For those unaware, the made in China 2025 initiative was initially designed to facilitate china’s rapid rise through the value chain and away from low cost manufacturing toward more high tech industries of the future.
China aims to move away from being the “world’s factory” (producing cheap, low-quality goods due to lower labour costs and supply chain advantages) and move to producing higher-value products and services, like aerospace and semiconductors, and to achieve independence from foreign suppliers for such products and services.
The plan was initially predicated on access to huge volumes of foreign capital. But with recent events in HK and basic law being rendered null and void, the PRC has essentially cut itself off from the source of the majority of its foreign investment. With the current climate foreign investment has all but evaporated.
Due to constant government stimulus since 2008 the central government has exhausted its fiscal ability, there isn’t enough money to build these factories of the future without access to massive levels of foreign capital.
There’s more than 200,000,000 unemployed in the PRC right now, this will further erode and damage state finances and create budget crunches in a number of areas (like the belt and road)
The PRC faces the real possibility of being undercut by nations like India and Vietnam on one end (low cost manufacturing) and cut off from US technology on the other. Without a dramatic course correction it’s my opinion that the PRC will be forced into the middle income trap and face perpetual stagnation, until its pending demographic crises begins to choke it in the 2030s.
The demographic crises is a post on its own, but what I can’t wrap my head around yet is how China expects to deal with a demographic crises the scale of Japans but with 1/6 the per capita wealth. The pension system is already underfunded, it’s a ticking time bomb.
Just my thoughts. Would love to hear more opinions on the subject.