VIRTUAL REALITY

　

Today, both industrialized and emerging economies have learned how important the so-called real economy is for the real world it inhabits.　

　

Former advocates of going offshore have rushed to re-embrace factories once disregarded as anachronisms with no place in the trendy digital economy. This does not mean that producers and consumers face a binary choice between virtual and real. Instead, we can opt for both and, hopefully, build a better world.There is no clear, convergent definition of, nor path towards, the so-called “fourth global industrial revolution” (after mechanization, the advent of electricity and, latterly, computing). However, leading the charge are the enterprises and institutions embracing improved tools, both analog and digital, to provide more efficient and customized production and services to consumers.　

　

In this context, smart manufacturing has become the watchword of the Made in China 2025 initiative, a national manufacturing strategy launched in May 2015. In this strategy’s official rubric, smart manufacturing has been identified as the forefront of the future of global manufacturing. An array of guidelines, action plans and projects have been launched on smart manufacturing in China. A five-year plan (2016-2020) specifically devoted to smart manufacturing is expected to be published imminently.　

　

As both a buzzword dominating forums and an emerging favorite pursuit of local government planners and investors, smart manufacturing is undoubtedly a term on everyone’s lips. The question is whether both concept and implementation are on the right track.　

　

Tides Turn In 2010, the total value of goods produced in China exceeded that of those produced in the US, the world’s largest manufacturing economy for more than a century, for the first time. Chinese products constitute a powerful presence on world markets. While foreign consumers are more familiar with Chinese-made toys and textiles, foreign producers increasingly use generators and machine tools made in China.　

　

However, from 2000 to 2010, the service sector, particularly finance, was the world’s slickest, most fashionable field. China’s economy, therefore, was regarded as unbalanced and low-end, and Chinese and international officials and analysts liked to talk about following the examples of developed and other major emerging economies where the service sector contributed more than half of national GDP.　

　

Shifting towards more service-driven growth has been defined as China’s future path. Since 2007, goals to increase the share of China’s economy represented by the service sector have been enshrined in two consecutive five-year plans.　

　

In 2015, China’s economic planners claimed they had met the target set by the country’s 12th Five-year Plan (2011-2015) of making the country’s service sector the single biggest contributor to national GDP. However, by that time the pro-services tide had already started to ebb in the rest of the world. Wall Street was blamed for the financial crisis, and the especially strong performance of German factories during the crisis led economic planners to rediscover the value of a strong supply chain. In 2011, the US launched a reindustrialization scheme, while Germany formally adopted a strategic initiative called Industry 4.0. In both plans, utilization of cutting-edge technology was key. The US government plans to support the creation of 15 institutes that will make up the US’s National Network for Manufacturing Innovation.　

　

Eight have already been built in concert with more than 800 companies, universities, and nonprofits. The latest, according to an April 1 White House press release, is a fiber and textile innovation hub launched by MIT in partnership with the US Department of Defense.　

　

Meanwhile, with its strengths in automation engineering and IT, Germany is “uniquely positioned to tap into the potential of a new type of industrialization: Industrie 4.0 [sic],” ran a recommendation report issued in April 2013 by the German Industry 4.0 Working Group.　

　

China, too, has realized the value in swimming with the tide. The Made in China 2025 outline issued in May 2015 identified the country’s manufacturing sector as the “cornerstone” of China’s rise. It also warned of the possibility of the country’s manufacturing sector stagnating somewhere between establishing a high-tech, mature production chain to rival those of its higher-end overseas competitors, and outperforming other developing economies with comparable or lower labor costs. Chinese consumers’ shopping lists swelled with foreign brand names, going beyond luxury bags and cosmetics to embrace toys, consumables and even toilet seats, delighting foreign suppliers but infuriating Chinese policymakers and manufacturers keen to bolster domestic commerce.　

　

China seems to be concerned about how reindustrialization in the US and Germany could potentially shape the future of international economic governance. In 2015, the US replaced France as Germany’s largest trading partner for the first time in 55 years, thanks to increased demand for German machinery from US manufacturers. The USGermany trade ties were boosted by negotiations of the Transatlantic Trade and Investment Partnership (TTIP) between the US and the European Union, according to an April 13 article in Party mouthpiece People’s Daily. Chinese analysts generally regard the TTIP as part of wider US efforts to counter Chinese attempts to obtain a greater say in determining global trade policy by having Washington spearhead a new set of rules for world trade.

　

First, China will spend the decade running up to 2025 improving the quality of manufactured products, installing digitized production and significantly reducing carbon emissions in major industries. The second step is to elevate China into the middle tier of world manufacturing powers, and to become the leading innovator in some sectors by 2035. The plan gives China another 10 years to complete the third step, developing one of the world’s best tech and industrial economies.　

　

Smart manufacturing has been identified as China’s path to realizing its own version of Industry 4.0, and immediate action has been taken to bring a new kind of production chain online. From 2015 to 2017, pilot projects installing smart production processes and services will be approved in fields ranging from aerospace engineering and petrochemicals to food and consumer electronics. To lay a good foundation for smart manufacturing, an action plan to encourage “championing one particular product” was launched in April. In a statement, China’s Ministry of Industry and Information Technology compared this plan to Germany’s manufacturing network of “hidden champions,” known for their small-scale production of highly specialized goods. In October 2014, China and Germany declared an Industry 4.0 partnership during Chinese Premier Li Keqiang’s visit to Berlin. This past June, German Chancellor Angela Merkel visited China’s first Industry 4.0 production line, jointly built by German software company SAP and the Chinese Academy of Sciences, at the BMW Brilliance Automotive plant in Shenyang, capital of Liaoning Province – the heart of China’s rust belt. A guideline issued in January on formulating smart manufacturing standards drew on standards set by Germany’s reindustrialization program and the US concept of Industrial Internet, according to the MIIT.　

