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UNIVERSITY OF CRAIOVA FACULTY OF ECONOMICS AND BUSINESS ADMINISTRATION SPECIALISATION ECONOMICS AND INTERNATIONAL BUSINESS

Challenges to Chinese growth

Craiova -2018-

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Table of Contents Introduction.........................................................................................................2 Chapter 1. China-General Facts..........................................................................3 1.1 History .............................................................................................................................. 3 1.2 Structural analysis ............................................................................................................ 6 1.3 Conjuncture analysis ..................................................................................................... 10

Chapter 2. Restructuring of the Chinese manufacturing industry: imperatives, strategies and challenges ..........................................................13 2.1. The need to reform the manufacturing industry in the "workshop of the world" ......... 17 2.2. The Chinese manufacturing industry - sketched in a few clues .................................... 21 2.3. "Made in China 2025" - Chinese Industrial Policy of the Decade 2016-2025 .............. 24 2.4. Challenges related to the industrial policy assumed through the Made in China 2025 strategy ................................................................................................................................. 29

Conclusions ......................................................................................................32 Bibliography ....................................................................................................34

Introduction

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China is modern and ancient. Communist and capitalist. Rich and poor. Reformed and change-resistant. Homogeneous and diverse. Representative and independent. Conservative and revisionist. Passive and aggressive. Strong and weak. China's economy refuses to fit into one of the known economic systems. I chose this theme to highlight the Chinese miracle and China's tendency to turn the 21st century into a Chinese one, China being propelled among its great powers by its emerging power, having the most spectacular pace of economic development. China is a giant: a geographic giant,the demographic, military, industrial commercial. Samuel Huntington highlighted the idea that for the first time in history, global politics became multi-civilized and multipolar

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and modernization would not produce a

universalization of civilization and no occidentalization2 of it, but on the contrary, the West's regression would lead to an expansion of Asian power. Huntington reveals that in the 21st century China will be imposed as an economic hegemon, and China's development presents one of the most important dangers for the West and implicitly for the American supremacy. I will begin my presentation on the Chinese People's Republic of China economy by highlighting the choice of this country, I will continue with an introduction to China's situation in International Relations, highlighting aspects of the Chinese economy, then I will focus on the structural analysis of the main branches of the country, focusing on the Chinese industry and on the short term analysis I will record foreign direct investments in China, positions in international trade , as well as relations with other states. The second chapter of this paper “Restructuring of the Chinese Manufacturing Industry: Imperatives, Strategies and Challenges” is an analysis of the changes that China is forced to make to maintain the current economic growth...

Chapter 1. China-General Facts 1.1

History

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polarized in several ways or directions. The act of imbuing with Occidental or Western thought and peculiarities

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After the Communist victory in 1949 and the Cultural Revolution of the late 1960s, during Mao Zedong's politics economic development of China highlighted national independence and communist ideology. The state controlled the entire economic activity using centralized planning and state ownership. Thus, the rice bowl policy has guaranteed (at least at the theoretical level) basic food needs for all of China's population. After Mao's death, in 1976, under Deng Xiaoping's leadership, economic reforms were introduced in China , and the southern coastal provinces were transformed into free economic zones open to foreign investment, subject to capitalist3 principles. By 2010, under the influence of a new generation of leaders led by President Hu Jintao, China has continued its rapid economic development (almost 10 percent annually) through government spending on infrastructure, with China succeeding in 20 years to double its GDP. Since the late 1970s, China has outlined a move from a closed economic system with centralized planning to a more market-oriented economy playing a major role in the global economy - in 2010 China became the world's largest exporter. Reforms began with the gradual elimination of collectivized agriculture, expanded through gradual liberalization of prices, fiscal decentralization, increased autonomy for state-owned enterprises, the growth of a diversified banking system, the development of stocks, a rapid growth in the private sector and an opening to foreign trade and investment. In China, GDP in purchasing power parity was, according to the official estimates of 2010 of 8.091 trillion, the second highest value in the United States. Between 2000 and 2009, the Chinese economy grew from just 3.7% of global GDP (from the nominal point of view of the US dollar) to 8.1%. China has various natural resources such as coal, lignite, oil, natural gas, iron ore, manganese, tungsten, molybdenum, copper, lead, tin, zinc, mercury, bauxite, magnesium, silver, antimony, asbestos, sulfur, phosphates, salt, etc.4. New resources that you can import. China has numerous mining resources, accounting for 12% of the world's total, with China ranked No. 3 in the world. The People's Republic of China is ranked 25th in the world at 45 major mining products and is the world's number one resource for rare earths, gypsum, 3

Goldstein, Joshua S., Pevehouse, Jon C., International Relations, Polirom Publishing House, Iasi, 2008, pp. 651656. 4 http://www.observatordebacau.ro/2007/12/29/china-intre-nevoia-de-resurse-si-nevoia-de-piata-dedesfacere.html

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vanadium, titanium, tantalum, tungsten, concrete, graphite, mirabilis, baritone, magnetite, antimony . China's coal reserves are 1,000 billion tons, China thus occupying the world's first. With regard to oil and natural gas reserves, 509 oil basins and 163 natural gas basins had been discovered in China by the end of 1998. Crude oil reserves are estimated at 19.85 billion tones, with China ranked 9th in the world and 1.950 billion yuan gas. In China, all types of nonferrous ores are found in the world, rare earth reserves accounting for about 80% of all world reserves, 40% antimony, and tungsten four times as much as the total reserves in all other countries in the world China is the 143th member of the World Trade Organization, adhering formally on November 12, 2001. China's recent membership of the WTO raises some questions regarding the coexistence of political authoritarianism under Communist leadership and the permanent opening of the Chinese economy to the world5. The Chinese People's Republic's policy of maintaining the undermined national currency against the US dollar and the euro has led to a boost in exports, the fact that its currency is not convertible, contributing to China's resilience to the financial crisis that affected Asia in 1997. China is one of the largest recipients of foreign direct investment. World Bank estimates point to the idea that around $ 80 billion is invested annually in China. The labor market is also impressive, providing jobs to around 15 million new workers each year. Eradicating widespread poverty and rapidly increasing per capita income levels have created a new vision for this South Asian country, east, which in the near future may exceed the economic power of the United States of America. Since 1978, with China's opening to the world, the country's economy has grown rapidly. One key person in China's rapid growth has been Deng Xiao Ping, the Chinese leader who wants to "Let Some People Enrich". This has resulted in the idea of privatization being materialized. It was a slow process, but then China finally opened to the world. In the years to come, China's economy grew tremendously. No other country had ever developed so fast, China being compared by many with the US in the 1920s.

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http://romanian.cri.cn/chinaabc/chapter1/chapter10302.htm

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China has become the world factory, especially since many multinational factories and multinational companies on the planet shut their doors in their home countries and come to China to produce at a much lower cost. That's why in any house on the Planet, there is at least one object that has the famous Made in China printed on it.

