By Kevin Yao

TIANJIN, China (Reuters) – At a factory in China’s north, workers are busy testing an automated vehicle designed to move bulky items around industrial spaces, one of a new generation of robots Beijing wants to shift the country’s manufacturing up the value chain.

The robot’s Tianjin-based maker has received tax breaks and government-guaranteed loans to build products that modernise China’s vast factory sector and advance its technological expertise.

Ren Zhiyong (general manager, Tianjin Langyu Robot Co), gave Reuters a tour of the plant.

China is backing R&D efforts by high-tech manufacturers like Langyu, driven by an urgent desire to reduce reliance on imported technology and reinforce its dominance as a global factory power, even as it cracks down on other parts of the economy https://www.reuters.com/world/china/education-bitcoin-chinas-season-regulatory-crackdown-2021-07-27.

Beijing’s pivot focuses on the advanced manufacturing sector and not the services to help steer China’s world-second-largest economy out of the “middle-income trap”, which is a situation in which countries become less productive and have lower economic output.

Ren said that “Pressure is the driving factor” and companies will struggle to thrive without it.

Ren expects that revenues will more than double at 100 million Yuan ($15.52million) by 2020 due to increased demand for high tech products like Langyu’s automated-guided vehicles.

Yin Jihui of Tianjin Industry and Information Technology Bureau stated that the city plans to invest 2 trillion yuan (311 billion dollars) in 2021-2025. 60% of this amount will be earmarked for emerging strategic industries.

Yin explained that this investment includes both government and corporate outlays. This will increase manufacturing’s contribution to 25 percent of the economy by 2025, up from 21.8% for 2020.

Yin also stated that the share of strategic industry in Tianjin’s factory output will rise to 40% from 26.1% last.

Yin stated that it would be difficult to reach these goals as (as), we must ensure stability economic development and transition from old engines to new ones.

ACHILLES’ HEEL

China’s five-year plan in March pledged to keep manufacturing’s share of GDP “basically stable”, in contrast to the 2016-2020 plan that focused on services to create jobs.

China’s coronavirus outbreak and Sino-U.S. Trade War have changed the perception of factories by policymakers. They are no longer seen as merely grimy remnants of an older economy, but strategic assets.

China’s factories made everything during the pandemic. These items ranged from ventilators and masks to electronic workstations, which helped propel the economy out of its slump at the beginning 2020.

China’s inability to develop high-tech expertise was also exposed during the Washington-led trade war. Beijing is now more determined than ever to innovate faster.

Qu Hongbin from HSBC, China chief economist said: “The rise in external pressures since the start trade war has driven policymakers to develop China’s high-end and middle-tier manufacturing.”

They will place more importance on manufacturing if there is greater external pressure. It will become policy support.

Tianjin-based Ringpu Biotech, which makes animal vaccines, has faced critical import delays on U.S. equipment and materials used for R&D and quality control.

“We have taken some measures, including increasing our own R&D capacity, and cooperating with other firms and universities,” Ringpu Vice President Fu Xubin said.

“We’ll work hard to increase our capacity to locate substitutes for areas that we are having problems,” Fu Xubin, Ringpu Vice President said.

‘SENSE OF CRISIS’

Manufacturing’s share of China’s GDP fell to 26.2% in 2020 from 32.5% in 2006, while the services sector has lifted its contribution to 54.5% from 41.8%, according to the World Bank.

Officials are concerned that a rapid shift to services could lead to a decline in long-term growth. Although it employs more people, but has lower productivity than manufacturing, officials worry about this.

Advisors to the government said that Beijing is not interested in manufacturing falling below 25% of the GDP. That’s roughly similar to South Korea.

A government advisor spoke under anonymity to say that while the government at both the local and central levels is increasing support for skilled manufacturers, industrial upgrading will not be easy.

From 2021 to 2025, China aims to boost R&D spending by over 7% annually, focusing on “frontier” technologies such as artificial intelligence, quantum computing and semi-conductors.

The plan is a major overhaul of the “Made In China 2025” initiative that was launched in 2015. It targets nine industries: high-end technology, information technology, nanotechnology, renewable energy, materials, aviation, marine, and environmental protection.

This central bank channeled more credit to manufacturing firms and high-tech companies at the expense the property sector which is now subject to new restrictions on speculative investments.

(Graphics: China’s resurgent manufacturing, https://graphics.reuters.com/CHINA-ECONOMY/MANUFACTURING/zjpqkjnjxpx/chart.png)

Langyu, the robotics company, plans to spend about 20 million yuan on R&D this year, or 20% of expected 2021 revenues, helped by greater tax breaks for R&D, Ren said.

Ringpu channels 8-12% of its revenues into R&D and will spend 1.3 billion yuan between 2020 and 2023 to upgrade automation and production.

Tu Xinquan (head of China Institute for WTO Studies, University of International Business and Economics) stated that China’s goal to become tech-self-reliant in certain sectors is essential for survival.

The sense of crisis drives us all.

($1 = 6.33333)