Beijing gives private firms greater role in developing hi-tech ‘global leading players’

Alice Shen
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Beijing gives private firms greater role in developing hi-tech ‘global leading players’

China’s private businesses – from internet service provider Tencent to carmaker Geely – are to play a greater role in the country’s top technology programmes and backbone infrastructure projects as Beijing seeks to give fresh momentum to its “Made in China 2025” initiative, according to a joint policy directive by 16 Chinese ministries.

In addition to adding energy to the government’s effort to comprehensively upgrade Chinese industry by tapping advanced technologies from artificial intelligence to robotics, the policy aims to “unleash private investment vitality”, according to guidelines published on the government website this week.

The assigning of a more prominent role to domestic private firms under the guidelines, led by the Ministry of Industry and Information Technology, comes as Beijing’s “Made in China 2025” plan raises concerns in the United States and European Union that China is putting pressure on foreign businesses to surrender their technology to continue operating there.

Under the guidelines, private domestic companies are to set up government-supported, state-level laboratories in conjunction with an endeavour to develop “global leading players” in technology.

Private businesses also are to be encouraged to take part in core projects, opening up private investment in areas such as industrial control systems, industrial software, computer chips, sensors and cloud systems customised to fit specific industries and intelligent platforms.

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Private firms that develop digital factories are to receive government support. In particular, the government is to allow more private players to enter the telecommunications sector, supporting private funding of technological research for both civil and military uses, according to the guidelines.

A goal for China will be growing an army of “little giants” with specialities in one product or segment, the directive said.

Despite a lack of details, the guidelines send a strong signal that Beijing is ready to let its private sector share more and more of the state research budget. What is more, the government is set to provide China’s private companies with help previously reserved for state-owned enterprises.

China’s best-performing internet service giants already have received state aid. The Chinese government earlier this week identified internet giants Baidu, Alibaba and Tencent – collectively known as BAT – and voice intelligence specialist iFlyTek as the first companies in China on track to spur development of next-generation artificial intelligence technologies.

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“The private sector is the major power and vanguard for Made in China,” the government said in a statement.

Meanwhile, Beijing is seeking to boost private investment by providing private businesses with orders and opportunities.

Fixed-asset investment by private businesses rose just 5.8 per cent in the first 10 months of 2017 compared with the same period a year earlier, according to the latest figures from the National Bureau of Statistics. That compared with 7.3 per cent growth for overall fixed-asset investment, the statistics showed.

Whether Beijing’s “fair play” promise to private businesses will motivate actual spending from the private sector remains to be seen.

The State Council, China’s cabinet, published a 36-point guideline in 2005, promising to give private investors better treatment and wider access. The results were mixed: while private firms boomed in the technology sector, private coal and steel businesses were largely squeezed out of those sectors.

Ji Mo, Amundi Asset Management’s chief economist for Asia excluding Japan, said private investment had typically been driven by China’s vast market potential, rather than government promises.

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“Private investors are making decisions with their hard-earned money,” Ji said. “The surge at the beginning of 2017 showed they are betting on the domestic market.”

Christopher Balding, an associate professor at Peking University’s HSBC Business School in Shenzhen, said the slowdown in private investment might stem from improved productivity, with fewer machines or workers required to produce the same output.

“As past research shows, the effort of government is minimal,” Balding said.

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