1.2

Structural analysis

The economic structure shows the preponderance of the industrial and construction sector, accounting for 52% of GDP 6 , followed by the services sector by 32% and the agriculture sector by 15%. The above data reveals China's characterization as a workshop of the world due to its cheap labor force, thus being the foundation of economic growth. Increasing the importance of infrastructure and public building projects underlines the strengthening of the domestic growth of the economy towards an exclusive export policy link. The total workforce is estimated at 778 million people, but given the natural growth, the labor market is under particular pressure, with a marginal annual job demand of about 20 million. Some estimates of unemployment indicate an 8-10% unemployment rate. Agriculture was the first sector to be part of the reform agenda initiated by the Chinese Communist Party in the late 1970s, with the old, planned and centralized economy, agriculture being the key to transforming the entire economy. Now, about 50% of the population is employed in agriculture, which, according to the developed countries' standards, is very much, as a matter of fact, the rural area also concentrates much of the poverty. In the long run, China's economic growth stakes on the development of rural communities. Most of Chinese agricultural production is headed towards the eastern part of the country. China is the world's largest rice and wheat producer, but at the same time it is ranked first in cotton and tobacco, being an important producer of oilseeds, silk, tea, jute, hemp, sugar cane and sugar beet. China also ranks first in the production of red meat (beef, veal, sheep, lamb, pig). And the fishing industry has grown considerably since the late 1970s thanks to the development of technology7.

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https://en.wikipedia.org/wiki/Gross_domestic_product http://www.economywatch.com/world_economy/china/structure-of-economy.html

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The industry occupies 22% of the workforce. In the 1980s, 90s and now, this sector was the one that attracted most of the foreign direct investment. Since 2000, annual growth in industrial production has been in the range of 16-20%, the highest in the world as an absolute value. A new cycle of industrial capacity development has been opened by attracting large automobile companies and stimulating consumption in this respect. Particular attention should be paid to the energy industry, which is mainly based on fossil fuels. These businesses employ a significant part of the workforce but are very resource-intensive. For the time being, coal and gas reserves are addressing the demands of the economy, but in the future, especially crude oil, imports will become an absolute necessity. Until 1978, industrial production was dominated by large state-owned enterprises, gradually the share of state-owned enterprises declined, in 2002 it was about 41 percent, and state-owned companies controlled by Beijing Ministries represented only 16% of industrial production. The services sector occupies 28% of the total workforce, with the development rate below that of the industry, being concentrated mainly in the large agglomerations of the eastern provinces, mainly the special economic zones. The indicator on public finances reveals a balanced budget with a deficit of 2.8% of GDP on average over the last years. At the same time, the share of government budget expenditures in GDP is about 13%. However, China's administrative and economic structure does not allow for an accurate assessment of the share of government expenditure in GDP. On the other hand, public debt is far below the level at which it could raise concerns, around 12-13%. Central Bank foreign exchange reserves have reached a record level on a global scale. The banking sector has been the main instrument for financing the economic reforms in the previous decades, the price being the accumulation of bad loans, especially the stateowned banks that dominate the system8. China's industry has witnessed a deepening and multilateral intensification, especially since the proclamation of the People's Republic of China in 1949, until 1978 succeeding in establishing a complete industrial economy system, developing both the traditional and new

8http://www.athenian-legacy.com/2011/01/elemente-ale-puterii-economice-a-chinei/

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sectors, such as the chemical or electronics industry. In 2003, China achieved an added industrial value of $ 5,361.2 billion, an increase of 12.6% over the previous year9. Currently, China's industry is diversified, China producing both airplanes, ships, cars, and satellites, modern industrial equipment. The Chinese industry has seen structural changes that propelled it to the third world position in 2009, momentarily appealing that in 2010, China outperformed Japan and became the world's second largest economic power10. Among the fundamental factors of Chinese economic growth we can list both massive government investment and multinational firms and the low cost of production (raw material variety and cheap labor). China is one of the most important minerals producers. Coal is the most abundant mineral (China occupies the first place in coal production). There are also extensive iron ore deposits in China, the largest mines are at Anshan and Benxi in Liaoning Province. Petroleum fields were discovered in the 1960s and turned China into a net exporter and since the early 1990s, China has become the fifth world oil producer. Since the mid-1990s, growing domestic demand has forced China to import higher oil volumes. Coal is the most important source of energy, with coal-fired power plants supplying over 70% of China's total electricity, and there is also a major potential for hydropower. China has set itself the objective of becoming the world's second largest car market at the end of 2006, but their expectations have been exceeded, with China now the most big car market in the world, surpassing the US. This has been achieved thanks to a number of factors such as increasing the income of Chinese citizens, increasing competition, reducing the cost of new cars and car parts, increasing the availability of new cars. Very few of the cars produced in China are for export, 96.6% being sold on the domestic market. Similarly, only 2.5% of cars sold in China are imported. This trade discrepancy is the direct result of the presence in the region of Shanghai General Motors and Volkswagen Shanghai. In addition, China's accession to the WTO has highlighted the idea that the auto purchasing service will have to comply with the standards in the West. Sales systems are undergoing modernization, competitiveness is expanding in the automotive and automotive sectors in China, and 9

http://romanian.cri.cn/chinaabc/chapter3/chapter30203.htm http://www.dailybusiness.ro/stiri-companii/china-a-devenit-a-doua-putere-economica-a-lumii-depasindjaponia-46692 10

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counterfeit products are eradicated. It is hoped that this will improve the overall quality of the hand in the purchasing process in China. The Chinese construction industry is booming. While many countries enjoy a frenzy of construction, none can compete with China's largest building site. For its ambitious projects, China uses half of the world's concrete and a third of its steel for buildings such as Olympic Village. Every year, China spends about $ 375 billion in the industry construction, almost 16% of GDP. Unfortunately, China's booming economy and stunning construction levels have a detrimental impact on the environment. China's building addiction has led to an untouchable thirst for energy, China becoming the largest consumer after the United States. Much of the electricity generated in China, about 78%, comes from coal, but demand for oil increases directly in proportion to the increase in energy consumption. There is also an increase in demand for natural gas. All of these resources combine to generate a total of over 400 energy annually, mostly from conventional sources, but there are also energy sources from nuclear or hydroelectric power. China is the largest coal producer in the world, extracting over 2,500 tons a year and consuming over one third of the world's coal consumption. China has 126 billion tons of reserves, being the third largest power in the world, after Russia and the United States. For some time, China consumes more oil than it produces from its own reserves. It is only surpassed by the US, being the third oil importer after the US and Japan. The production level is about 3.8 million barrels per day and the consumption level is almost double by about 7.5 million barrels per day. Gases represent only a small part of China's total energy production and consumption, typically less than 5%. China consumes around 1.5 trillion cubic11 meters per year, and there are different estimates of how much reserves there are in the country, some reports highlight the fact that the total reserves are 83 trillion cubic meters. In 2009, China was the largest investor in energy and energy supply companies and the second largest in material supply: resources accounted for two-thirds of all China's foreign transactions. An official of the Ministry of Human Resources and Social Security said the unemployment rate in the urban area is 4, 1% by the end of March, with 9,090,000 registered 11

https://en.wikipedia.org/wiki/Cubic_metre

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unemployed, and the state has created over three million new jobs. The unemployment rate in the first quarter of 2011 remained unchanged since the end of last year. About 1,330,000 of the redundant workers were re-employed in the first three months of the year. Thus, the Chinese government aims to keep the urban unemployment rate below 4.6% and create over nine million new jobs in 201112.

