Silicon China. A country of boundless opportunity?

A portrayal of China's technological and societal development ambitions

Textbook 2018 59 Pages

Business economics - General









2 Made in China 2025
2.1 Background
2.2 Main content
2.3 Threats and Limitations

3.1 Future of mobility
3.2 E-commerce and Financial technology
3.3 Artificial Intelligence

4.1 Chinese influence on Europe
4.2 China, the United States and the new tech world order

5.1 Internet in China
5.2 The Social Credit System






I would like to take this opportunity to thank all the people that have helped me throughout my studies of European Business and who had helped me in my efforts to conduct research for my bachelor thesis.

I would particularly express my gratitude to my supervisor, Prof. Dr. Sean Patrick Saßmannshausen, Professor for Business Administration and Academic Director of the Start-Up Center, for all his precious advice, recommendations and support he provided.

Finally, I would to thank my friends, fellow students and family for their help, encouragement and support during my studies of European Business


For decades, the People's Republic of China has made a giant leap from a backward agricultural state to the largest manufacturer in the world. But in recent years, the Chinese government has realized that it is time for a so-called rejuvenation of its great nation. For the most part, the reforms are summarized in the industrial policy Made in China 2025. The goal is no longer just to be the workbench of the world, but also to catch up to other industrialized countries in terms of quality and efficiency. The country intends to be the world-leading high-tech manufacturer. This ambitious strategy therefore causes changes around the world. The United States of America are disadvantaged by the protectionist tendencies. The states of the European Union are also skeptical about the Chinese plans. Especially when it comes to a possible political influence, which arises from an increased economic dependence.

Western countries should see China's development strategies as a wake-up call with the goal of peaceful coexistence among industrialized states.


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Figure 1: GDP per capita in USD (left axis) and demographic development in m. (right axis), 2017

Figure 2 : Political system of the People's Republic of China (simplified, author's own illustration)

Figure 3 : Chronology of the State Council's Plan (author's own illustration)

Figure 4: Vulnerability of selected industrial countries to Made in China 2025

Figure 5: Industry aims of Made in China 2025 for the domestic market share of Chinese products

Figure 6 : Level of automation of the PRC's industry measured by density of industrial robots per 10,000 workers in 2015

Figure 7 : Labor productivity in selected countries (GDP per employee, constant 2011 PPP in USD)

Figure 8 : Number of patent applications in the PRC (2000-2016)

Figure 9 : Development of battery cost and battery energy density (2008-2022)

Figure 10 : Comparison of Chinese (red) and Western (yellow) E-commerce firms by market capitalization in 2018.

Figure 11 : Online payment services in China (red) and United States (yellow), users in million, 2018

Figure 12 : Fundraising by Chinese artificial intelligence startups

Figure 13 : Selected Chinese AI firms, projects and cooperations

Figure 14 : Transaction volume of takeovers and capital participation in Europe in Million US-Dollar

Figure 15 : China's due diligences and equity participation in Germany (2010-2017)

Figure 16 : United States-China Trade Balance of goods (2007-2016) in billion US-Dollar

Figure 17: Internet users and methods of internet access in million, internet coverage in percent

Figure 18 : Pilot projects of the Chinese social credit system

Figure 19 : The phases of the used qualitative research design

Figure 20 : The mechanism pf a SWOT analysis

Figure 21 : SWOT analysis on China's leadership ambitions


Table 1 : The ten priority sectors

Table 2 : The core of development of the Connected Car industry


Over eighteen out of the last twenty centuries have been dominated by China like no other country before. Only the last two centuries can be stated as exceptions (Zakaria et al. 2011). But in those eighteen centuries before, China was not a strongly interconnected economic power as it is today. As the Middle Kingdom, the Chinese people saw themselves as the center of the world. Not just as a great civilization, but as the civilization par excellence. Both the splendid isolation and the pursuit of hegemony crumbled in the 19th century, when Western European nations made their way to China with their fleets. The earlier industrialization in Europe and the technical progress combined with economic ambitions made this necessary. The Chinese, until then had only diplomatic relations with other countries to confirm their own Chinese primacy. Subsequently, Middle Kingdom experienced severe shocks from Europeans who tried to impose a world order that was completely incompatible with the traditional Chinese ideology. From this time onwards, the country lost its top position (Kissinger 2012).

