Seven years after Beijing launched its Made in China 2025 plan to boost advanced manufacturing in the country, the term has virtually disappeared from public discussions and official documents.
But the policy itself has not died. It survives and thrives on government subsidies, which continue to target privileged companies such as electric vehicle manufacturers and chip makers, even as pressures mount on local government finances across China.
Made in China 2025 was originally unveiled in May 2015 to much fanfare and with the goal of transforming the country from a manufacturing giant to a global manufacturing power by 2049, the 100th anniversary of the People’s Republic.
Governments around the world provide financial support to the tech sectors in their territories for a variety of reasons. China is no exception, especially in its efforts to implement this strategic policy linked to President Xi Jinping’s long-term goal of creating a “modern and prosperous socialist state” by that year.
The plan highlighted 10 key areas to strengthen — from IT, robotics and new energy vehicles, through biotech and agricultural machinery, to aerospace, maritime and rail equipment — and pledged to encourage innovation with a mix of market-driven approaches and government guidance.
Beijing stopped using the term when the US under President Donald Trump waged a trade war against China. But a Nikkei Asia analysis of data compiled by Fitch Ratings shows that the main recipients of government grants are primarily technology companies closely linked to Made in China 2025. The big exceptions are certain energy companies that are heavily supported for a variety of reasons, including energy security and price stability.
With no useful data from the Chinese government on state subsidies, Fitch collected public disclosures from nearly 5,000 mainland-listed companies on the receiving end.
SAIC Motor, the country’s largest automaker by size, received the largest amount of subsidies in 2021, Rmb4.03 billion ($598 million), or 31 percent more than the year before, taking over the crown from China Petroleum & Chemical , or Sinopec, which had dominated for years.
Three more automakers made the top 10: BYD, Great Wall Motor and Anhui Jianghuai Automobile Group (JAC). Together, the subsidies to the auto industry indicate that Beijing’s priority is to nurture the production of homegrown new energy vehicles amid the historic shift to electrification.
BYD, which recently overtook Tesla as the world’s largest EV maker in vehicle sales, disclosed more than a dozen grant items in its latest annual report, including large amounts from two “industrial development funds,” one for cars and batteries.
This article belongs to Nikkei Asia, a global publication with a uniquely Asian perspective on politics, economics, business and international affairs. Our own correspondents and external commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the largest and fastest-growing publicly traded companies from 11 economies outside of Japan.
Great Wall Motor, a major SUV maker, saw its subsidies rise 73 percent from the previous year to nearly four times 2019 levels. Much of it came from a “government industrial policy support fund.” JAC, which mainly produces commercial vehicles, announced more than 20 grants, the largest for a ‘construction project of’ [a] high-end electric light truck”. Government grants to JAC have nearly doubled in the past three years, exceeding the company’s total net profit by more than 14 times.
Not quite in the top 10, the world’s largest EV battery manufacturer, Contemporary Amperex Technology (CATL), came in at number 11, its annual subsidy has increased 2.6 times to Rmb 1.67 billion in three years. Chongqing Changan Automobile and Guangzhou Automobile Group were also among the top 20 recipients.
Chips and displays essential for a range of tech items are also high in the standings. Semiconductor Manufacturing International Corporation (SMIC), China’s national chip champion, and BOE Technology, the leading display manufacturer, were regularly in the top 10, while 5G network providers China Mobile and China Telecom were ninth and 19th, respectively, in 2021.
A mainland-listed unit of Taiwanese Foxconn was again a major beneficiary of Chinese state subsidies, a situation that has led to political tensions in Foxconn’s home market in the past.
Funding also goes to smaller companies. A survey of recipients with a high ratio of government grants to revenue reveals biotech drugs such as Shanghai Yizhong Pharmaceutical and Mabwell (Shanghai) Bioscience.
Foreign governments continue to be concerned about the Made in China 2025 policy. Japan’s Ministry of Economy, Trade and Industry (METI) annual white paper, published in late June, devoted a chapter to China’s state subsidies and quantified the continued rise in payments to businesses in the 10 core areas identified by the policy. .