1.3

Conjuncture analysis

The Chinese economy is considered by many to be a real investment opportunity, becoming a real economic titan. Not only does it offer a market of over 1300 million of potential consumers but achieves annual rates of economic growth that most countries would not even dare to dream about. This is reinforced by the fact that the Chinese government is doing everything in its power to further improve the investment climate for foreign companies, among other things by spending enormous amounts of money on infrastructure optimization. In the 21st century, China's evolution is moving into a highly sophisticated geopolitical framework. Following the disintegration of the Soviet Union, the Russian Federation is back in the game of global power, although from a geo-economic point of view, China's economy is four times stronger than China's The Russian Federation, and foreign investment flows to China exceed four times that of Russia, while at the same time forming a Russian-Chinese partnership. South of China, India, multiethnic13 democracy, becomes a political actor, characterized by emerging political and economic, pretending to be a great power in the international system14. As regards the relationship between China and India at the level of economic relations, it has improved considerably, with an important move in this direction being made by Prime Minister Singh leading to a bilateral trade of $ 60 billion in 2010. The process of economic 12

http://business.globaltimes.cn/china-economy/2011 04 / 647760.htmlhttp: //business.globaltimes.cn/chinaeconomy/2011-04/647760.html 13 http://business.globaltimes.cn/china-economy/2011 04 / 647760.htmlhttp: //business.globaltimes.cn/chinaeconomy/2011-04/647760.html 14 Farndon, John, India. The rise of a new world superpower, Litera Publishing House, Bucharest, 2008, p.104

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globalization has determined a deepening of Sino-Indian relations beyond the past. In this way, the pace of economic integration was sustained by processes of expansion of investment, production, consumption and decommissioning networks. A bilateral relationship between China and Japan can only be outlined by a common goal of establishing a strategic partnership that could bring mutual benefits, thus defending optimistic views among Chinese specialists regarding possible policy co-ordination between the two countries for to advance cooperation in East Asia. It is precisely the fears of an evolution towards hegemony over the Asian region, both from China and Japan that puts them in a collaborative situation, the process of globalization being the context in which the relationship is possible. The process of globalization involves relations between different countries under many aspects and, consequently, creates a certain tendency towards the harmonization of systems. To what extent is this phenomenon beneficial for both parties involved, can be explored by presenting the interactions between the United States and China. The relations between the two state that, despite the fluctuating antagonism between them, there are multiple possibilities of cooperation. In the 1990s, China successfully took advantage of the post-Cold War period to accelerate its development process, and the United States was worried about the possible replacement of the USSR by China as a global competitor. These fears were somewhat moderate by China's Sino-Russian strategic partnerships in 1996 with the European Union and Japan in 1998, as well as the start of negotiations with the US on strategic understanding with the US in 1996. The disputes between the two countries increased during the 1997-1998 Asian Financial Crisis, when China declined the depreciation of its own currency on the opposite pole to the US that supported the monetary policy of the International Monetary Fund. At least at an economic level, the two states' relations tend to go to cooperate precisely because of interdependence. The economic interests of the two countries only contribute to mutual assistance. Whether we are talking about China's dependence on US markets or the help it provides through loans to fund the US deficit, the situation is one of the most unusual

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in history, as a power in the process of development provides loans and exports for a superpower. Foreign direct investment (FDI15) in China had declined in 2009 for the first time in the last four years, with foreign firms affected by the financial crisis, while China's foreign investment grew 6.5 percent year-on-year, communicated by the Chinese Ministry of Commerce. In 2009, China attracted foreign direct investment worth $ 90.03 billion, down 2.6 percent from a record $ 92.4 billion in 2008. China attracted foreign investment of 12, 1 billion USD only in December 2009, up 103 percent from December 2008, December 2009 being the fifth consecutive month of FDI growth in China. After China joined the World Trade Organization in 2001, foreign direct investment grew explosively, the record being recorded in 2008, just before the global crisis, when investment grew 23.6 percent from 2007. In contrast, 2009, Chinese investment abroad, excluding the financial sector, amounted to $ 43.3 billion, up 6.5 percent from $ 40.65 billion in 2008. During the year 2005, when China invested $ 6.92 billion abroad, so far, these investments have multiplied six fold. According to Chinese Trade Ministry information, in July-September 2009, China tripled investment in the mining and industrial sectors to $ 20.5 billion (up 190.4 percent). For several years, Beijing has encouraged Chinese companies to expand and acquire assets abroad. Foreign direct investment in China rose 23.4 percent to $ 10 billion in the first month of 2011 compared to the same period in 2010, with analysts expecting a growth of at most 23 percent. But allegations invested by foreigners make it difficult Prime Minister Wen Jiabao's efforts to lower inflation in the fastest-growing country. The inflation rate rose in January by 4.9% and the Beijing authorities said prices would remain high in the first quarter of the year. Foreign investors are attracted by China's rising incomes and demand for luxury goods and will continue to come to China after they have already sent $ 105.7 billion in 2010. China has recovered from the global crisis faster than any other major economy, largely due to monetary and fiscal stimulus. In the fourth quarter of 2009, its real GDP was estimated 15

https://en.wikipedia.org/wiki/Foreign_direct_investment

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to have increased by more than 10%, but many skeptics say this growth is not a strong one, expressing the idea that China resembles Japan's years 1980. If China began to shake now, while in the big economies the growth rate is still fragile, it would be a powerful blow to the world economy16. Energy and raw materials are one of the main targets of Chinese investors, improving the investment environment as the engine that attracted foreign capital to China.

Chapter 2. Restructuring of the Chinese manufacturing industry: imperatives, strategies and challenges

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http://www.economist.com/node/15270708?Story_ID=E1_TVNSDSDR

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In recent years, China has engaged in a complex process of economic rebalancing, which includes three large packages of reforms interrelated: reforms aimed at rebalancing demand, restructuring supply17, and balancing the country's territorial development. As part of the bid restructuring process, manufacturing reform is an inevitable part of the transformation that will move the Chinese economy to the middle of the current century, the depth and magnitude of which will depend both the success of China's transition to the developed economy and the health, balance and smooth functioning of world markets and the world economy as a whole. This paper demonstrates the importance of reforming the Chinese manufacturing industry, outlines its current picture, its major issues, and analyzes China's new industrial strategy with its specific, inherent objectives and challenges. China is at a turning point in its evolution. In order to be able to continue to grow in terms of sustainability, in order to avoid the average income trap and successfully transition to the developed economy status, it is now forced to look for the best solutions for restoring its fundamental internal and external economic balances, severely disturbed by the effort of the latter, so that a new development model with another composition of aggregate demand optimal for this stage can be built. The Chinese economy is entering a maturity phase. Most likely, this will evolve towards a variant of the growth model in which economic growth will be in the nature of new normality, ie substantially slower than before, while the role of demand, as a driver of growth, will mark an essential change in accent and a substantial recalibration from its external component to the internal one. Domestic consumption, especially households, will become, in the meantime, the main driver of growth, but a successful transition will still play a very important role in investment - both public and private - both internally and externally - the overseas ones will have an increasingly important role in supporting exports, capitalizing on the availability of capital and supporting economic growth by accessing natural and human resources, markets, technologies, knowledge, know-how and the entrepreneurial culture of other countries. From the perspective of supply, change involves a major shift of focus from quantitative targets to qualitative growth aspects involving profound economic restructuring that priorities 17

https://www.made-in-china.com/?gclid=CjwKCAjwgYPZBRBoEiwA2XeupeTbBTyjt16zEBi_lodaTB85SNrvYzFiULmRVpC8vws2DBx9Qw9JRoCG8cQAvD_BwE