This decline in power and weakness should therefore be an example of something that should never happen again for the Chinese civilization. Thus, in 1949, the People's Republic of China was founded based on a socialist system. At that time, GNP per capita was still below the level of 1820. However, this soon changed. After the time under Mao Zedong and its partially unsuccessful economic initiatives (including Cultural Revolution), Deng Xiaoping took power in 1978 (Paul and Liqin 2011). According to his maxim "It does not matter if a cat is black or white, as long as it catches mice." the political orientation of the individual was no longer decisive in contrast to Mao Zedong. From this time onwards, the efficiency and capability of the people under a socialist order were in the foreground (Meisner 1996). Deng's reform plans, which provided an economic opening, had great importance on the rapid development of the Chinese economy in subsequent decades (Paul and Liqin 2011).

This situation is illustrated in Figure 1 by the nominal GDP per capita growth in USD from 1960 to 2017 and the growing population from 1950 to 2017. Regarding GDP per capita, which raised from $307.8 (1978) to $7329.10 in 2017. This represents an increase of 2381.12 percent. Furthermore, the population growth has grown by 251.8 percent to $1390.1 billion in 2017 (TradingEconomics.com; 2017).

In these years, China has evolved from a backward agrarian to a flourishing nation as one of the most important players in world trade. Nowadays China is considered to be the so-called workbench of the world (Kissinger 2012).

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Figure 1 : GDP per capita in USD (left axis) and demographic development in m. (right axis), 2017

However, this economic development is not enough for the Middle Kingdom. For some years, Chinese politicians have been increasingly seeking a global, political leadership claim in the world. As in late October 2017, Xi Jinping, 7th President of People's Republic, announced the beginning of a new era of Chinese-style socialism. China should face a great future and the great rejuvenation of the Chinese nation (Dorloff 2018). Among other things, the government of China wants to achieve this through the Belt and Road Initiative (until 2016: One Belt, One Road), which aims to strengthen economic connections between China and the European Economic Union through massive direct investment (Swaine 2015).

However, the Chinese state still has one more goal: to gain technological supremacy (Wübbeke et al. 2016). For this reason, the strategy paper Made in China 2025 was introduced in 2015. The efforts to achieve those ambitions represent the research question and are analyzed in this thesis.

First, the project's political dimension and the Made in China 2025 plan published by the State Council are discussed.

In the following chapter, a more economic component is being discussed and analyzed focusing on the Chinese high-tech industries of Artificial Intelligence, Mobility, E-commerce, financial technology and its involved major players.

In addition, the international perspective of the Chinese development ambitions is considered and potential implications for other countries are presented. In this context, the main focus lies on the United States of America and the European Union.

Likewise, the thesis also addresses the Chinese government's socio-economic development plans of recent years regarding the Internet, data protection and the social credit system.

The final synthesis critically considers all technological and societal development ambitions and, based on this, gives a possible outlook in the future.


2.1 Background

China is a country of sheer size. With a population of approximately 1.4 billion people, it is the most populous country in the world (refer to figure 1). Today, one fifth of the world's population lives on Chinese soil. More than 6 million people live in each of China's eleven most populous cities. Compared to the European Union, this is a giant idea of size. In the EU there is only one comparable city: London. Furthermore, eleven of the 27 member states of the EU do not reach the mark of 6 million inhabitants (Zakaria et al. 2011).

All of this is based on a "unitary one-party socialist republic" in which the Communist Party of the People's Republic of China has an absolute power monopoly.

As can be seen in figure 2, apart from the Communist Party, there is a formally equally important part of the system of government: the state. These two parts have strong internal links. One example is the office of President of the People's Republic of China, which has been run by Xi Jinping since 2012. As head of state, the president possesses representative functions, compared to the German Federal President.

