Almost five years after the industry development plan was announced, growth in GDP and development are needed both for China, and investors into this country. Will “Made in China 2025” will be able to create this boost?

The capabilities of “Made in China 2025” to create a GDP boost depend on the execution of the plan. The main parts of the plan are: digitalization of manufacturing, increase of efficiency, and innovation. The main goal of “Made in China 2025” is to push all Chinese manufacturing into one, producing more technical and higher-value products.

The plan will respond to increasing worries about China’s competitiveness beyond simple manufacturing, the growing labour costs, and the competition with cheaper labour countries.

Almost five years after the reveal of the plan, the execution of it has centred around the establishment of manufacturing innovation centres, initiatives for intelligent manufacturing and quality management.

Assessment of the success of “Made in China 2025”, will only be possible a few decades into the future and only when it will be finally realised (according to the same plan). Yet, the past five years of the execution of the plan, have made it possible to analyse some parts of the plan. Particularly, the establishment of new, high tech manufacturing zones.

These zones, each focused on manufacturing a different subset of high tech products are not a new idea. Industrial zones developed with the support of governments have been used by many governments to boost manufacturing. Yet, China’s innovation centres are approaching this idea a bit differently. Promotion of “[…] cooperation and profit-sharing between centres” should boost productivity. Nonetheless, the better know-how of older manufacturing countries, and patents numbers by companies in China still trailing behind, will outweigh this different approach for a long time.

The subsets of the manufacturing industry chosen to be developed in “Made in China 2025” show a move in the right direction. Additional investment into the medical devices subset, is a fitting response to both worldwide trends in health, and trends in the medical sector. As people all over the world are living longer, more health problems are bound to appear. With this, increases on all spending in medicine are due to follow.

Spending in the medical sector shows increases fuelled not only by the increasing life expectancy; increases in spending are also partly caused by spending on medical technology – good news for a country that is working to develop this subset of an industry.

For any industry to enter a stage of growth, an adequate number of workers with the right skills, or willingness to be trained, have to be present. China’s labour force has adapted to work in factories. Yet, the stringent tertiary education admissions could block the growth of an industry, which requires more technical skills.

To meet the demands of a new direction in manufacturing, either more students will have to be accepted into tertiary education institutions, or the number of places intended for non-technical subjects will have to be lowered. The repercussions of these decisions very likely could be the lower value of university diplomas, or a shortage of workers intended for non-technical roles.

China has chosen a bit of an unconventional path to transforming the education of its workforce. By supporting the transformation of universities into applied technology universities, promoting the activities of key businesses in education institutions, and encouraging the establishment of foreign research institutions in China, PRC will largely avoid the devaluation of tertiary education.

The main possible shortcoming of this plan is its more optimistic, than realistic, view of Chinese manufacturing landscape. Movement of both foreign, and domestic manufacturing businesses away from China, because of rising wages, shows that one of the selling points of Chinese manufacturing is its labour costs.

A decision to increase China’s production of more expensive and technical products would appear, at first glance, a good solution to combat this trend. However, this will only work if Chinese businesses will be able to repeat the success that low-cost manufacturing has brought. Will this happen? Time and the ability to attract and develop original ideas will tell.

>Even with perfect execution of the plan, changes in worldwide manufacturing can decrease the probability of this plan succeeding. Manufacturing businesses moving back to developed countries, and the movement of simpler manufacturing to emerging countries, will present a challenge to new high tech manufacturing in China. Both shortly, and a few decades later.

It’s easy to fall into the trap of thinking that only the increase of manufacturing firms can deliver sustained growth. If a new factory means more jobs and even higher incomes, then more factories should be the right choice for growth. However, Brandt and Zhu in Accounting for China’s growth have found out that an increase in efficiency, rather than growth in numbers, has delivered growth in China.

It’s impossible to deny that manufacturing, even its most basic operations, has lifted out many lowest-income countries out of poverty. Moving away from agriculture, and onto manufacturing-based economy, leads to production of higher added-value products and a lower dependence on volatile commodities prices.