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the development of highly added value-based activities based on knowledge, innovation, superior qualifications, cutting-edge technologies18, which generates productivity, efficiency and competitiveness. Such a move is vital in an economy that is becoming increasingly unable to compete in low-tech industries - with activities that tend to relocate to other countries, according to the comparative advantage - and which is forced to become competitive in the high-tech industries so as not to risk losing the transition to the developed economy, foreclosing the average income trap indefinitely. Also from the supply side, China has major imbalances in its mature industries (steel, coal, cement, aluminum, glass, etc.), some of them strategic, being the victims of its own development model, where the state has played an important role in allocation and, generally speaking, in the management of the economy to the microeconomic level, and the free market operates only partially, oasis, while in important segments of the economy the activity is still carefully controlled and controlled by the government and monopolized by the public companies: as a result of over-investment, these industries now bear the double burden of surpluses of productive capacity and over-indebtedness, both with far-reaching and unfavorable consequences, both for the national economy and for the world economy. That is why structural supply-side reform is a necessary and necessary step in the transformation of the Chinese economy, the depth and breadth of which will depend both on the success of the Chinese transition and on the health, balance and smooth functioning of world markets and the economy world as a whole. The mature industries that are in a position to be represented by a growing number of zombie companies that have not passed and cannot pass the market test, which is burdened with unnecessary and / or wasteful production capacities, obsolete and polluting technologies, productivity in decline, inefficiency and lack of competitiveness that make them unable to get out of credit, companies that are kept alive only through subsidies, exemptions, preferential allocations, protection and political decisions of local and / or central leaders , must be radically and swiftly restructured, no matter how painful the process, otherwise they will halt the advance of the Chinese economy and stifle global markets, with serious consequences for other economies as well.

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https://www.techopedia.com/definition/26589/cutting-edge-technology

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On the supply side, the change involves duplicating processes of industrial restructuring, modernization, digitization and computerization with a systematic and sustained process of service sector development which, although gaining momentum in recent years, still has much to recover from consumption needs and levels natural economies and even emerging economies. A well-developed and efficient service sector has a key role to play in restructuring the economy, empowering it, correcting the allocation and use of resources, and regulating other imbalances (pollution, waste, inefficiency, etc.) deactivating the precautionary saving mechanisms, so that in all these ways it can generate increased consumption, which, in support of growth, will bring sustainability to the development process. Finally, the talk of restructuring the supply could not be complete without addressing the reform of agriculture and the rural environment, a major and, at the same time, very sensitive area of the Chinese economy19. Major, at least for the fact that 20% of the world's inhabitants live in China, and for their food the country has only about 10% of the globe's arable land and only about 6% of the world's drinking water reserves. Sensitive, because although in the last few decades of development alert the country has succeeded in removing about half a billion people out of poverty, although urbanization has advanced and now live in cities 56% of China's inhabitants, hosts a large part of the country's population, a population that lives and works much harder than the townspeople, but it has an average income of three times lower than it, a much lower living standard, and opportunities for education and personal achievement almost if they do not migrate to cities. But this process is also controlled and settled, and the migrant regime is by no means envied. Poorly developed agriculture, the still limited presence of other economic activities in the villages, transport and distribution networks still inadequate in the countryside, the imbalance between village and city development, the living and working conditions of villagers and townspeople, their income, etc. there are all the issues that require resolution through supply-side reforms. The process of China's economic rebalancing is in fact a multitude of rebalancing and recalibration processes carried out on different levels in different economic areas but linked to one another in its living organism, influencing and conditioning reciprocally in varying 19

https://en.wikipedia.org/wiki/Economy_of_China

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degrees, either in a direct or remote relationship. The rebalancing of demand and the structural reform of the offer are two sides, each very complex, of the same process: the restructuring of the supply cannot be achieved other than in relation to the market dynamics, structure, diversity, specificity, demand quality, and the success of the rebalancing on the demand side largely depends on the reforming processes in the area of supply of goods and services.

2.1.

The need to reform the manufacturing industry in the "workshop of the world"

It has passed at least a decade since China has become widely known worldwide as the "workshop of the world"20, and since 2010 even international statistics have confirmed it as the largest industrial manufacturer in the world. This position is justified in purely quantitative terms, as China is currently the world's largest producer and supplier of more than 220 categories of processed industrial products, of about 500 major types present on international markets, markets dominated by products in the country, in some cases up to 80% of global manufacturing capacity (Deng Yanqing, 2015; Gerst, 2015). While this important aspect also needs to be considered as an important mental asterisk with regard to the still high share of the manufacturing trade in this economy, China is obviously less justified at a global level, especially from the perspective the quality and structure of the industrial production achieved, its low innovative content, as well as the unreasonable consumption of resources and the severe environmental consequences due to the extraordinary expansion of the industrial manufacturing sector. Therefore, over time, the Made in China logo, which has become very popular and well known everywhere, has begun to gain a negative connotation, being associated in the collective mind of many foreign consumers with the idea of copied, cheap and low-quality goods.

On the other hand, other forces also put pressure on the sector:  costs, including labor, are steadily rising, 20

https://www.journals.uchicago.edu/doi/abs/10.1086/674888?journalCode=tcj

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 competition from other countries in the region, with competitive advantages that are superior to those of China,  on the world market, demand is shrinking and, consequently,  exports are declining, and  Industries that are no longer competitive can tend to relocate, or less developed regions of China, or in neighboring countries, or even back, in the areas from which they were originally transferred to China (re-relocation). China is approaching the moment when it is in danger of facing such a situation. Therefore, the manufacturing industry, essential to supporting its development, requires rapid and firm measures of reform, rebalancing and adaptation to the reality of the new normality of the Chinese economy and the developments in global markets, on the basis of which economic growth The fundamental problem that China is currently facing is simply formulated: the country ranks among the world's other economies either first, after the total GDP calculated on PPP or second after the USA, if hierarchy takes into account GDP at current prices . But if we are considering GDP per capita, it is still well below the level of developed countries and, in particular, still far below that of the US, although it has made progress. If we accept the direct link between GDP and living standards, on the one hand, and between GDP and labor productivity developments, on the other hand, it turns out that what China is doing is, in principle, to narrow as much as possible the gap with the USA in terms of regards GDP (PPP) / inhabitant (Ross, 2015).can be reactivated of long-term sustainability. A look at the developments in recent decades, produced in the upper hierarchical at the global economy in terms of GDP / capita (PPP21) ratios of the top 12 largest economies of the world compared to the US may be extremely relevant. Table 1, which shows this comparison, highlights the countries at the top of the global hierarchy that have narrowed the development gap with the US since 1980 and which, on the contrary, have even distanced themselves from the United States at this point view. First of all, it is striking that most of these countries, either strongly developed or emerging, but ranked among the top 12 in the world by nominal GDP, have departed from the reference level (GDP per capita, to PPP in the United States), their gap with the USA rising after 1980: Italy lost almost 20 pp, France and Canada around 21