Since 1993, the president of State has additionally held the position of General Secretary of the Communist Party. Furthermore he serves as Chairman of the Central Military Commission, commander-in-chief of the world's largest military forces (Heilmann 2016). This makes him the head of party and state to the country's most powerful politician, considered as paramount leader for life (Lam 2018).

The constitution's highest organ of state power is the National People's Congress. This approximately 3,000-member parliament meets once a year and is responsible for amendments and the drafting of laws. Ahead of the German Bundestag, it is the parliament with the largest parliamentary body in the world. More than two-thirds of the delegates belong to the Communist Party. The other third is divided into eight different small parties of minor importance. Due to the size of the National People's Congress, the Standing Committee acts as de facto legislative and therefore ratifies the majority of the laws. The tasks of the executive, comparable to a central government, are owned by the State Council of the People's Republic of China with its 36 members (2018). As the "highest organ of the state administration", it includes the Cabinet and the highest chairmen of the country's top institutions. The executive position holds the prime minister, who is thus seen as the highest man in the state after the president (Heilmann 2016).

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Figure 2 : Political system of the People's Republic of China (simplified, author's own illustration)

2.2 Main content

"Be not afraid of growing slowly; Be afraid only of standing still.” Chinese Proverb

As a socialist nation, the People's Republic of China relies on a centrally planned economy combined with market economy principles. The Chinese government calls this "socialist market economy" (Fischer, D. 2006). A typical planned economic initiative is the five-year plan, which sets the general economic strategy of a country for five ongoing years. Such a strategy paper was last published in PRC in 2016 (Wang 2016). However, there are also stated initiatives that are even more important by creating dynamism that affects the entire globe. This type of strategy paper is Made in China 2025 (MIC 2025) or also called China Manufacturing 2025.

Unveiled by Li Keqiang in 2015, it summarizes a wide range of technological development ambitions of the Chinese state. Priority has a 10 year plan until 2025 (Institute for Security & Development Policy 2018). It was devised by the Ministry of Industry and Information Technology (MIIT) for two and a half years in collaboration with 150 experts from the China Academy of Engineering (Kennedy 2015). As you can see in figure 3, the strategy also includes steps that go further until the 100th anniversary of the PRC in 2049 (Georgiou Daniel and Hui Xu 2018).

The central goal of the plan is to establish China as the world's high-tech superpower. The state wants to replace the image "Made in China", which has been suggesting for decades low-cost manufactured goods. Through the strategy, the PRC wants to gain global importance for quality, productivity and innovation, rather than for volume manufacturing (China-Britain Business Council 2016).

The plan contains a similarity to the 2013 adopted German initiative "Industry 4.0". However, the Chinese approach is much broader (Kennedy 2015).

It aims to significantly improve the global value chain (State Council of the People’s Republic of China 2015). This inevitably means competition for established industrialized countries of the world, which are pioneers in these sectors (Wübbeke 2015).

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Figure 3 : Chronology of the State Council's Plan (author's own illustration)

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Figure 4 : Vulnerability of selected industrial countries to Made in China 2025

Figure 4 illustrates this issue by the relationship between the share of manufacturing value-added GDP in percent and the share of high technology in manufacturing value-added in percent. The chart shows above-average values of both indicators, especially for large industrialized nations, such as South Korea, Germany or Japan. The United States, the largest industrial power in the world, and a large number of European countries are also in the mid-exposure range (Wübbeke et al. 2016, p.6).

The ambitions on the way to a world-leading manufacturing power should be achieved with continuous replacement of foreign high-tech products and services by domestic innovation and manufacturing (China-Britain Business Council 2016). This automatically reduces the chances of foreign companies and investors in the Middle Kingdom. Such protectionist tendencies are pervasive within the Chinese economic system. For example, the automotive industry does not allow foreign direct investments (FDI) without a Chinese collaboration partner. In practice, a foreign investor is forced to establish a joint venture in which the Chinese company holds a majority stake (Bölinger 2018).

