BEIJING — The European Chamber of Commerce in China has revealed that China is falling short on multiple objectives outlined in its 10-year plan aimed at achieving technological self-sufficiency. The report indicates that this shortfall has also intensified unhealthy competition within industries, exacerbating global trade tensions.
The “Made in China 2025” initiative, launched by Beijing in 2015, faced substantial international backlash for allegedly favoring domestic enterprises over foreign competitors. Although the Chinese government downplayed this initiative in subsequent years, a renewed focus on domestic technological advancement has surfaced in response to U.S. trade restrictions.
Since the inception of this plan, China has reportedly achieved its targets for dominance in the automotive sector but has not fulfilled its goals in the fields of aerospace and advanced robotics, nor in the growth rate for manufacturing value-added, according to the chamber’s research. Among ten strategic sectors highlighted in the report, China has only realized significant advancements in shipbuilding, high-speed rail, and electric vehicles.
The targets set forth by the Chinese government are generally regarded more as guidelines rather than hard deadlines. The “Made in China 2025” framework represents the initial decade of what is projected to be a multi-decade strategy to elevate China to a position of global manufacturing leadership.
The chamber noted that while China’s self-developed aircraft, the C919, still depends significantly on components from the U.S. and Europe, industrial automation has improved considerably, largely due to foreign technology. Furthermore, the growth rate of manufacturing value-added dropped to 6.1% in 2024, a decline from 7% in 2015, and is now only halfway to the target of 11%.
“Everyone should consider themselves lucky that China missed its manufacturing growth target,” Jens Eskelund, president of the European Union Chamber of Commerce in China, stated during a press briefing Tuesday. He added, “They didn’t fulfill their own target, but I actually think they did astoundingly well.”
Despite slower growth, China has transformed its manufacturing sector over the past decade, now accounting for 29% of global manufacturing value-added—almost equal to the combined contributions of the U.S. and Europe, Eskelund stated. “Before 2015, in many sectors, China wasn’t a direct competitor to Europe and the United States,” he emphasized.
In response to concerns about China’s technological ascent, the U.S. has implemented restrictions on China’s access to advanced technology and has advocated for American manufacturing sectors to relocate operations to the U.S.
This week, the U.S. introduced new export licensing requirements for NVIDIA’s H20 and AMD’s MI308 artificial intelligence chips, among other technology products, destined for China. Prior announcements indicated that NVIDIA would incur an estimated quarterly loss of about $5.5 billion due to these licensing rules. Meanwhile, NVIDIA’s chief executive Jensen Huang recently held talks with Chinese Vice Premier He Lifeng in Beijing, as reported by state media.
According to Lionel M. Ni, founding president of the Guangzhou campus of the Hong Kong University of Science and Technology, the U.S. restrictions have compelled Chinese firms to source products they previously did not consider necessary to develop independently. He noted that if alternatives for restricted items are not readily available, they would proceed with second-best options.
China also releases national development priorities every five years, with the current 14th five-year plan stressing the importance of digital economy advancements and set to conclude in December. The forthcoming 15th five-year plan is scheduled for announcement next year.
China catching up
The extent of China’s potential self-sufficiency in critical technological sectors remains uncertain in the short term. However, local enterprises have made rapid advancements.
In late 2023, Chinese telecommunications leader Huawei launched a smartphone equipped with a sophisticated chip capable of 5G performance. Huawei has faced U.S. sanctions since 2019 and has developed its own operating system that operates independently from Android.
Analysts from the Washington, D.C.-based think tank, Center for Strategic and International Studies, stated in a recent report that while Western chip export controls have temporarily hindered China’s semiconductor progress, they have come at a cost to U.S. and allied companies. The report indicated that China has doubled down on its technological ambitions, which might destabilize the U.S. semiconductor landscape.
For instance, the latest Huawei smartphone, the Pura 70 series, includes 33 components sourced from Chinese manufacturers and only five from abroad.
Huawei reported a 22% increase in revenue for 2024, marking its fastest growth since 2016, largely attributed to a rebound in its consumer product division. The company allocated 20.8% of its revenue to research and development last year, surpassing its annual goal of over 10%.
Across the board, Chinese manufacturers have met the national target of 1.68% in research and development spending as a percentage of operating revenue, according to the EU Chamber report.
Eskelund remarked, “‘Europe needs to take a hard look at itself,” reflecting on Huawei’s substantial R&D expenditure. “Are European companies doing what is necessary to remain at the cutting edge of technology?”
Dutch semiconductor equipment manufacturer ASML invested 15.2% of its net sales in research and development for 2024, whereas NVIDIA allocated 14.2%.
Overcapacity and security concerns
Nevertheless, high investment levels don’t necessarily translate into efficiency.
The electric vehicle market has ignited a price war, resulting in most manufacturers sustaining losses in their efforts to outpace competitors. This situation is colloquially referred to as “neijuan,” or “involution,” within China.
“We must also recognize that China’s achievements have not come without challenges,” Eskelund noted, underscoring that the fierce competition has not fostered healthy business conditions across numerous sectors.
He indicated that the push to meet the “Made in China 2025” objectives has contributed to this phenomenon, while China’s shift from simple manufacturing to the production of higher-end goods has raised global security concerns.
During an annual government work report in March, Premier Li Qiang highlighted the necessity of curbing the trend of involution, echoing comments from a senior Politburo meeting held in July of the previous year. The Politburo represents a high level of authority within the Chinese Communist Party.
This intense competition further complicates the already slowing economic growth in the country. A Finance Newso analysis of Wind Information data found that 20% of the 2,825 companies listed on mainland China reported losses in 2024 for the first time, with the total share of loss-making companies nearing 48% when including those with ongoing losses.
In March, China reaffirmed its commitment to prioritizing consumer spending in 2024, shifting focus from manufacturing. Data indicates that growth in retail sales has lagged behind industrial production since the beginning of the year, according to official sources from Wind Information.
Policymakers are also striving to create a better alignment between manufacturing levels and domestic market demand, Eskelund noted, emphasizing that consumption initiatives are ineffectual if manufacturing growth continues to outpace demand.
When asked about potential solutions for addressing manufacturing overcapacity, he responded, “We are also eagerly waiting in anticipation.”