https://en.wikipedia.org/wiki/Purchasing_power_parity

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12 pp each Brazil, over 10 pp., Germany and India between 5-7 pp., and the UK slightly above 1 pp. The only two countries that have clearly managed to narrow the development gap with the US between 1980 and 2015 were (i) South Korea - which, starting from a larger base than China, added 48 pp. to GDP (PPP) / inhabitant, reaching 65.4% of the United States - and (ii) China, which also added almost 23 pp. (but somehow "more precious" if we take into account the giant population of the indicator in this country), thus making the leap of only 2% of the American level 22 in 1980 to 25.3% of this level in 2015. Although both in itself and in comparison with the performance of other states in this respect, China has managed, over the course of its 35 years, an impressive progress in its effort to close the gap that separates it from the US living standard, quarter of the level of development reached by the United States and obviously still has much to recover from them.

Position in

Position in

1980

2015

Amendments

hierarchy

hierarchy

GDP (PPP) /

GDP (PPP) /

2015

global

global (after

inhabitant

inhabitant

vs.

Country

22

https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)

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(after GDP at

GDP to

VS.

VS.

1980

current prices)

PPP)

GDP (PPP) /

GDP (PPP) /

(P.p,)

inhabitant

inhabitant

in the USA (%)

in the USA (%)

1.

2.

USA

100

100

0,0

2.

1.

China

2,4

25,3

+22,9

3.

4.

Japan

67,9

68,2

+0,3

4.

5.

Germany

89,3

84,0

-5,3

5.

9.

U.K

69,4

68,2

-1,2

6.

10.

France

85,6

73,8

-11,8

7.

3.

India

4,4

11,0

-6,6

8.

12.

Italy

83,8

63,9

-19,9

9.

7.

Brazil

38,2

28,0

-10,2

10.

15.

Canada

93,3

81,2

-12,1

11.

13.

South Korea

17,4

65,4

+48,0

12.

6.

Russia

42,0*

46,5

+4,5

Note: * 1992, data for Russia / 1980 not available. Source: Author's work based on IMF data (2016) and The World Bank (2016). However, it cannot be disputed that the truly remarkable success of development over the past three decades has been located in South Korea and China, while most strategies in developed countries - where the focus has been placed on development services - seems to have failed. In order to find the explanation of this reality, a look at the structure of successful economies really reveals that both countries have distinguished themselves by their systematic focus on the development of the manufacturing industry. While in this time China has become the world's largest industrial producer, South Korea 23 has naturally been one step ahead, developing champion companies with brand names that have become major brands at (Samsung, LG, Hyundai, Kia, Lotte, etc.). It is noteworthy here also, in the same vein, that the economies that were able to navigate best during the recent global economic crisis were those with a developed and strong manufacturing sector (USA, Japan, Germany), and relatively on the data in Table 1, all these countries were also those who lost the least, or even won against 23

https://en.wikipedia.org/wiki/South_Korea

20

the US. According to John Ross (2015), statistical data clearly reveals that in most countries where the prevalence of the industrial manufacturing sector in favor of services was reduced "... it was a sign of economic failure, not of success." All this gives us the measure of the importance of a strong and modern sector of the manufacturing industry, both for the economic development of a country and for its economic stability in a more unfavorable situation, and justifies both China and for other, developed or emerging economies, a special interest and continuous efforts to support its development and modernization24. On the other hand, the development of the tertiary sector must in no way be viewed in opposition to that of the manufacturing industry, which does not imply or justify a lack of attention for the promotion of services, but on the contrary.

Top 10 countries by GDP (PPP) in 2017 Source: Wikipedia

2.2.

The Chinese manufacturing industry - sketched in a few clues

After the launch of the Reform and Outreach Program (Deng Xiaoping, 1978), in the 1990s, China achieved only 3% of the value-added global manufacturing industry output. 24

https://en.wikipedia.org/wiki/Modernization_theory

21

Currently, over three decades of investment in industrialization, efforts to attract foreign investors, and the ongoing process of industrial relocation from the West, China has reached more than 25% of the value of manufacturing industry's global output. It has also become the world's largest producer of industrial goods after surpassing the US in 2010. Half of the major industrial products used throughout the globe are mainly made in this country which, besides large quantities of raw materials - 50% of steel, 60% of cement, 50% of world's coal, etc. also manufactures much of the world's most complex manufacturing products: 90% of mobile phones, 80% of air conditioners, 80% of computers, 60% of color televisions, 50% of refrigerators, 41% ships, 28% of cars (EUCCC 25 , 2017). China is the world's largest manufacturer of ships, high speed trains, computers, semiconductors, photovoltaic panels, machine tools, household products, textiles, clothing, footwear, toys, chemical fibers, dyes, fertilizers, construction materials, ceramic products, paper, flat glass, etc. and the largest builder of motorways, tunnels, bridges. It produces 24% of the world's energy. At the same time, it puts forward a rapidly growing number of patent applications (about 150% of the US level in 2015) (Yi Wen, 2016), illustrating its effort to become more innovative and to overcome so he has just taken over, assimilated and eventually developed products and technologies created in the West. Indeed, one of the biggest problems of the Chinese processing industry is the low level of innovation and the lack of basic native technologies. At present, emerging high technology industries, which are considered to be of strategic importance for the future development of the country, represent only 10% of the total, and although the potential is enormous, there is still much to be recovered until this potential is truly capitalized (Shuyun Zhan, 2016). Until then, China is still at the bottom of the global manufacturing chains, with industries operating exclusively on the basis of foreign technology, be it local or multinational companies. Thus, for example, in the home appliance industry, where China is the largest global producer, the core technologies come mainly from the USA, Japan and South Korea, in the automotive industry they are of German, American or Japanese origin, and in industry Photovoltaic panels the technologies used are predominantly German.

