies. China has since downplayed its Made in China 2025 plan, but many of its industrial policies remain in place.
However, despite spending billions to support these ambitions, the Chinese government's investment has yet to add significant value to the economy, according to Zhang Jie, a professor with the Institute of China's Economic Reform & Development at Renmin University of China.
China has sought to measure the contribution of new industries such as telecommunications equipment and new energy vehicles to the nation's gross domestic product (GDP) growth, he said. The latest available figures from the National Bureau of Statistics showed that the value-added output of new industries, new types of business and new business models accounted for 15.7 per cent of China's GDP in 2017, up only 0.4 percentage points from 2016.
"There is still some distance from the goal of 30 per cent of GDP," said Zhang, who estimated that only when value added output reaches 30 per cent will it become the "new" engine of China's economic growth. "At this growth rate, it will take 35.75 years (to reach that goal), which obviously does not meet the demands for high-speed growth and high quality (output) in the Chinese economy."
Zhang said that the growth rate for the contribution of new industries to GDP should be between 2 and 4 per cent per year, or five to 10 times the growth rate in 2017.
It will take 35.75 years (to reach that goal), which obviously does not meet the demands for high-speed growth and high quality (output) in the Chinese economyZhang Jie
Mao Zhenhua, dean at Renmin University of China's Institute of Economics, said despite huge investment and effort from the government, China's industrial policy has not had much of an impact on boosting new industries.
"The huge investment has not brought about the emergence of a clear leading industry for the future, we have not seen signs that traditional manufacturing is being replaced either, at least on a long-term basis," he said. "The primary and the secondary industries are both in downturns."
Primary industries are involved in the extraction and collection of natural resources and turning them into products for further manufacturing, while secondary industries produce finished, usable products for consumers.
China has seen strong growth in new tertiary industries, or the services industry, which made up the largest share of China's GDP in 2017 at 8.4 per cent. New primary industries contributed just 0.7 per cent to GDP, while new secondary industries added 6.6 per cent.
Among the reasons for a slowdown in the progress towards an advanced manufacturing industry are the traditional subsidies that local governments often offer to local companies, with hidden tax refunds and land use incentives often leading to bubbles but not sustainable business growth.
Zhang also said that many local governments have opted to shut down factories that are productive and adding value to the economy on the basis of environmental concerns without considering whether these industries could be improved.
"Our field research found that currently, some private enterprises and local government owned firms are facing short term liquidity problems and operation difficulties. Under the circumstances, some private enterprises have been taken over by state-owned enterprises, and some locally government owned firms have been taken over by the central government," Zhang added.
"(These kinds of takeovers) may inhibit the innovation and entrepreneurial vitality of private enterprises to a certain extent, and reduce the efficiency of capital allocation of state-owned enterprises."
Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.Artikel Asli