　

These standards have identified key elements crucial to smart manufacturing, including control systems, the Internet and robotics.　

　

As part of China’s efforts to evolve into a smarter, stronger manufacturing power, upholding so-called “craftsmanship” has become an obsession of top officials and the media outlets they oversee. The term, in official parlance, indicates the tireless pursuit of the highest quality achievable. An April 28 editorial in the overseas edition of People’s Daily, for example, cited examples of workers in already highly industrialized countries like Japan, Germany and Switzerland establishing and consolidating their own iconic “brands” of sushi, machinery and watches with said craftsmanship.　

　

Local governments in China are also taking action. Localized smart manufacturing plans have been drawn up across the country, from prosperous provinces like Guangdong and Jiangsu, through middling provincial economies like those of Shandong and Hubei, to the northeast’s industrial rust belt. Industrial organizations have joined the campaign. China’s apparel and textile industry, one of the country’s strongest exporters, has already taken a leading role. In May, a smart manufacturing alliance was established in Beijing by 24 Chinese garment and textile industrial associations, educational establishments and businesses.

　

This planning-plus-money model, however, has run into difficulties in the past, and many are already calling the wisdom of the strategy into question. The surge into solar and wind energy resulting from a massive government policy support package issued in 2005 led to the collapse of both sectors under the weight of overcapacity. Robotics, an important contributor to smart factories, has also seen vast inflows of cash into questionable projects. At an April 26 press conference on the five-year plan for China’s robotics industry, Xin Guobin, vice minister of the MIIT, recognized that there were signs that too much investment may have been directed towards lower-end robotics manufacturers, leaving investment in innovation and core technology relatively weak.　

　

In an interview with the Economic Observer published May 16, Yao Zhiju, vice secretary-general of the China Robot Industry Alliance, warned that in some local robotics parks, uncompetitive companies are fed with subsidies and favorable treatment, putting genuinely good ones at a disadvantage. He criticized such factors as having “distorted market signals.” As it is always difficult to cherry-pick which enterprises are deserving of subsidies, he argued, better to allow the “snobbish eyes” of capital to do the work, leaving the government the task of setting technical standards.　

　

Craftsmanship, too, cannot simply be willed into being. As Song Shilei, a researcher with the Wuhan University Institute of Quality Development Strategy, noted in his June 2 article in the Economic Daily, several barriers need to be removed. Firstly, consumers must be permitted to establish their own rights protection organizations, and the process of filing class action lawsuits expedited.　

　

Secondly, intellectual property needs to be better protected to promote innovation and integrity. Thirdly, migrant workers must be motivated to improve their skills by having their legal rights and human dignity respected in a manner equal to that afforded to registered urban residents.　

　

Indeed, replacing human workers with robots, most analysts agree, will not save Chinese manufacturing, let alone smart manufacturing.　

　

In late May, an article circulated on social media speculating that Huawei, widely respected in China for its innovation, would move its headquarters from the wealthy hub of Shenzhen to the city of Dongguan to take advantage of cheaper land prices. Although Huawei refuted the rumor, warnings that money is drawn to the virtual economy, particularly the stock and real estate markets, much more powerfully than manufacturing, have been continuously reiterated in the Chinese media. In an exclusive interview with Xinhua News Agency on May 9, Ren Zhengfei, Huawei’s founder, noted that there was too little land available in Shenzhen for industrial enterprises, adding that the plots that were available were prohibitively expensive. Sharp price hikes were immediately triggered after restrictions on housing markets were relaxed at the end of 2015, first in megacities and then in second-tier urban centers.　

　

Besides soaring housing costs, less visible barriers to progress also cut deep. Growth of private investment in the first four months of 2016 was just half the rate recorded in the same period of 2015. Realizing the importance of the private sector in economic dynamics and innovation, the central government made a special investigation around the country to identify the source of the problem.　

　

At a press conference on June 7, the inspection team presented its findings, acknowledging that old barriers, including restricted access to capital and some market sectors, remained in place, despite numerous policies encouraging private investment.　

　

Systematic barriers are the biggest concern of Tsinghua University Professor Li Daokui in terms of China’s participation in a fourth industrial revolution. With fast growth, well-educated engineering graduates and sufficient capital, “China has never been so close to the avant-garde of the world tech surge,” he wrote in a May article for New Fortune magazine. However, new services and products like ride-hailing apps and self-driving cars have already challenged existing rules. Li urged the government to work out solutions to address such conflicts “earlier, and with an open mind.” In the era of Big Data, also crucial for smart manufacturing, data collection is fundamental. In a State Council meeting in May, Li Keqiang recognized that 80 percent of China’s data resources are held by the government. However, despite repeated requests from across China’s industrial spectrum, progress on information transparency is seen as having been far too slow and far too limited.　

　

It will take craftsmanship in governance to realize the virtual aspiration of building China into a world-leading smart manufacturing power.