China's Specialization in Innovative...
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China's Specialization in Innovative Manufacturing NAS Innovation Policy Forum | May 23, 2017 Jonas Nahm, Johns Hopkins SAIS
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1. Indigenous Innovation Policy (2006-2020)
2. Policy Implementation in Wind and Solar: “Innovative Manufacturing”
3. Made in China 2025 (2015-)
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20052006
20072008
20092010 2011
20122013
20142015
USD 1 trillion
USD 2 trillion
USD 3 trillion China
USA
JapanGermany
Manufacturing Value Added 2005-2015, by Country
Source: UN National Accounts Database, 2017
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2006 Indigenous Innovation Policy
• Identified 11 key sectors for technology development, including energy, transportation, and manufacturing
• Selected 8 technology fields, with 27 technology breakthrough areas, including biotech, IT, advanced materials, lasers
• Chose 4 basic research programs • Bolstered funding for existing R&D programs by 20 percent annually
• Overarching goals: • Increase R&D expenditure to 2.5% of GDP by 2020 • Basic research accounts for 15% of R&D spending by 2020 • Radically reduce reliance on foreign technologies
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2006 Indigenous Innovation Policy
• Identified 11 key sectors for technology development, including energy, transportation, and manufacturing
• Selected 8 technology fields, with 27 technology breakthrough areas, including biotech, IT, advanced materials, lasers
• Chose 4 basic research programs • Bolstered funding for existing R&D programs by ~20 percent annually
• Overarching goals: • Increase R&D expenditure to 2.5% of GDP by 2020
• 2.1% in 2016 • Basic research accounts for 15% of R&D spending by 2020
• 4.7% in 2013 • Radically reduce reliance on foreign technologies
• Use of standards, government procurement policies etc.
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2010 Strategic Emerging Industries (SEI)
• Identifies seven specific strategic emerging industries: 1. Energy efficient and environmental technologies 2. Next generation information technology (IT) 3. Biotechnology 4. High-end equipment manufacturing 5. New energy 6. New materials 7. New-energy vehicles (NEVs)
• SEIs to account for 8 percent of GDP by 2015 and 15 percent by 2020 • Highlights importance indigenous innovation and R&D • Calls on subnational governments to provide funding for “technology
breakthroughs”
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1. Indigenous Innovation Policy (2006-2020)
2. Policy Implementation in Wind and Solar: “Innovative Manufacturing”
3. Made in China 2025 (2015-)
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Chinese firms focus on innovative manufacturing
• Focus on commercialization: engineering and design capabilities at the intersection of manufacturing and traditional R&D
• Engineering capabilities that allow firms to simultaneously manage tempo, volume, and cost.
• Designated R&D teams that
- substitute materials and components with lower-cost alternatives
- upgrade product designs for manufacturability
- integrate new technologies in products already produced at scale
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Global networks supplied technology, not capabilities in mass production
0
100,000
200,000
300,000
400,000
1995 1998 2001 2004 2007 2010 2013
Solar PV manufacturing
Wind turbine manufacturing
Cumulative Global Wind and Solar PV Manufacturing (in MW)
Source: Earth Policy Institute, 2013.
First wave of entry Chinese
firms
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“There was little reason to start from zero. Technology could be licensed, but manufacturing was not as simple. Early attempts were a terrible failure.
Whole blades dropped off and the main shafts broke. It was really very dangerous.”
Wu Gang, founder of Goldwind Source: Osnos 2009.
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Firms repurpose central support
- Example: Goldwind used 863 Program funds not to replace foreign partners, but to improve capabilities in commercialization and scale-up.
- Goldwind received 863 technology grants for:
- 600 kW turbine development in 1998 (licensed from Jacobs Energie) - 1.2 MW direct-drive turbine development in 2001 (licensed from Vensys) - 1.5 MW direct-drive turbine development in 2005 (licensed from Vensys) - 2.5 MW turbines in 2010 (joint development with Vensys) - 5 MW turbines in 2012 (joint development with Vensys) - currently, 10 MW offshore turbine development (joint development with
Vensys)
- Continued reliance on foreign partners, focus on commercialization.
