The value-added output of the seven strategic industries together account for about 2 per cent of GDP now. The government has said it wants them to generate 8 per cent of GDP in 2015 and 15 per cent by 2020.
China is adopting a national strategy of mostly waiting for a technology area to start moving the needle in terms of impact on the overall economy and for a particular winning technological approach to develop and then to make huge investments to boost those industries into large sectors.
An example of new high tech industry that has already received this kind of support is high speed rail. China is investing $292.9 billion (2 trillion RMB) in a nationwide high-speed, energy efficient rail network. China accelerated its high-speed-rail development plan last year in the wake of the global financial crisis, saying it would increase the passenger network by a third to 16,000 kilometers, or about 10,000 miles, by 2020. High speed rail seems to be providing a 1.0 to 1.5% annual GDP boost to regional economies. According to initial research and estimations, upon the completion of the Beijing-Shanghai High-Speed Railway, the "dumbbell effect" will lift the GDP growth rates of the regions along the railway by about 19 to 21 percentage points.
Besides improving the domestic economy China is developing the ability to export a high end industrial technology as a cost and technology leader. China's share of the global exports of advanced machinery could climb to 30% in 2020 from 8% today.
China has already ramped up and used large investments in production to become dominant in wind energy and solar power and China is becoming dominant in nuclear energy.
Cisco Research and Development by Mergers and Acquisitions
Wired (2006) - Even the most pedestrian form of R&D, product development, requires dedicated staff and a fair amount of experimentation.
What a bother! Why not just buy a smaller firm that’s already succeeding in a new market? Cisco long ago adopted this approach – acquiring 107 companies over a 12-year period ending in 2005 – and along the way became one of the most valuable tech companies in the world. The network equipment manufacturer continues to deal its way into new markets.
A company like Cisco has a valuation of $100 billion and is looking for products and industries that are $1-10 billion in size.
China has a $6 trillion GDP economy and is looking for industries that have the potential to have an impact of $100 billion to $2 trillion on the economy.
Announcing and making the big investments causes global companies to get out of the way and to try to align with China's plans by being a supplier.
China has also selected industries that they want to get a large domestic benefit and utilization.
1. Alternative fuel cars
3. Energy-Saving and Environmentally friendly Technologies
4. Alternative Energy
5. High End Manufacturing
6. Advanced materials
7. New Generation Information Technology
China is slowly turning to biotechnology to improve crop yields, since demand is rising quickly but supply is constrained by a lack of available water resources and land area.
China needs alternative fuel cars to succeed to reduce the growth of oil dependence.
China also needs the energy saving and alternative energy to succeed for their own economy.
China can and does invest in basic research but those are smaller bets. I could make announcements about investing in a selection of stocks, mutual funds and bonds but then not including $1000 in lottery ticket purchases.
China just needs to pick the technologies and sectors that are starting to move the needle on the overall economy at 0.1-0.3% of GDP and then boosting them with massive investments and scaling of the industry to 1-10% of GDP.
This strategy means that China can move later on an industry and technology and still become dominant and still fully maximize the benefit to the domestic economy.
China's primary portfolio will be $100 billion and trillion dollar industries and monitoring the ten billion industries.
Details on how China will implement its approach
The Chinese government will establish special funds for the research and development of technology and to encourage innovation. Second, the government will give preferential treatment to investors in the form of tax incentives. Third, the government will authorize increased credit loan support. Fourth, the government will provide support to qualified enterprises in their efforts to raise capital. Fifth, the government will provide support to develop venture funds. Currently, several key governmental agencies are drafting the Development Plan of Strategic Emerging Industries, which will contain more details regarding this initiative. The Development Plan is expected to be issued in early 2011.
Certain provincial and local governments also have established preferential policies to support these strategic industries in their own jurisdictions. For example, the Shandong provincial government has established a special fund of approximately $300 million in 2010-2012 and provides various other subsidy programs. The Guangdong provincial government will provide approximately $300 million each year to support the strategic industries through loan interest subsidies and awards. The Suqian municipal government of the Jiangsu Province plans to establish a special fund providing $3.75 million each year for the next four years, as well as establishing other subsidy programs.
A number of companies that are considered to be strategic industries reported that they already have received subsidies from the government. According to China Securities Journal, about 38 companies reported receiving grants from the government, totaling approximately $157 million in grants this year.
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