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A European perspective: China’s machine-making capability and market share
Source:Adsale Plastics Network     Editor:JK    Date:07.Sep.2021

Under the Made in China 2025 strategic plan and the 14th Five-Year Plan (2021-2025), China has improved in technological ascendancy and global market share. In a new report, major European groups representing the mechanical engineering sector affirm the greater influence of the Chinese machinery and equipment industry, which presents both opportunities and challenges for European firms.


The recently released interim report “The China Market in Transition” was jointly produced by VDMA in Germany and SWISSMEM in Switzerland, together with European consultancy firm Sinolytics which entirely focuses on China.


As the European mechanical engineering sector faces a complex economic and political business environment in China, the report aims to assess the impact of China’s domestic policies and geopolitics on German and Swiss machinery companies.


China tops the list of machinery exports


According to VDMA’s initial estimates, global foreign trade in machinery and equipment amounted to €1,048 billion in 2020. Exports from China reached €165 billion, 15.8% of the total, compared with Germany’s €162 billion, a share of 15.5%.


For the first time, China topped the list of the world’s largest exporters of machinery and equipment. Germany’s lead over China was 1.4 percentage points in 2019.


“The coronavirus pandemic in particular gave China’s rise a strong boost because the country was hit very early and only very briefly, while the European sales market suffered a strong damper as a result of the pandemic,” explained Ulrich Ackermann, Director of VDMA Foreign Trade Department.


China gains higher global market share. 


He said that the trend “clearly favors China” in the long run, although a strong economic recovery in the EU this year could lead to strong recovery of machinery exports from Germany and other European countries.


The report finds that China has put in extensive resources in research and development, which benefits export-oriented companies, including those from Europe.


But Ulrich Ackermann opined that some national policies have led to competitive disadvantages for foreign-invested companies. Nevertheless, he believes that Germany and the EU should not call for protectionism, but meet this challenge with market-based measures.


Made in China 2025 boosts technological self-sufficiency


The report analyses that instead of evolving into a Western-style free market economy, China has optimized its economic model of “hybrid” state capitalism with the state retaining the essential control, and therefore, associated market distortions remain a structural element of China's economic model.


At the same time, there is room for market forces to maneuver with measures of foreign investment, pricing and land acquisition, which help increase the effectiveness of the economic model.


The strategic plan of Made in China 2025 launched some five years ago aims at further developing the Chinese manufacturing industry with a focus on transforming the industry into a technology-intensive powerhouse. It has three objectives: modernizing manufacturing, promoting independent innovation and building national champions. It also seeks to raise the domestic content of core components and materials to 40% by 2020 and 70% by 2025.


According to the report, many machinery manufacturers view Made in China 2025 positively, because modernization of the manufacturing industry will drive the demand for intelligent manufacturing.


After more than five years under the plan, large companies in China have upgraded their production, with small and medium companies generally lagging behind in modernization, the report says.


At the same time, the plan has gradually substituted foreign technology in some areas, such as traction battery, energy technology and electric vehicle. More Chinese companies are dominating the mid-market segment, while foreign companies continue to set the tone in the premium segment.


Since the ultimate goal of Made in China 2025 is technological self-sufficiency for domestic companies, China will continue to compete for a greater foothold in the global market, the report concludes.


Machinery imports of China.


Development of German machinery exports to China.


Scientific and technical capabilities improved under the 14th Five-Year Plan


Like Made in China 2025, the 14th Five-Year Plan promotes China’s technological independence and targets to upgrade the country’s economy to a moderately developed system. It also provides a strategic response to the challenges of the COVID-19 pandemic, helping China to reboot quickly from the crisis.


The 14th Five-Year Plan intensifies the reformation of state-owned companies and increases the involvement of private investors. Company management is expected to function in a more market-oriented way.


VDMA and SWISSMEM noted that major restructuring has been taking place in the mechanical engineering sector under the current five-year plan. More specific plans for targeted areas, including intelligent manufacturing and automation, are being developed.


According to Sinolytics, about 150 Chinese machinery manufacturers receive annual subsidies of about €1.15 billion, or 12 % of their net profit for modernization and R&D. VDMA and SWISSMEM also reported that about 40% of the associations’ members found disadvantages for their business due to specific standardization policies.


The positive side is that new opportunities are opening up as standardization bodies are increasingly open to foreign companies. At present, 8% of VDMA and SWISSMEM members are active members of some technical committees in China.


Dual Circulation strengthens economy and trade


Dual Circulation is a core strategy of the 14th Five-Year Plan, placing greater focus on the domestic market, or internal circulation. It is China’s strategic approach to an increasingly unstable global market.


Besides technological self-sufficiency, China also aims to look inward to tap the potential of its huge domestic market in the face of uncertainties in the global markets stemming from the COVID-19 pandemic and trade conflicts.


Nevertheless, China will not close itself off from the outside world, but will continue to open up international trade, or external circulation. The report concludes that China is adopting the approach of positioning itself as the center of regional economic integration.


One of China’s priorities is increased economic integration of the Asia-Pacific region, particularly through the Regional Comprehensive Economic Partnership (RCEP) agreement.


This approach builds on the regional connectivity for trade and investment created by the Belt and Road Initiative, and is intended to strengthen China’s role in regional value chains and production networks. With this regionalization, China is also pursuing its geo-economic interests.


Although China no longer relies primarily on export surpluses, an active foreign trade policy is still an important part for its growth. In this regard, China will expand market access in third countries for its export products, while imports will increasingly concentrate on high-value goods.


All in all, the Chinese government is equipping China to become a “powerful gravitational field” that attracts foreign capital, technology and talent, and the internationalization of Chinese companies will continue, the report notes.


Ulrich Ackermann expects high demand in China for reliable, energy-efficient and more networked machinery and equipment, for which the European mechanical engineering industry has corresponding solutions to offer.

Meanwhile, China is increasingly influencing framework conditions, technological developments and individual market segments, posing additional challenges for medium-sized companies in Europe, remarks Ulrich Ackermann.




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