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Local support for mass production
- Legacy of mass production at the local level:
- Availability of trained staff
- Engineering schools, vocational training, on-the-job training for manufacturing workers
- Consulting services for mass manufacturing (permitting, construction)
- “Complementary capabilities” - test centers, engineering work stations etc. depending on the needs of local industries
- Financial incentives tied to production goals, revenue targets:
- Tax breaks, land deals, preferential loans
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USA Germany China
Wind turbine A
Wind turbine B
Wind turbine C
Solar cell
Solar component
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1. Indigenous Innovation Policy (2006-2020)
2. Policy Implementation in Wind and Solar: “Innovative Manufacturing”
3. Made in China 2025 (2015-)
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Advanced manufacturing in China
• Industry 1.0: Mechanical Production
• Industry 2.0: Electrification, Mass Production
• Industry 3.0: Industrial robots, IT-based production
• Industry 4.0: Industrial Internet
Advanced manufacturing in China
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150
300
450
600
South Korea
SingaporeJa
pan
Germany
United States
China
Industrial Robots per 10,000 Workers, 2015
Source: IFR, MERICS
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Made in China 2025• Top-down policy framework • Shift in focus from USA (Invention) to Germany, Japan (Industrie 4.0) • Headed by the “Leading Small Group for Constructing a Manufacturing
Superpower” - State Council and Ministries, in interaction with research institutes and industry groups.
Motivation: • Urgent need for innovation-driven growth • Concerns about the middle income trap • Domestic industry squeezed between competition from developing and
advanced economies
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Made in China 2025
• 10 key technologies targeted: • New energy and energy-saving vehicles • Energy equipment • Agricultural machines • New materials • Biopharma and high-tech medical devices • New generation IT • High-end CNC machines and robots • Space and aviation • Maritime equipment and high-tech ships • Advanced railway transportation equipment
Focus on “promoting technological breakthroughs, service-oriented manufacturing, manufacturing-related service industries”.
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Made in China 2025
2013 2015 2020 2025
Share of R&D spending of operating revenue (%) 0.88 0.95 1.26 1.68
Invention patents per 100 million CNY revenue 0.36 0.44 0.7 1.1
Broadband internet (penetration in %) 37 50 70 82
Digital design tools in R&D (penetration in %) 52 58 72 84
Use of numerical control machines (pen. in %) 27 33 50 64
Select Industrial Policy Targets
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2025 Goals for Domestic Market Share Chinese Smart Manufacturing Products
Source: MERICS
High-end CNC machines
Robot core components
Robots
Big data
IT for smart manufacturing
Industrial software
0 20 40 60 80 100
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Made in China 2025
• 20 billion CNY (~3 billion USD) Advanced Manufacturing Fund • 6 billion CNY contribution from central government • 4 billion CNY State Development and Investment Corporation • 5 billion CNY Commercial Bank of China • Subnational governments also contribute • First investments include EV manufacturer BYD (CNY 1.5 billion),
Shanghai Robotics Consortium
• Ministry of Industry and Information Technology to establish: • 40 Manufacturing Innovation Centers by 2025 using public and private
funds, focus on creating domestic technologies • 2 are operational (additive manufacturing, batteries) • Enterprise-level experimentation projects (e.g. use of RFID in
components, cloud platforms) • Pilot cities
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Made in China 2025: Local Implementation
• Local governments have • Pledged to open 40 industrial parks for robotics development • Committed CNY 40 billion to subsidies, support for industrial robotics • Released local implementation plans focused on select industries, not all
of which are related to the industrial internet and smart manufacturing
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Made in China 2025: lessons learned?
• Shift away from focus on innovation-as-invention, but:
• Top-down focus misaligned with enterprise skills • Lack of workforce training, human resources • Duplication of efforts at the local level • Short term planning horizon of local governments • Continued focus on import substitution, techno-nationalism
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China's Specialization in Innovative Manufacturing
NAS Innovation Policy Forum, May 23 2017 Jonas Nahm, Johns Hopkins SAIS