25

http://www.europeanchamber.com.cn/en/home

22

For the Chinese economy as a whole, R & D intensity at firm level ranges between 33% and 50% of the level reached in advanced countries and the contribution of small and medium-sized enterprises (SMEs) in this sphere is minimal (2 % CD intensity at national level in 2013). With a low innovation capacity and the transformation of scientific research success into commercial success, Chinese SMEs either have a short life span or, if they manage to withstand the market, they cannot access the upper levels of the value chains, remaining large at their base, where they compete sharply through price and often sacrifice quality (EUCCC, 2017). At the opposite end, there are state-owned companies loaded with privileges and consistently exempted responsibilities, often with monopoly positions that could have the material means, but do not have the incentive to engage in intense CD activity. Therefore, in order to change this picture as quickly as possible and to propel its economy into a new spiral of growth, able to join it in the restricted group of advanced countries, China will try even more energetically than ever to take over as much as possible much of the state-ofthe-art Western technology, using for this purpose the trend of internationalization of its industrial companies. In parallel, it will invest more in its own research, but the content of its new strategy and the concrete implementation of its foreign investment assault in recent years clearly reveals the intention to hurry its economic advance by accessing, in various ways, newer technologies already developed in the rest of the world. Another important issue, which is increasingly becoming a failure of the Chinese processing industry, is the still high proportion of assembly activities based on imported components and its complement, the processing trade. According to World Bank studies, however, as a result of assimilation of more and more materials, components and accessories by local sub-suppliers, the share of components imported into all exports by China tended to decline, so from 60% on average in the mid-1990s, it has now reached 35%. The phenomenon, somewhat unexpected in the conditions of globalization, increased after China's entry into the World Trade Organization (WTO) in 2001, so only between 2000 and 2007 the local content of Chinese export products jumped from 65% to 70 % (Kee & amp; Tang, 2016; 2017). According to recent research, even if the Chinese economy is currently crossing the process of extensive structural change, moving forward on the technological scale of 23

industrial activities and supporting the re-structuring of its industrial structure in favor of high-value-added activities, on low cost will still be competitive for a while due to productivity still higher than that of other competing countries in the region (see the clothing industry where, although the average monthly worker wage increased by more than 11% per annum to to $ 450, China has also increased its international market share from 42.6% in 2011 to 43.1% in 2014. (Markus & Marro, 2015). However, these industries will increasingly feel the pressure of relocating to other regions of the country and / or other countries in the region - such as Vietnam, Myanmar, Indonesia, India, Thailand, the Philippines, etc. or even some African countries - where costs are lower. Deng Yanqing (2015), however, appreciates that as long as China remains at the core of Asia's manufacturing and manufacturing networks, this will fail to have a significant negative impact on the Chinese economy.

2.3.

"Made in China 2025" - Chinese Industrial Policy of the Decade 2016-2025

A restructuring, calibration and modernization project of the Chinese manufacturing industry. Launched in May 2015, the Made in China 202526 (MC2025) strategy contains a ten-year action plan that aims to radically restructure the manufacturing industry, turning it into a competitive, innovative, dynamic, and efficient one that ensures transforming China from a giant industrial manufacturer into a real global industrial power, with indisputable skills, of prime importance in the industries of the future. It was developed by the Ministry of Industry and Information Technology (MIIT), with the contribution of about 150 specialists who worked for two years starting from the model of the German strategy "Industry 4.0" and taking over ideas from the strategies for increasing the competitiveness developed in USA, Japan and the United Kingdom (Gerst, 2015). CM2025 is only the first of three stages to be required for China to be transformed into a real and recognized leader among the world's industrial powers by the 2049 horizon at the Republic's 100th anniversary.

26

https://en.wikipedia.org/wiki/Made_in_China_2025

24

Currently, the US still holds the dominant position in global manufacturing, followed by Germany and Japan, while China, Great Britain, France and South Korea are in the next echelon. According to MIIT Minister Miao Wei, "China is striving to enter the second stage of global manufacturing over the next decade and climb to the first echelon over three decades" (Deng Yanqing, 2015). This is a three-step approach that takes into account clearly predefined stages:  By 2025 - China will end the basic industrialization and it will be placed among the great industrial powers of the world;  Until 2035 - the Chinese processing industries will reach a level intermediate among the major global industrial powers;  Until 2049 - China's position as one of the major powers in China the Earth processing industry will be firmly established.

In the first step of implementing the Made in China 2025 strategy, emphasis will be placed on (a) the development of innovation-based manufacturing industry, on improving its quality - transferring attention and quantity-quality priorities - on optimizing industrial structure, promoting industry-friendly industries environment, encouraging young industries27 based on high-tech and high-skilled labor, etc., as well as (b) the all-embracing upgrading of the processing sector as a whole by increasing the share of local components (40% by 2020; to 70% by 2025), the large-scale introduction of numerical control machines and industrial robots, the integration of information technology into all industries and all phases of productive processes. There is also a 30% reduction in operating costs, production cycles and scrapping rates by 2020 and a 50% increase in these reductions by 2025. The major goal of the strategy is to create advanced processing industries that can support China's future development by ensuring ambitious leap from "manufactured in China" to "innovated in China" from simple technology and trade processing, sophisticated technologies and innovative Chinese design products with high added value, from Chinese commodities 27

https://www.investopedia.com/terms/e/emergingindustry.asp

25

with problematic reputation, respected Chinese marks, well established in the buyer's consciousness worldwide and desirable. Programmatically, MC2025, as China's new industrial policy strategy for the next decade, 2016-2025, has set 9 priority objectives: (i) to increase capabilities in innovation; (ii) improving the quality and efficiency of production; (iii) integration of industrialization with information and communication technologies; (iv) strengthening the country's industrial base; (v) cultivation of Chinese brands; (vi) "green development", friendly to the environment; (vii) promoting "breakthroughs"28in research from ten selected emerging industries; (viii) the promotion of business services related to the processing industry; (ix) the advance of the restructuring of the manufacturing industry and its internationalization. More specifically, some of these objectives imply the achievement of indicators, the levels of which are precisely stipulated, on large themes (Markus & Marro, 2015). So:  Innovation. Doubling Research-Development Expenses (CD) as a percentage o ftotal company revenue from 0.88% in 2013 to 1.68% in 2025, so that innovation and the effort to apply as many valid patent applications as possible (Trentini, 2015) are encouraged. On the other hand, the problem of the low level of absorption of CD results by industry, which in China is only 30%, while in the developed West rises to 70%, is also very important. Such a low conversion rate is a serious issue that needs to be resolved by strengthening strict IPR enforcement, building up the mechanisms and channels through which new technologies and products can quickly migrate from the lab to the manufacturing line (China Daily, 2015);  Quality and efficiency. Increasing the value added in industry by 4 percentage points from its 2015 level, increasing the efficiency and quality in the manufacturing industry and the technological competitiveness of the Chinese economy;  Smart manufacturing. Enhancing access to high-speed or broadband Internet from 50% in 2015 to 82% in 2025 in order to harmonize and integrate ICT with manufacturing, increasing its efficiency and performance;  Green development. Prioritize environmental friendly development by reducing energy consumption and carbon dioxide emissions. The strategy calls for a 34%

