China’s high-tech push seeks to reassert global factory dominance | Investment News

TIANJIN, China (Reuters) – Workers at a factory in northern China are busy testing an automated vehicle designed to move large objects through industrial spaces, one of a new generation of robots Beijing wants to make move the country’s manufacturing up the value chain.

The Tianjin-based robot maker has benefited from tax breaks and government-backed loans to manufacture products that modernize China’s vast industrial sector and advance its technological expertise.

“The government pays great attention to manufacturing and the real economy – we can feel it,” Ren Zhiyong, general manager of Tianjin Langyu Robot Co, told Reuters during a tour of his factory.

China supports the R&D efforts of high-tech manufacturers like Langyu, driven by an urgent desire to reduce dependence on imported technology and strengthen its dominance as a global industrial power, even as it clamps down other sectors of the economy.

Beijing’s pivot emphasizes advanced manufacturing, rather than the service sector, to steer the world’s second-largest economy out of the so-called “middle-income trap,” where countries lose productivity and stagnate in low-value economic production.

“Pressure is the driving force, and without pressure it’s hard for businesses to grow,” Ren said.

It expects revenue to more than double to 100 million yuan ($15.52 million) this year from 2020, driven by increased demand for high-tech products such as guided vehicles. automated from Langyu.

More broadly, the city of Tianjin plans to invest 2 trillion yuan ($311 billion) between 2021 and 2025, 60% of which is earmarked for strategic emerging industries, Yin Jihui, head of the Office of the industry and information technology of Tianjin.

The investment, comprising business and government spending, will help boost manufacturing to 25% of the economy in 2025 from 21.8% in 2020, Yin said.

The share of strategic industries in the output of Tianjin factories will also increase to 40 percent, Yin said, from 26.1 percent last year.

“It will be very difficult and challenging to achieve these goals, (as) we need to ensure stable economic development while transitioning from old engines to new ones,” Yin said.

China’s five-year plan in March pledged to keep manufacturing’s share of GDP “essentially stable”, unlike the 2016-2020 plan which emphasized services to create jobs.

The coronavirus and the Sino-American trade war have reframed the way policymakers see factories: no longer just grimy relics of an old economy, but assets of strategic value.

During the pandemic, Chinese factories have produced everything from masks and ventilators to work-from-home electronics, propelling the economic recovery from its record slump in early 2020.

Moreover, the trade war with the United States and Washington’s technological brakes have revealed China’s lack of high-tech know-how, reinforcing Beijing’s resolve to accelerate innovation.

“Growing external pressure since the start of the trade war has made policymakers more determined to develop China’s mid-to-high-end manufacturing industry,” said Qu Hongbin, chief China economist at HSBC.

“The higher the outside pressure, the more they focus on manufacturing. That will turn into real political support.”

Tianjin-based Ringpu Biotech, which makes animal vaccines, has faced critical delays in importing US equipment and materials used for R&D and quality control.

“We have taken some measures, including increasing our own R&D capacity and cooperating with other companies and universities,” said Ringpu Vice President Fu Xubin.

“We will seek to strengthen our ability to find substitutes in areas where we are having difficulty.”

The share of the manufacturing sector in China’s GDP fell to 26.2% in 2020 from 32.5% in 2006, while the service sector increased its contribution to 54.5% from 41.8%, according to the Bank. world.

Officials worry that moving too quickly towards services, which employ more people but are less productive than manufacturing, could undermine long-term growth, as has happened in some Latin American economies.

Beijing does not want manufacturing to fall below 25% of GDP, which roughly matches South Korea’s economic profile, government advisers have said.

“Governments at central and local levels are stepping up support for advanced manufacturers, but industrial upgrading will not come smoothly,” a government adviser said on condition of anonymity.

From 2021 to 2025, China aims to increase its R&D spending by more than 7% per year, focusing on “cutting edge” technologies such as artificial intelligence, quantum computing and semiconductors.

The plan, which largely replaces 2015’s “Made In China 2025” initiative, targets nine emerging industries: next-generation information technology, biotechnology, new energy, new materials, high-end equipment, new energy vehicles, environmental protection, aerospace and marine equipment.

The central bank has channeled more credit into the manufacturing sector, especially high-tech companies, at the expense of the real estate sector, which faces new impediments to speculative investment.

(Graphic: The resurgence of manufacturing in China,

Langyu, the robotics company, plans to spend about 20 million yuan on R&D this year, or 20% of expected revenue for 2021, helped by larger tax breaks for R&D, Ren said.

Ringpu spends 8-12% of its revenue on R&D and will spend 1.3 billion yuan between 2020 and 2023 to upgrade automation and production.

“For China, achieving technological autonomy in some sectors is a matter of survival,” said Tu Xinquan, director of the China Institute for WTO Studies at the University of International Business and Economics. .

“The sense of crisis is a big driver.”

($1 = 6.4333 Chinese Yuan)

(Reporting by Kevin Yao; Editing by Sam Holmes)

Copyright 2021 Thomson Reuters.

Darcy J. Skinner