China Policy Institute: Analysis


Science and technology development

Made in China 2025

Written by Boy Lüthje.

China has become an important testing ground for an emerging paradigm of capitalist production that has been promoted under catchwords like intelligent manufacturing, digital production or industry 4.0. In 2015, the government presented a masterplan for China’s future manufacturing entitled “Made in China 2025”. Germany’s Industrie 4.0 strategy serves as a prominent point of reference. China’s plan proposes advanced automation, digital systems of factory management and large-scale deployment of robots, along with the development of an indigenous industry for advanced manufacturing equipment. There seem to be golden growth potentials for providers of robots, 3D printing, and big data. However, the strategic implications of MiC 2025 for the transformation of production networks and the rebalancing of China’s socio-economic growth model have not been well understood. Especially the transformation of work and labor markets in China’s emerging “digital capitalism” remains a black box. Continue reading “Made in China 2025”

The Digital Humanities as an Emerging Field in China

Written by Lik Hang Tsui.

The “digital humanities” (usually translated as shuzi renwen 数字人文 in mainland China and shuwei renwen 數位人文 in Taiwan) have recently received a lot of attention in Chinese academic circles, even though it took a long time for the concept to come to the attention of mainland China universities. The first digital humanities centre in China was established by Wuhan University in 2011. It remains the only mainland Chinese member of centerNet, an international network of digital humanities research centres. Continue reading “The Digital Humanities as an Emerging Field in China”

Collaborative Innovation and the Chinese (Digital) Humanities

Written by Hilde De Weerdt.

The datafication of everything we do while we are online, carry our phones, fill out forms, make payments, or simply pass by traffic or security cameras is reshaping how governments and businesses make decisions and how all aspects of our lives including health care, education, sports, and housing are organized. These changes did not come about as a result of digitization or the mere conversion of analogue information into binary code. They are now becoming visible and debatable as the outcome of new uses of, often individually generated and personal, data gathered by different organizations and of new ways of combining and analyzing such data. Continue reading “Collaborative Innovation and the Chinese (Digital) Humanities”

Cybersecurity and China’s Rise as a Global Power – a Challenge for Europe

Written by Johannes Kadura.

The rise of China and cybersecurity are two central issues that dominate the media and are being discussed by policymakers around the world. At the foreign policy level, the two issues have become increasingly intertwined. European and specifically German policymakers ought to pay close attention to these developments and familiarize themselves with the relevant facts, debates, and agendas. Brussels and Berlin otherwise run the risk of having to catch up and adapt to new realities without having a say or being prepared.

It is easy enough to understand why European policymakers have had a hard time properly addressing the ascent of China as a global power and the increasing ubiquity of cyberspace. For one thing, both developments have happened at staggering pace. Since the implementation of economic reforms and trade liberalization begun under Deng Xiaoping in the late 1970s, China has been one of the world’s most dynamic and fastest-growing economies. Just a few years ago, not many observers would have predicted the extent of China’s economic and political clout, which was bolstered by its weathering of the 2008 global financial crisis and, above all, the centralization of power under President Xi Jinping. At the same time, it is almost impossible to grasp the speed  and extent to which our lives have been transformed by the omnipresence and interconnectedness of computers and internet-enabled devices. From human interaction to industrial production and from commerce to control of critical infrastructures as well as to espionage and modern warfare, all have become unthinkable without a digital element. In the context of China’s rise as a major global power, technological advances, especially in the field of cybersecurity, will play a central role in political, economic and military terms. Unless made a strategic priority, European and German foreign policy will not be able to keep pace with these fast-moving developments.

Knowledge gap and Germany’s aversion to geopolitics

Two additional factors pose a challenge for Brussels and Berlin when it comes to formulating a coherent and effective foreign policy that addresses both cybersecurity and the rise of China. The first is the existence of a knowledge gap. As is the case throughout the world, senior European and German policymakers mostly belong to the generation of “digital immigrants” who grew up and began their professional careers without computers and the internet. Oftentimes, these leaders find technology confusing and troublesome. Cybersecurity in particular is an issue usually left to the geeks who in turn rarely show an interest in or understanding of foreign policy matters. As a result, the political debate runs the risk of either neglecting the profound impacts of technology on China’s relations with the West or, alternatively, becoming dominated by exaggerated fears of “cyber armageddon.”