Following this type of thinking, a development of Chinese manufacturing onto one specialising in the production of high tech products should lead to even higher development. After all, if manufacturing is the way out of poverty, a “higher” level out of manufacturing should bring even higher incomes. This is a very likely possibility, if the role of work culture, know-how, and innovation is forgotten. Without them, a highly advanced businesses simply will struggle to succeed.

Manufacturing is often dependent on natural resources and their extraction. A movement into high tech manufacturing of machines and equipment, still hinges on world commodities prices. Especially, the prices of metals. Since metals prices are volatile even in the context of commodities, China’s sustained growth could be threatened by this volatility.

Manufacturing of high tech goods in the industries that “Made in China 2025” aims to target, has only been a temporary fix for economic growth in developed countries. Instead, many countries, or trade and economics blocks, are moving towards an even greater opening of trade.

China’s free trade potential is limited, and its FTAs are geographically oriented towards Asia. The low western penetration makes trading less geographically and economically diverse – a challenge for growth.

As any other industry, advanced manufacturing can create sustained GDP growth, if constant innovation and competition is present. Competition in this sector is high both in China and in the world. As for constant innovation, it will be a challenge at least in the next few decades. Mainly because of China having to catch up to countries with more advanced high tech manufacturing industries.

The development of the manufacturing industry has been credited with helping China to become a more prosperous and globally competitive country. A new plan for the largest industry of PRC can deliver a similar success story. Nevertheless, the skills and knowledge gap, and a labour force which would have to change, could make this plan less successful.

L'articolo Will “Made in China 2025” Create a New Economic Boost? proviene da InsideOver.

China’s consistent GDP growth has been a miracle, which has remained well above the 6% mark during the last three decades. But steady declines in 2019 seem to suggest that that miracle is slowly but surely disappearing.

The fears have been aggravated after the country’s GDP growth rate touched its lowest in more than 27 years at 6% in the third quarter of 2019. This was down from 6.2% in the second quarter. The declines have come mainly on the back of contraction in the manufacturing sector and sluggish domestic consumption — which has historically served as one of the key drivers in fueling China’s perennial economic growth.

Although the rising tensions with the United States are beginning to take its toll, the non-US export growth seems to have offset any negative impact so far. But US President Trump’s aggressive stance on the crisscross between Chinese state and private sector has closed other markets as well including those in Europe, and Australia. The increasing scrutiny over Chinese investments is expected to harm China’s economic ambitions in the long run.

This is against the backdrop of industrial output falling to 17-year low in August. Furthermore, the retail sector has been undergoing a consistent decline auto sales — a key economic barometer — have fallen for more than 14 months during the quarter.

Earlier this month, the International Monetary Fund (IMF) also trimmed its 2019 forecast for China’s GDP growth down to 6.1% from 6.2% anticipating domestic demand to skid further and tensions with US over trade to get uglier.

On the other hand, the government intends to address the torpid growth with tax cuts, increased access to credit by reductions in reserve ratios for banks in an attempt to boost investment and business in the country. It has already devalued its currency to insulate exporters from the US tariffs. But as the war with the world’s largest economy drags on, it is likely to have negative impacts on the trade, overall consumer and producer sentiment, investment and limit technological transfers which will have a pronounced impact on its medium-term economic outlook.

But maintaining growth will be a challenge for Xi Jinping as assets which propelled GDP to decade highs have become liabilities for the Asian giant. Demographic crunch, losing access to foreign markets and technology as more and more nations begin to suspect Chinese investments, and the declining food, water and energy resources increase its dependence on other countries. Moreover, the ticking time-bomb of the ageing population is waiting to happen as China prepares to serve 300 million seniors in the course of the next three decades.

