23 April 2019
Congressional Research Service Issues Report on Mainland China 2025 Programme
The non-partisan U.S. Congressional Research Service issued on 12 April an updated report on the economic implications for the United States of the Made in China 2025 programme. The report summarises the provisions of this programme and lays out the concerns of U.S. policy analysts and policymakers.
CRS notes that while the MIC 2025 plan states that the mainland Chinese government will “comprehensively deepen reform” and give markets the “decisive role in allocating resources,” many critics contend that it represents a state-directed industrial policy intended to (i) reduce mainland China’s dependence on foreign technology and (ii) help its firms become dominant global players in numerous advanced industries. Critics claim that the mainland Chinese government intercedes in its economy in unfair ways, such as by providing financial assistance to MIC 2025-favoured firms through state-directed investment funds and credit from state banks. Another concern is that the government will intervene in the acquisition of foreign technology firms and intellectual property to advance MIC 2025 goals.
The MIC 2025 plan establishes targets for the domestic content of certain products sold in mainland China, and critics contend that such targets encourage import substitution and violate WTO rules. A 2017 study by the U.S. Chamber of Commerce concluded that “MIC 2025 aims to leverage the power of the state to alter competitive dynamics in global markets in industries core to economic competitiveness. By targeting and channeling capital to specific technologies and industries, MIC 2025 risks precipitating market inefficiencies and overcapacity, globally.”
The CRS report discusses the U.S. Section 301 negotiating process in the context of MIC 2025, noting that the U.S. delegation has repeatedly expressed disapproval of the MIC 2025 programme. CRS also notes that some have voiced concerns that “punishing China with increased tariffs over its industrial policies might induce the Chinese government to increase its involvement in the economy rather than reducing it through reforms.”
Moreover, the report links congressional concerns on MIC 2025 to last year’s passage of defence authorisation provisions to tighten U.S. export controls and expand federal screening of certain foreign investments. CRS reports often conclude with a summary of proposed congressional actions to address the issue at hand. This report references the proposed Fair Trade with China Enforcement Act, which, if enacted, would require the U.S. Office of the U.S. Trade Representative to issue a list of products from mainland China that received MIC 2025 support and those products would then be subject to U.S. countervailing duty measures. In addition, the U.S. Department of Commerce would be directed to use export controls to restrict sales by U.S. firms of intellectual property that could assist MIC 2025. This legislation has been introduced in both chambers of Congress by members of both political parties but it has not yet progressed through the committees of jurisdiction.