The third problem is the EU’s and especially Germany’s failure to adequately address the rise of China and America’s response to this event in geopolitical terms. While it is debatable how effective the Obama administration’s “pivot to Asia” has been thus far, Washington can be credited with making China’s ascendance one of its declared priorities. The EU and Germany have failed to do so, in part due to their preoccupation with the effects of the euro crisis and the war in Ukraine. To be sure, the EU’s and especially Germany’s relationships with China are very different from Sino-American relations, which are marked by an awkward combination of increasing economic interdependence and an intensifying rivalry in the security arena. Unlike the US and China, the EU and Germany do not have their own agendas related to the regional security architecture of the Asia-Pacific. Rather, it is clearly in Brussels’ and Berlin’s interest to stress partnership and economic cooperation with both Beijing and Washington. However, to maintain a smooth relationship with their two most important (non-EU) trading partners in the long run and to help stabilize the Asia-Pacific region, the EU and especially Germany should not shy away from addressing security concerns of all involved countries. In this regard, cybersecurity, cyberespionage and fear of cyberwar are core issues of the geopolitical debate.

Washington’s cyber deterrence strategy

To understand the importance of cybersecurity in the context of China’s rise as a global power, it is indeed helpful to look at US-China relations and the two countries’ approaches to issues of cyberspace. In late September, during the Chinese president’s visit to Washington, Xi and Obama announced that they would work together to curb cyberattacks. However, the statement could hardly mask the increase in tensions between Washington and Beijing, not least due to confrontations in cyberspace. In early June, just a couple months prior to the summit, the Obama administration announced a hacker attack that apparently originated in China and compromised the security of data of at least four million government employees. That incident was actually only the latest case in a long history of accusations and counter-accusations. In May 2014, US-Chinese exchanges over cybersecurity reached a low point when a grand jury indicted five members of the Chinese People’s Liberation Army (PLA), charging them with industrial espionage against American firms. As Washington sees it, it is clear that Beijing is a major cyberadversary that engages in ongoing campaigns of cyberintrusions directed at the US government, the military and the private sector. The Pentagon’s new strategy for cyberwar, announced by Defense Secretary Ashton B. Carter in late April, is intended to deter such behavior by threatening to use cyberweapons in response to certain cyberattacks. Washington hopes that, with the help of Silicon Valley, it will be able to maintain America’s advantage in the cyber domain in both economic and military terms.

Cybersecurity as a strategic priority of the CCP

China routinely denies American allegations and portrays itself as a victim of cyberattacks. Beijing points to the information provided by former NSA-contractor Edward Snowden whose 2013 revelations showed that the US had its own sophisticated surveillance program targeting the Chinese. Under Xi Jinping cybersecurity has been made a strategic priority and several high-level Leading Groups and Leading Small Groups under the direct supervision of the president have been created. China’s cyberstrategy is best understood if seen against the backdrop of Beijing’s paramount objective of keeping the Chinese Communist Party (CCP) in power. In fact, while the US and Europe discuss cybersecurity mainly in terms of technical threats, China focuses first and foremost on information control and ideological threats as regards its domestic “netizens.”

On the economic side, Beijing is trying to maintain growth and promote its domestic IT sector with the objective of becoming a global leader in the digital markets. This approach is linked to Beijing’s broader strategy, dubbed “Made in China 2025.” Announced earlier this year, the initiative is inspired by Germany’s “Industry 4.0” approach and is aimed at comprehensively upgrading Chinese industry. Meanwhile, Chinese military planners are considering cyberspace as an essential field of espionage and military modernization, potentially giving Beijing a highly effective means in asymmetrical warfare. In short, Beijing’s cybersecurity strategy includes political, economic, and military aspects and is driven by the overall objective to strengthen China’s rise as a global power under the leadership of the CCP.

Toward a balance of power in the cyber domain

At a time of increased Sino-American competition and mutual mistrust in the cyber domain, the EU and especially Germany should step into the debate. Brussels and Berlin should stress the fact that all powers have a vested economic interest in an open, functioning internet. Rather than getting bogged down in protracted discussions about internet governance, the objective should be to create a carefully calibrated balance of power in which all stakeholders practice self-constraint and limit aggressions in cyberspace to a somewhat acceptable level, lest they face dire economic consequences. While the EU and Germany should emphasize the mutual benefits of economic interdependence and highlight that China has been a major beneficiary of globalization and technology-based interconnectedness, policymakers in Brussels and Berlin first need to realize that discussions about cyberspace cannot be held without addressing the implications for the security arena. Instead of turning a blind eye to geopolitics, Brussels and Berlin should see the debate about cybersecurity as a welcome opportunity to promote the peaceful rise of China.