China is hedging its future by betting on Asia. With its trillion-dollar signature Belt and Road Initiative, it has brought its neighbours in its sphere of influence. By funding infrastructure projects with loans, China has brought many of its neighbours under its power. But that too has lost its glean over the last five years as critics allege that China is shoving debt down the poorer countries for projects they do not need and cannot afford.

But as west grows aggressive and domestic demand flattens, Beijing will have a hard time rekindling that fire that fueled its decades-long economic growth.

L'articolo Weakening Domestic Demand Pull China’s GDP Growth proviene da InsideOver.

The escalation of the dispute related to the strait of Hormuz shows how vulnerable many of today’s oil routes are. What oil shipping routes and bottlenecks could become hotspots in the future?

The dispute of oil shipments through the Strait of Hormuz can be said to have begun in 2019. However, the threats of blocking shipments through the strait have been a constant in Iran’s foreign relations.

This time, the threat came because of USA’s exit from the JCAP, and the subsequent block on Iranian oil exports.

Iran doesn’t have a strong reason to lose one of its largest bargaining chips. Hence, a full block in 2019, or the near future, isn’t going to happen. Instead, the closing of Hormuz will continue to be used as a scare tactic.

The strait of Hormuz isn’t going to become a hotspot because of an oil shipment blockade. Instead, these three routes and bottlenecks could meet this fate in the near future.

Suez Canal in Egypt has the potential to become a hotspot. Terrorism in Egypt is on the rise, and intra-country problems haven’t improved since the Arab Spring.

Tensions in some regions of Egypt (North Sinai, particularly), and the declined economy of Egypt, both could be a catalyst, and the impacted area, because of potential problems with the Suez canal.

Egypt’s economy in numbers is radically different from the proposed plans of development. The relocation of Egypt’s capital, Cairo; the proposed large-scale projects in North Sinai; and the reclamation of desert land does not fit in with the recent poor showing of Egypt’s economy.

Regional dissatisfaction with the central government, and a weak economy are never indicators of a strong state. This is the current state of Egypt – residents committing terror acts directed at the central government, and the economy not having recovered after the overthrow of two leaders.

The most likely possibility of the blockade of the Suez could come from either the terrorists operating in Egypt, or another case of government overthrow. After local terrorists in North Sinai started operating as a subsidiary of Daesh, the security risk in this region increased. Moreover, civilians being targeted for terror attacks means that operations of even larger impact have become a viable possibility.

The security case for oil shipments in Suez canal is complicated by the two southern neighbours of Egypt – Sudan and Eritrea. The internal problems of these countries have the potential to bring negative consequences to Egypt, and its internal security.

While Eritrea is a drawn-out case of internal problems, Sudan could see another overthrow if the conditions in the country won’t improve. After all, the transitional government has to deliver reforms quickly, even if it is impossible to fix three decades of a dictatorship in a short time frame.

Libya’s governments haven’t moved to unification. Good news is that the fighting between the two main factions at least has not moved into foreign territory.

The country’s main export is oil, and the main extraction fields are under the governance of LNA. A disturbance in the shipments of oil through Suez, and the subsequent higher oil prices would benefit this internationally unrecognized faction.

Historical background of Egypt’s governance of the Suez points to positive conclusions. In all of the history of Egypt’s management of the Suez canal, it only has been closed to foreign vessels during wars.

Another important route for oil is the Bosphorus. 2.46% of the world’s crude oil and petroleum liquids were shipped through the Bosphorus in 2016.

After the failed coup in 2016, the security state in the western part of Turkey has stabilized. On the west, Bulgaria and Greece present a non-existent threat to the steady flow of shipments through the Bosphorus.

From the point of view of economics, Turkey has been able to easily come back both after a worldwide downturn, and after intra-country problems. Turkey’s unemployment level has remained at the same level since 2016. A growing manufacturing sector and a steady unemployment level, mean that at least from the economic side, Turkey’s situation is not getting worse.