28

https://www.merriam-webster.com/dictionary/breakthrough

26

reduction in energy consumption, 40% of carbon dioxide emissions and 41% of water consumption in the processing industry, and sets the target for increasing the rate of use of solid industrial waste from 65% 2015, to 79%, by 2025. Restructuring of the processing industry implies, in addition to an increased emphasis on innovation promotion measures, an effort to rebuild the sector's structure in two directions: (i) solving capacity surpluses from 19 traditional industries29, some of which are of strategic importance (steel, aluminum, non-ferrous metals, etc.) without generating high unemployment and social unrest; and (ii) distance from traditional industries based on cheap labor, and the prioritization of 10 selected emerging industries, considered to be the industries of the future, namely: 1. New generation information technology. It underlines the need to weaken China's dependence on foreign technology and to turn the country into a stand-alone cyber power; 2. Robotics and numerical equipment from the top range. China's goal to become a leader in the manufacture of numerical control machines and industrial robots is set in order to have a strong manufacturing industry, including when labor costs are substantially higher than those in other countries ; 3. Airplanes and aerospace equipment. This area is a prestigious one for China and also an important one from the perspective of national security. As such, it strives to become a leader in the field, particularly with regard to satellite technology and aircraft manufacturing (the first reaction aircraft, domestic production is already being finalized); 4. High technology marine and ocean engineering equipment. It is another area in which China aims to achieve a leadership position, given the strategic importance of the field, both from the perspective of national security and navigation routes, as well as with the identification and exploitation of marine resources; 5. Modern railway equipment. In this area, China has already stated itself as an important builder of railways and high-speed trains both in the country and abroad. The intention is to maintain the competitiveness of industry and to make better use of 29

https://en.wikipedia.org/wiki/Industry_of_China

27

it by promoting programs for the construction of large railway infrastructure networks, including high-speed trains, within the OBOR strategy; 6. Energy-saving vehicles and / or powered by new energy sources. In this sphere, the anti-pollution struggle combines with China's ambition to be globally recognized as a vehicle manufacturer, and the prospects of asserting it on this segment are encouraging; 7. Energy equipment. In this area, where China has expertise and competitive advantages, the key objective is energy efficiency, as well as smart grids and the development of technologies called for by the development of smart30, clean and nonpolluting cities of the future; 8. New materials. Graphene, composite materials and the like, many based on China's vast resources of rare earths (over 80% of Earth's total reserves) are key to technologies that will shape the future in electronics, information and communications technology (ICT), aerospace, and , most likely from a host of other emerging, or even unimagined and unprecedented industries, which justify China's major interest in this new segment of future activities; 9. High-performance biopharmaceuticals and medical devices 10. High performing machinery and equipment based on new technologies.

At the same time, in order to ensure success, a strategic support consisting of new support policies is envisaged in eight areas: 

Creating a competitive and fair market environment;



Deepening the reform of systems and mechanisms in the economy;



Improving financial support policies;



Extending the level of support through fiscal and tax policies;



Improving multi-level professional training systems;



Improving policies for SMEs;



Further opening up the processing industry to foreign investment;



Improve organizational and implementation mechanisms.

30

https://en.wikipedia.org/wiki/Smart_city

28

The strategy talks about the desideratum that the process of structural transformation relies on market forces and institutions, the strengthening of intellectual property rights, and the freedom of companies to develop and declare their own standards, but maintains a significant role for the state in providing the framework in general, by using financial and fiscal instruments, supporting the building of innovation centers (15 by 2020, 40 by 2015), as well as helping Chinese companies participate in setting international standards in different areas of the processing industry (Kennedy, 2015 ). In the opinion of the EU Chamber of Commerce in China (EUCCC, 2017), despite the Declaration launched in 2013, at the Third Plenary of the Chinese Communist Party, strongly advocating for market forces to play a decisive role in the economy, in fact, the Chinese government repeatedly proves the intention of the state to maintain a prominent role in guiding the Chinese economy, and the Made in China 2025 strategy reconfirms this trend. Indeed, it seems, essentially, in the Chinese hybrid economy and this strategy, like the majority of others, will seek the middle ground between planning / interventionism and the market, a way yet hard to imagine and confuse suggested in the given explanations, including parable of the Communist Party daily, which usually conveys the clear messages of the political and state leadership: "... the implementation of the Made in China 2025 plan will be market-oriented, although guided by the government, according to notes.9 "(China Daily, 2015).

2.4.

Challenges related to the industrial policy assumed through the Made in China 2025 strategy

In a country with China's dimensions, where many provinces are much more territorial and economic and more populated than many countries in the world, ensuring effective local implementation of policies at the center has always been a difficult and bursting move with unknowns. Often, local interests (instead of leaders, interest groups or categories of people than the region itself) conflict with the general objectives of the country pencil leaders in Beijing, which materializes in a deaf opposition of the provinces to the directives of the capital. This phenomenon can be very well observed when it comes to, for example, the capacity surpluses in certain industries, or excessive pollution and, consequently, the need to reduce certain industrial activities on these grounds. The local authorities' principle of agreement on the matter is aimed at any other region than its own, since in the jurisdiction administered by local leaders will not increase unemployment, social conflicts, deceleration of GDP or reduction of local tax collections, nor do they want to lose from the sources personal profits, often related to the existence and functioning of troubled state firms. 29

Over time, the central bodies have issued numerous directives on the closure of lowtechnology, inefficient and polluting low-technology companies, which sometimes also contribute to the surplus production capacity of their industry, but so far the trio of local governments, the state-sponsored state-owned banks and state-owned companies have succeeded in avoiding the implementation of fundamental reforms (Eurobiz, 2016). Consequently, radical reform policies are expected to have a strong resilience to implementation, at least in the regions targeted by more severe measures. On the other hand, a number of challenges arising from the implementation of reforms will also arise as a result of the variety of situations in the provinces of China. There is an "Old China"31in the northern industrial area, surnamed, as in the US, the rust belt, where large state companies are concentrated in declining industries, especially metallurgy, which is burdened with debt, marked by inefficiency, with many employees, poorly qualified and desperate to keep their jobs. This China, which is still dominated and dependent on the goodwill of the state, rejects reforms and regulations that risk rising costs, thinning profit margins already on the brink of bankruptcy and the explosion of unemployment. In these regions, the change will require radical changes in the structure of the incentives for officials in the administration, in which their professional rise is linked to the implementation of these reforms rather than to the achievement of the planned level of GDP and other indicators quantity. But there is also a very different China located in the southern area of the territory, which is predominantly private-sector oriented and is comparatively more efficient, productive and innovative. Through some of its localities, such as the city of Shenzhen, this "New China" is approaching the global frontier of knowledge. And this modern China is the victim of the divergent interests of local leaders and the center. In addition, even if the young and educated workforce here is more responsive to the economic reforms desired by Beijing leaders, and this creates problems but of a different type: this population thinks more about their own interest, separate from that of the state, and is much harder to control than the less educated and state-dependent population in the Nordic provinces. Therefore, as the share and influence of educated young people in the South is growing, the willingness of the center's leaders to control their private businesses and even the entrepreneurs themselves grows. As such, if the most backward and more vulnerable northerners will be able to work in force, in the emptied South, amplifying the influence of the center will require more subtle methods (Stratfor, 2016). The implementation of Made in China 2025 will also hit other difficulties. One not negligible from the perspective of the computerization of the industry and of the interconnections necessary for the realization of intelligent factories and cities is the speed of the Internet and the security of the transmitted data, inherent in increasing volumes. According to a poll made in 2014 by the EU Chamber of Commerce in China (2016), no less 31