 Johannes Kadura is a founding partner and Managing Director of the Think Asia Group, a consulting firm that specializes in political risks and risk management in the Asia-Pacific region. He is also an Associate Fellow at the German Council on Foreign Relations (DGAP) and an Adjunct Professor at Peking University. Image credit: CC by Friends of Europe/Flickr.

Where is China’s Textile and Apparel Industry Going?

Written by Sheng Lu and Marsha A. Dickson.

China is well known as the largest textile and apparel (T&A) producer and exporter in the world, yet China’s T&A industry is also under-going tremendous restructuring and transformation. This article intends to shed light on the broad landscape of China’s T&A industry in the years ahead. Capturing where China’s T&A industry is going from the macro perspective is critical for shaping meaningful future research agendas and identifying new research opportunities associated with the sector.

Common misunderstandings about China’s T&A industry

More or less, China’s T&A industry is commonly misunderstood in the following aspects: 

Misunderstanding 1: China’s T&A industry is export-oriented. On the contrary, the export dependency ratio of China’s T&A industry, i.e. the percentage of exports within the value of total industry output, has significantly declined from over 30% in 2000 to less than 17% in 2011 (CTEI, 2012). This means that over 80% of T&A “Made in China” today actually are consumed domestically. As China’s apparel retail market starts to boom, expanding domestic sales will become an even more important priority for China’s T&A industry in the future. Not only are domestic sales growing, the International Labour Organisation cites statistics from UNIDO that suggest the increased domestic demand is contributing to growing value added by the industry in China, which will likely bring increased interest in production for local markets versus export.

Misunderstanding 2: China dominates the world T&A market. Although China is still the world’s single largest T&A exporter, it should be noted that China’s market share in some leading T&A markets is gradually declining. For example, Chinese products accounted for a 39.7% share of the EU T&A import market in 2013, down from shares of 41.4% in 2012, 43.9% in 2011 and 45.5% in 2010. Chinese products are also losing momentum in the U.S. T&A import market where Chinese market share dropped from 41.2% in 2011 to 38.9% in 2014. The grave concerns about China’s dominance in the world T&A market when the quota system was eliminated in 2005, are now proven to be unnecessary.

Misunderstanding 3: ‘Made in China’ is losing price competitiveness. It is a common argument that China’s fast rising labour cost is mainly responsible for its loss of shares in the world T&A export market. However, trade statistics suggest otherwise. For example, from 2006 to 2014, the average unit price of U.S. T&A imports from China only slightly increased from $1.45/square-meter-equivalent (SME) to $1.46/SME (up 0.7%), whereas the average unit price of T&A imports from the rest of the world increased from $1.97/SME to $2.13/SME (up 7.9%). In fact, total landed cost of T&A ‘Made in China’ remains one of the lowest in the world, thanks to China’s more efficient supply chain management, more modern infrastructure, and workers’ higher productivity than key competitors such as Vietnam and Bangladesh (OTEXA, 2015). Nonetheless, Chinese factories still face challenges in complying with the country’s labour laws regarding payment of social insurance benefits. Full compliance may increase costs but should help address growing labour activism in a country where workers are increasingly resorting to strikes and work stoppages in order to obtain these benefits, and other improvements in working conditions.

Misunderstanding 4: T&A is a pillar industry in China. Three decades after its economic opening-up and growth, China has passed the development stage which heavily relies on the T&A sector for creating jobs and generating foreign reserves. Instead, with a more diversified industry base, especially the emergence of other more advanced and capital and technology intensive sectors, T&A industry is playing a much less critical role in China’s economy today. By 2012, the T&A industry had only accounted for 3% of employment and 3.5% of industry output in China. Moreover, it won’t be too long before the total size of China’s T&A industry starts to shrink. As a matter of fact, more and more low-end and resource-intensive segments of the T&A industry, such as apparel assembly, are leaving the country and moving to other less-developed Asian economies.