Shipments of oil could be stopped, if Turkey’s goals will diverge from the countries, or the allies, of oil companies using the Bosphorus. In the past, Turkey’s government has not been above using economic threats. When relations worsened with Russia, Turkey took steps to delay the passage time of the ships. After a diplomatic spat with the US, Turkey imposed tariffs on American goods.

For oil shipments, Central Asian countries (Kazakhstan, Azerbaijan) and Russia, are the main users of the Turkish straits. It means that these governments, at least, would not be interested in starting a conflict with their logistics partner country.

If the past trends of Turkey’s bargaining will continue, a hard move, instead of soft sanctions, has a low probability of happening. After all, Turkey has much more to gain, and less to lose with economic or diplomatic sanctions.

Moreover, the president of Turkey, Mr. Erdogan is enjoying a strong level of support – 39.1%. More impactful moves are not only unnecessary, in the context of gaining voter support, but also could harm the president’s chances at re-election.

Hypothetically, if the migrant flows from MENA to Europe through Turkey will start to increase, and the support from EU to Turkey for their management will decrease, protests from Turkish refugee supporters, or violence from migrants is a possibility.

If a conflict impacting the shipments through Dardanelles were to occur, it would have a large impact on the balance of power in the region.

A slowdown in the shipments through the Bosphorus could highlight how oil and petroleum products still rule many of the world’s powerful economies. Or, why location and physical trading routes still matter in a now largely digital world.

The very large repercussions to the Turkish power in the Black Sea and the Mediterranean regions, would be the most negative consequence for the owner country of the Bosphorus. Turkey is still on its way to firmly establishing itself as not only a regional power. Oil exporters exploring alternative routes to the Turkish straits, could threaten Turkey’s geopolitical gains.

Another strait, Bab el-Mandeb and the Eastern Africa shipping route, has seen major security improvements in recent years.

For one, the military bases of three countries (USA, Russia, China) in Djibouti contribute to a safer transportation of goods in the strait of Bab el-Mandeb. Goods, which include 4.94% of world’s oil and petroleum products shipped in 2016.

The Eastern African oil shipping route has received worldwide attention because of the activities from the pirates from Somalia and its contested territories. Attacks on oil tankers are rarer than attacks on other ships. Piracy in the Eastern Africa declined in the late 00s – early 2010s, but could be making a comeback due to Somalia’s increasingly fragile state.

The most likely possibility for a blockade has changed from internal problems of the surrounding Eastern African countries to the conflict caused by Yemen’s rebels. Both pose a low risk against the military and negotiating power of the countries using the strait.

The regions, which would be hit the hardest if shipping through the Bab el-Mandeb became impossible, are the importing regions like Europe, and exporting regions of Africa and Asia. A larger share of oil through the strait flows northwards towards Europe. This means that the Bab el-Mandeb becoming a hotspot would contribute more negatively to the exporters orienting their oil exports towards Europe.

Conflict escalation in Eastern Africa, and some of its poorer states (by a measure of GDP per capita), won’t only negatively impact the countries exporting or importing oil through the Bab el-Mandeb. News even about unrelated negative events or trends in a region, have the power to decrease investor confidence. Especially, in a region where foreign investments have just started to flow.

For every push to conflict, stabilizing factors also exist. The low economic development and political instability in the countries surrounding the strait, would only get worse if the Bab el-Mandeb became a hotspot. The increasing military presence in the area, and the gamble with even worse living conditions should prevent domestic activists from destabilizing this oil route.

Transfer of revenues and power, onto alternative shipping lines, is also a major stabilizing factor.

Not only the main managers of these potential hotspots, are interested in keeping them stable. Many nearby countries and industries benefit from oil shipments in Suez, Bosphorus, and Bab el-Mandeb. The probability that a certain location in the world will move towards instability, hinges on many factors. It’s possible to take into account all of them. Yet, an unexpected or an underestimated force can muddle all constant inputs.

L'articolo Why These Oil Routes Could Become Hotspots in the Future proviene da InsideOver.