Growth accelerated after 2018, when the term disappeared, it turned out. Total subsidies to Made in China 2025 affiliates amounted to approximately Rmb 100 billion in 2020, more than doubling from 2015.
“The overall activities of Chinese companies as a whole have shifted to these areas,” the report said. “Financial support to these sectors will be generous.”
The total amount of government grants in 2021, according to Fitch’s count, was Rmb 217.92 billion, or 3.2 percent less than the year before. This was the first year-on-year decline since 2009, but all experts contacted by Nikkei Asia believe there has been no change in Beijing’s policy of supporting tech companies, and the decline is seen as temporary and technical.
The decline can be attributed to the way figures are collected. The total amount is calculated by taking the amounts of government grants that are included in the income statement each year. There are delays where grants are awarded but only appear on the balance sheet until they are actually implemented.
However, there are cases where certain government grants are not provided due to tax restrictions on local governments.
CPT Technology Group, a Fujian-based LCD panel maker, blames an increase in net loss in the first half to a decline in government subsidies.
The Shenzhen-listed company is expected to receive a total of Rmb 2.64 billion in grants from Futian Municipality in six annual installments of Rmb 440 million after the city’s newest LCD factory came into operation in June 2017. However, the promise was fully fulfilled only in the first year. The amount was reduced to Rmb 300 million for the next two years and again reduced to Rmb 100 million paid in June last year. This year it is zero.
Futian’s government has issued a letter promising to meet its financial obligations, the company said in 2020, but the city has admitted it is under “financial stress”.
Employees work on a car assembly line at SAIC Motor. In 2021, the company passed Sinopec as the largest recipient of government grants in China © Reuters
Visionox Technology, another Shenzhen-listed panel producer, has not received all the Rmb700mn grant that should have been paid in June 2020 by the administrator of the high-tech industrial development zone of Jingnan-Gu’an District of Northern Hebei Province.
The grant was for a state-of-the-art factory to produce active matrix organic light-emitting diode (AMOLED) displays for smartphones. The administrator added another 200 million Rmb in subsidies in December of that year, but according to the company’s disclosures, no more than 400 million Rmb has actually been paid.
The company took a rare step to write off more than Rmb 20 million in government grants, meaning it has deemed these receivables virtually irrecoverable. Similar to CPT, Visionox said the net loss was expected to double in the first half, with Rmb 133 million decline in grants being one of the main reasons.
China’s national chip champion SMIC regularly receives grants © Aly Song/Reuters
These may be isolated cases, but a further deterioration in local government fiscal conditions could potentially affect the amount of public money to be channeled, even to strategic technology companies. Shinichi Seki, a senior economist at the Japan Research Institute who specializes in the Chinese economy, said the “growth rate of government subsidies would be moderate due to a lack of funding from local governments.”
Although strategies are drawn up in Beijing, a significant part of the actual payments is made at the local level. The current real estate crisis has taken away precious revenue that usually comes from the sale of land-use rights to developers, while strict adherence to Xi’s zero-Covid policy requires scarce resources to be devoted to virus testing and other related procedures. Recent tax cuts designed to stimulate the economy have also taken money from the local treasury.
Seki sees “lights and shades clearer and clearer” in the coming years, meaning local governments will become more discriminatory in handing out subsidies.
Zhang Hongyong, senior fellow at the Research Institute of Economy, Trade and Industry in Japan, also foresees changes in the way grants are awarded by local governments given the chronic shortage of funds.
“The certification of technology companies would be selective and there would no longer be a lavish way of handing out,” he said. Grants can be tied to the level of research and development spending, he said.
Beijing appears to be aware of the consequences of a weakening fiscal position. In mid-June, the State Council ordered local governments to keep their spending priorities straight, even under current financial constraints, stressing that there are places that “need to be duly reinforced.” In addition to education, medical insurance and infrastructure building, “science and technology research and development” was also discussed, suggesting that business subsidies to technology companies should continue.
A version of this article was first published by Nikkei Asia on July 22. ©2022 Nikkei Inc. All rights reserved.
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