Future of China’s T&A industry: policymakers’ vision

In addition to the market forces, another important factor that will shape the future of China’s T&A industry is government policy. Different from many western countries, government in China has preserved a significant role for the state in the economy.

According to the 12th Five-Year Plan, a key document which lays out policymakers’ blueprint for the development of China’s T&A industry from 2011 to 2015 (CTEI, 2011), critical changes are happening in the following four areas:

  1. Industry upgrading. Two aspects are particularly emphasised: one is the structure of industry output – China intends to gradually move towards more production of textiles and less of apparel. For example, by the end of 2015, apparel is expected to account for 48% of total T&A industry output, down from 51% in 2011, whereas the share of technical textiles is expected to increase from 20% to 25%. Another aspect is moving up in the value chain – China is eager to engage in more high-value added functions such as design, product development and distribution. The government is pledging financial support for the building of indigenous Chinese fashion brands and further sets the goal to have indigenous-branded products account for no less than 50% of China’s total T&A exports by the end of 2015.
  2. Building a “greener industry”. Recognising the rising awareness of environmental protection in the country, China ambitiously sets the compulsory goal to reduce the consumption of energy, water and emission of pollutants per GDP output in the T&A industry respectively by 20%, 30% and 10% annually (or cut by 67.2%, 83.2% and 41% cumulatively from 2011 to 2015). China also plans to double the consumption of recycled textiles from 2011 to 2015 (or nearly a 15% annual growth), hoping to reduce demand for natural resources in the process of making T&A. Already we see examples of leading Chinese manufacturers such as the Esquel Group, TAL, and the Crystal Group emerging as leaders in improving environmental performance within their factories and also taking active roles in global industry initiatives focused on sustainability.
  3. Moving production from the east coast to the west. To keep as many jobs in China as possible, the Chinese government encourages T&A manufacturers in the east coast to move factories to the inner part of China where the local economy is still at the nascent stage of industrialisation and cheap labour is still relatively abundant. By the end of 2015, the Western region is expected to account for 28% of China’s total T&A output, a significant increase from 17% in 2010. However, some Chinese manufacturers are taking an alternative route of investing in production in low cost countries in Africa and Southeast Asia, suggesting that Chinese PEOPLE, if not China the COUNTRY, will retain some level of prominence in global T&A production for the foreseeable future.
  4. Expanding domestic consumption. Stimulating local demand for T&A is also given a high priority in China. This is a move that will help both create new market opportunities for T&A companies and make them less vulnerable to the fluctuations in the international market. Specifically, government sets the goal to expand domestic consumption for apparel, home textiles and industrial textiles by 3%, 3% and 10% annually (or 15.9%, 15.9% and 61.1% cumulatively from 2011 to 2015).


Indeed, China’s T&A industry has many specialties, such as its huge size and the heavy involvement of policy in guiding industry’s future development. However, in many ways, China’s T&A industry is also NOT unique. The slow-down of export growth, relocation of low-end manufacturing, and moving towards more domestic consumption, reflects a development path for China’s T&A industry that is very similar to what has happened in other countries such as Japan, Germany, South Korea and even the United States. Understanding the stages the T&A industry has gone through in these developed economies will help us foresee how the size and nature of China’s T&A industry will continue to evolve in the years ahead.

Sheng Lu is Assistant Professor at the Department of Textiles, Fashion Merchandising and Design, University of Rhode Island. Marsha A. Dickson is Faculty Chair and Co-Director of Sustainable Apparel Initiative, at the Department of Fashion and Apparel Studies, University of Delaware. Image Credit: CC by dianaoftripoli/Flickr

Innovation Policy in China: Building a Thucydides’s Tech Trap?

Written by Regina Abrami.

In 2012, Graham T. Allison, Director of the Harvard Kennedy School’s Belfer Center for Science and International Affairs, warned in a Financial Times opinion piece of potential conflict between the United States and China. A year later, by way of a New York Times article, Allison again issued a clarion call against what he termed “Thucydides’s Trap.” The dilemma seems logical enough:  A rising power can inspire fear in an existing dominant power. When not managed well on both sides, Allison claims, war is usually the result.