The Chinese state will focus on ten high-tech sectors in Made in China 2025, which are visualized in table 1 (European Chamber of Commerce in China 2017).

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Table 1 : The ten priority sectors

In some of those sectors, such as information and communications technology, the PRC already has a worldwide reputation and extensive dominance through the rapid development of B aidu, A libaba, T encent (BAT) and Huawei. Also in the field of high-end numerical control machinery and robotics, China already has solid success. Since 2002, China has been in the vanguard of the world's largest machine tool manufacturers. However, the country still has a strong dependency on core components, which are mostly imported from industrialized countries (China-Britain Business Council 2016). As we have seen in figure 5, the Chinese government aims at an increase in the domestic market share of Chinese products of several sectors (Institute for Security & Development Policy 2018).

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Figure 5: Industry aims of Made in China 2025 for the domestic market share of Chinese products

As the third priority sector, the aviation industry has been selected. This sector already achieves success. China is home to many manufacturing bases of global players, for instance to the two leading aircraft manufacturers Boeing and Airbus. For the year 2020, the PRC aims for its own competitive and complete aircraft manufacturing industry to manufacture its own medium-sized helicopters, high-end business jets and emergency aircraft. Moving up the value chain is also the core objective in maritime engineering equipment. In the advanced rail equipment sector, the Middle Kingdom holds significant intellectual property (IP) in the production of high-speed train manufacturing technology. The government is therefore targeting so-called intelligent transportation systems (ITS) in MIC 2025, which make trains safer and more environmentally friendly (China-Britain Business Council 2016).

As the world leader in the production of battery cells with a share of 37 percent in 2016, China is also well positioned in the field of energy-saving and new energy vehicles (NEVs). In 2020, China aims to reach a share of 64 percent with massive subsidies for customers of locally-produced new energy vehicles (Dahlmann 2018)s. The government also has prescribed as the world's first country a 30 percent minimum share of electric or hybrid vehicles for all government vehicles. In the field of agricultural machinery and technology, the PRC lacks a large number of advanced technologies and is therefore dependent on imports, similar to the numerical control machinery. Therefore, it concentrates on the raising of capabilities in the smart manufacturing of farming equipment. Finally, the government intends to do research in the new material sector. The core element is the development of "functional performance metals, artificially synthesized high-end polymers, inorganic non-metallic materials and high-performance composites".

The ten priority sectors are accompanied by five major initiatives when it comes to the implementation, which can be seen on the next page. The plan identifies the goal of raising domestic content of core components and materials to 40 percent by 2020 and 70 percent by 2025 (China-Britain Business Council 2016).

- establish 15 new innovation centers by 2020 and 40 centers by 2025
- establish four new national research bases
- implement projects focusing on smart manufacturing
- implement projects focusing on green manufacturing
- prioritize high-end equipment manufacturing in key sectors

2.3 Threats and Limitations

The approach is similar in theory to a ground-breaking technological manifest. Made in China 2025 is a governmental approach to a clear top-down strategy of the Chinese central government, fueled by massive subsidies and investments in their own economy. At the same time, they make it more difficult for foreign companies to make profitable and efficient investments (Duesterberg 2017).

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Figure 6 : Level of automation of the PRC's industry measured by density of industrial robots per 10,000 workers in 2015

In addition, the backwardness of the Chinese economy in terms of automation and digitalization should not be overestimated. Chinese companies are regarded as reluctant and highly risk-adverse in manufacturing compared to new technology firms from other countries. Figure 6 shows the level of automation measured by the amount of industrial robots per 10,000 industry employees within Chinese companies in 2015. China's represents a massive development backlog regarding its 19 industrial robots per 10,000 workers, in contrast to industrial nations like for example South Korea (531), Germany (301) and United States (176) (Wübbeke et al. 2016).





Title: Silicon China. A country of boundless opportunity?