https://en.wikipedia.org/wiki/Old_China_Trade

30

than 85% of the interviewed companies said they were affectedby the low speed of the internet, and 70% of them felt that China's Internet environment had deteriorated over time (Domingues, 2015). At the same time, there is a great reluctance of China's data security partners in this environment: "The greatest danger to China's cooperation is the loss of sensitive data in China. State control of data and its use as a protectionist industrial policy tool destroy the foundations of a joint activity. Under such circumstances, sharing information with Chinese partners and sub-suppliers is virtually unthinkable. "(Wubbeke & Conrad, 2015). Then there are the known problems inside the China innovation system - inefficient use of funds, poor management quality, low implementation rates of research results in industrial activity, etc. The biggest challenge in this respect is China's ability to create a favorable and stimulating environment for the local research and development activity to flourish. At the same time, although the strategy foresees - sometimes even in great detail - quantifiable tasks, deadlines and targets, it does not question the mechanisms by which all these objectives will be achieved or which institutions will manage such a change of scale. These things, as they unfold, will probably claim some institutional construction. In addition, the opening up of the Fourth Industrial Revolution32will certainly pose great problems from the point of view of its inherent political implications, and the harmonization of the economic freedom assumed by the market with the rigidity of the state and party mechanisms is presumed to be increasingly difficult achieved. For the time being, what is seen from the way the strategy is conceived, the rest of the tasks of the current Five-Year Plan (2016-2020) and, in general, the vision of the objectives to be pursued through the structural reforms on the supply side and the way in which they will be implemented, but especially from the way in which some of the steps involved in these plans and strategies, we are told, beyond rhetoric, the option of more intervention for a greater presence of the state in the economy rather than the freedom of the manifestation of market forces and the allocation of resources in accordance with its signals . Or, because the cornerstone of the whole scaffolding of the structural reform of supply really is to encourage innovation, overcoming the current evolutionary moment - in which China transits from the Second to the Third Industrial Revolution - and the advance of the indigenous processing industry on the path of the Fourth Industrial Revolution require the free market to play a decisive role in the economy, because innovation cannot flourish in a rigid, restrictive and closed environment, but needs a climate as free as possible. From this perspective, the relationship between the free market and the state is still a source of great challenges in successfully implementing the strategy. If successful, the implementation of MC2025 will benefit both the Chinese and global economy and society: consumers everywhere will be able to benefit from better, more diverse goods, better suited to their needs and even cheaper; all citizens, both in China and the rest of 32

https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/

31

the world, will be able to benefit from a cleaner natural environment that protects our health; Earth resources will be more rationally and more effectively used; the business world will be more likely to offer opportunities, businesses will get a boost, and the countries and companies that will be able to offer the goods, technologies and services that China needs in this period of reform, restructuring and modernization will be able to use the window opportunity open to their benefit (provided, of course, a more open Chinese market). On the other hand, a secondary, but extremely important, outcome of successful implementation of this strategy will be to boost competition in the segments of high-tech industries, markets where China is still not a threat to major players - the US, Japan, Germany, Great Britain, France, South Korea, etc. - but where it can be said to be a feared force in the next two to three decades. As always, however, competition will bring benefits to the potentiating of creative energies and push forward the respective countries, the world economy and human society as a whole.

Conclusions China's power in international relations magnetizes the entire planet, China being the only Communist state with an emerging economy, being a state that has maintained a sustained rhythm of economic growth in spite of the crisis that it wishes to overcome with great power. China is the only state that has a volume of foreign investment that surpasses that of all developing economies together. China uses its economic and geopolitical power to 32

counterbalance American hegemony, being one of the few states that have gained military power through its economic force. In recognition of China as a new pole of power in the world economy, the world's main economies are trying to include Beijing in the G8, which would become G9, a forum with a much more global trend. Through the reforms initiated in the late 1980s, in only a few decades, China has managed an unprecedented approach to scale, complexity and rhythm of change. It has capitalized both the knowledge gained from the empirical experience of other economies and the originality resources of its hybrid development model, which for the first time combines elements of the free market function with the widespread planning and interventionism of the state in the economy. In its development effort, this country has relied on investment, capitalizing on the internal capital accumulation generated by its high propensity to save and the Confucian education of frugal consumption, specific to the ordinary Chinese citizen. At the same time, China has been able to make full use of foreign companies' interest in its cheap labor resources and its huge market, by massively absorbing overseas not only foreign investment capital but also as much as possible knowledge, technologies, good practices, managerial and organizational know-how perfected for centuries in the Western Entrepreneurial Environment. In addition, the advance of globalization and the structuring of international industrial production in global networks and value chains favored a real explosion of international trade, which also found itself in China's export performance as the last link integrated into these chains, responsible, most often, with assembly, final finish and delivery of goods to consumers around the world. The pattern of development thus shaped, based on investment and export, allowed the socalled well-known performances of the Chinese economy, both in terms of economic growth and, in this case, in industrial production as well as in terms of participation in international trade. Over time, however, this pattern has also generated many imbalances and asymmetries.China needs a new development model and complex reforms to rebalance the economy, and within this already-initiated approach, supply-side reforms, and specifically industrial restructuring, are cornerstones of success, which will ultimately depend on avoiding the trajectory of the average income, the sustainability of economic growth and the success of the transition towards a highly developed economy with a high living standard. A major part of this effort - guided by the country's new industrial strategy, MC2025 will be linked to the development of a number of new industries based on state-of-the-art technologies that will be China's top spearhead in its next competitive confrontations world markets. At the same time, however, the modernization, digitization and computerization of mature industries will be achieved, which will benefit from the influx of vitality brought by the advances in ICT. It is important to reiterate that China's new industrial strategy no longer focuses on indigenous innovation as a prerequisite for creating an innovation-based economy but, 33

alongside strong support for national R & D and innovation, gives priority to taking over on all paths of technological novelties already made in the rest of the world, with the obvious aim of accelerating the pace of economic development. As such, China's foreign investment and the process of internationalization of its companies, including the policy of creating national champions, will primarily aim at gaining access to new technologies and creativity resources, and innovation of other countries. At the same time, it is essential to note that, despite countless official statements in favor of assuring a decisive role for free market forces, China has continued and will continue to evolve under conditions of still high state interference in allocation and even current management, at microeconomic level. This will continue to alter the competitive framework both on the Chinese domestic market and on international markets, with competing firms in other parts of the world unable to face the Chinese on a level playing field. Finally, it should also be pointed out that, despite the complexity, the difficulties, the opposition and even the obstacles that will hamper the implementation of these reforms, their course will not be resolved but will continue in force, because their success is vital for both the Chinese economy and society as a whole, and for the resilience of the current political system and establishment. In only a few decades, China will certainly not only become the world's largest economy but also a great technological power, and its market dominance, including sophisticated innovation-intensive goods and services, will strengthen. For the other actors of globalized markets only option seems to remain open is its own restructuring and for flexibility in step with the realities and developments in the context term internal and external, allocating intelligently, consistently and persistently funds, concern and effort to advance its own in education, research and innovation. The losers will be those who will not be able to keep up with the dynamics of change. Therefore, "Those who hope to survive globalized markets will have to make their own transition to the world of intelligent and interconnected manufacturing industries." (Wubbeke & Conrad, 2015).

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