President Xi Jinping’s 2012 idea of a “new type of great power relationship,” seems to indicate that the hubris of upstart Athens is not to be repeated in China. Xi appealed, after all, for mutual respect, shared benefits, and no confrontation with the United States.  Purveyors of the “peaceful rise” idea and those who depict China as a major beneficiary of the current global system, in turn, suggest that any blame for tense Sino-US relations should be directed towards the United States. However, shift the lens a little bit.  Look to China’s state-led efforts to create an “innovative economy” by 2020, and you’ll get a very different picture.

China is building a trap that will impede its long term political and economic strategic interests.  Put simply, reliance on market-distorting policies is a sure means to do two things: (1) further tensions with the United States and the European Union, and (2) calcify China’s existing knowledge economy.

In the context of WTO regulations, a highly mobile, educated Chinese elite, venture capitalists, and angel investors top-down protectionism is an archaic, ill-equipped means to develop disruptive capabilities. Instead of seeding potentially far-reaching ideas, China’s innovation policies channel energies to state administrators and their dictates, creating a culture of compliance instead of creativity.

Take the case of China’s recently proposed banking regulations.  They require an increasing share of only “secure and controllable” technologies in the sector. To obtain this designation, firms need to demonstrate that a given piece of hardware or software can be “self-controlled.” In published rules, such status seems to be contingent on three things: (a) the Chinese government’s ability to maintain and control accessibility (i.e., “backdoors” and source codes); (b) foreign supplier provision of R&D centers in China; and (c) the origin of a product’s intellectual property being China.

Improved cybersecurity is the stated official motive for these regulations, but critics have described these proposed regulations as an intolerable mix of protectionism and forced technology transfer aimed to eliminate foreign firms from China’s lucrative ICT sector.  It would not be the first time.  The phrase, “de-I.O.E.,” dates to 2008 when Wang Jian, now Alibaba’s Chief Technology Officer and former Assistant Managing Director at Microsoft Research Asia, moved to do away with the company’s existing IT network which depended on the three big players, IBM (I), Oracle (0), and EMC (E). Wang’s long game was a shift to cloud computing to globalize the company’s operations, cut costs, and ultimately create an alternative to the dominant mobile operating systems found in China – namely, Android and iOS (Apple).

Aliyun was Alibaba’s cloud result, with its mobile platform operating system, YunOS released in 2011. The Chinese government has supported Alibaba’s efforts wholeheartedly, making YunOS the only approved mobile operating system on the 2014 central government procurement list. With this climate for business, there can be little wonder that China’s Academy of Sciences thought it prudent to develop products in this area as well, releasing the more patriotically named “China Operating System” (COS) in 2014. YunOS and COS, nonetheless, remain market duds.

Android continues to rule in China, even as the number of foreign ICT products getting kicked off China’s central government procurement list continues to grow. It prevails because of the ecosystem that put it where it is today, and perhaps especially the Open Handset Alliance which brings together 84 firms of varying national origin, to ensure open source standards for their industry, including compatible versions of Android.

Indeed, where Chinese firms have responded to market-driven needs, they have usually excelled, often incrementally innovating along the way. “Pony” Ma (Ma Huateng), Tencent founder, in describing the instant messaging service, We Chat, for example, described its success as the result of “micro-innovations.” Similar incremental innovations occur at all points along China-based supply chains, including cost reductions, process improvements, and quality performance changes, each geared to suit customer preferences and enhance producer margins. As a result, Chinese firms have at times won the “fight for the middle,” ultimately acquiring a dominant market share at home and abroad in many lower and mid-market product segments.

Therefore, the Chinese government’s push to frame homegrown innovation as a zero sum game with the world is a sure-fire way to ensure that the only gates closing down technologically will not be China’s but everyone else’s. Not only will trade disputes with China continue as a result but, as seems the case already, leaders will take their disputes to the front page. Hacking, snooping, and stealing are hardly new in the business of international ICT competition, but when dominant powers openly point fingers, as Obama and others now do, it is time for the Chinese government to consider that it may have picked an unnecessary fight. Chinese firms are feisty enough in their own right.  Surely making it easier for the rest of the world to restrain them cannot be China’s end game?  State-led technonationalism has no place in today’s world of spatially expansive value chains.

Dr Regina Abrami is a Senior Lecturer in Political Science and a Senior Fellow in the Management Department of Wharton School of Business, and Director of the Global Program, the Lauder Institute of Management and International Studies Image Credit: CC by Sam Churchill/Flickr.

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