Fearful Of “Triggering” Trump, China Begins Downplaying “Made In China 2025”

Trump’s unorthodox policies appears to be bearing fruit.

Amid a barrage of constant tit-for-tat escalations which are finally beginning to spillover into markets – a necessary condition for Trump’s negotiating strategy to be taken seriously by America’s trading partners as Goldman explained at the start of the month – Reuters reports that Beijing has begun “downplaying” Made in China 2025, the state-backed industrial policy that has provoked alarm in the West and is the core reason behind Washington’s complaints about the country’s technological ambitions.

Halting China’s relentless technological advance, much of which is on the back of reverse-engineered, “merged & acquired”, or simply stolen US technologies, is the reason for the latest developments out of Washington, which according to media reports will see the Trump administration enforce rules that bar companies with at least 25% Chinese ownership from buying U.S. firms with “industrially significant technology.”

To be sure, Trump’s attempt to reduce the Chinese trade surplus with the US is just one aspect of Trump’s complaint over US-Chinese relations: with a full-blown trade war looming amid U.S. President Donald Trump’s threats to impose tariffs on up to $450 billion in Chinese imports, his administration has fixed on Beijing’s signature effort to deploy state support to close a technology gap in 10 key sectors.

And, in what is a sign that these threats and diplomatic bluster are working, Beijing is increasingly mindful that its rollout of the ambitious plan has triggered U.S. backlash.

In the Reuters report, which quotes a senior western diplomat, in meetings Chinese officials have recently begun downplaying Made in China 2025.

The officials have stressed that the aspects that have raised the most ire abroad were simply proposals by Chinese academics.

In an attempt to prevent further provocations of the Trump administration, the state news agency Xinhua, which made more than 140 mentions of Made in China 2025 in Chinese language news items in the first five months of the year, has not done so since June 5, according to Reuters calculations.

According to the report, Chinese officials have gone so far as to suggest it was a mistake for the government to have pushed the plan so forcefully and publicly because it had increased pressure on China.

“China is apparently starting to adjust to the blowback caused by the heavy propaganda,” said the diplomat, who declined to be identified because of the sensitivity of the matter.

Three state media journalists told Reuters they had been instructed not to use the term Made in China 2025. Two others said they received no such instructions.

And yet, this appears to be merely another optical exercise at mitigating risk: “They won’t stop doing it,” the diplomat said, referring to Made in China 2025. “The way they talk about it is changing.”

As a reminder, under the “Made in China 2025” policy, unveiled by China’s State Council in 2015, China wants to catch up with rivals in sectors including robotics, aerospace, clean-energy cars and advanced basic materials.

The strategy is at the core of China’s efforts to move up the value chain and achieve Xi’s vision of turning the country into a global superpower by 2050.

Under the plan, Beijing wants Chinese suppliers to capture 70 percent of market share by 2025 for “basic core components and important basic materials” in strategic industries.

Other targets endorsed by senior Chinese officials include ensuring 40 percent of smartphone chips are domestically made by 2025.

Xi gave a May 28 speech on innovation that reflected the key ideas of Made in China 2025 without mentioning it by name.

Foreign business groups have criticized the program as large-scale import substitution; and since the substitution comes at the expense of the US whose technologies and R&D China is actively “absorbing”, it is easy to see why Trump is enraged.

China’s stated intent of aggressive modernization and catching up to the US has provoked the more hawkish members of Trump’s team, including U.S. Trade Representative Robert Lighthizer and trade and manufacturing adviser Peter Navarro, author of the book “Death by China”, while leaving moderates like Steven Mnuchin out in the cold.

This policy also former the foundation of Trump’s initial list of tariffs on $50 billion in Chinese goods, which will begin taking effect on July 6, and which specifically targets items related to Made in China 2025.

Commenting on the key ideas of Made in China 2025, Xi gave a May 28 speech on innovation that reflected this policy which forms the backbone of China’s next evolutionary phase:

“Practice repeatedly tells us, key core technology cannot be demanded, bought or begged,” he said. “Only by firmly grasping key core technology in our hands can we fundamentally guarantee national economic security, national defense and other security.”

Well, the US clearly disagrees that “core technology cannot be demanded, bought or begged”, and the result has been the rapid escalation in trade war tensions between the two nations.

And now, it appears that – at least optically for now – Trump’s strategy is starting to bear fruit.