China plans ‘enormous’ investment in 15 innovation centres to take manufacturing sector to next level

China’s central government plans to establish a network of manufacturing innovation centres nationwide that official bodies and private companies can co-invest in to upgrade the country’s manufacturing sector, said government official.

“The government will collaborate with the private sector and they will both share the spoils,” said Li Beiguang, deputy director general of the department of planning, which operates under the Ministry of Industry and Information Technology.

“The amount of investment will be enormous,” he told the South China Morning Post on the sidelines of the APAC Innovation Summit at Hong Kong Science Park on Thursday.

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Li said the government will create new “heavyweight” companies to handle capital-intensive technologies like semiconductors. Some will be developed from existing state-run enterprises, others will be joint ventures with the private sector, he added.

These moves are part of an initiative dubbed China Manufacturing 2025 that is aimed at transforming China’s manufacturing sector from a low-end mass production industry to a more profitable model harnessing technologies such as artificial intelligence and the Internet of Things.

According to the plan, there will be 15 such innovation centres by 2020 and double this after another five years.

This comes at a time when the country is facing an economic slowdown and rising labour costs that are driving factory jobs to other emerging countries like Thailand and India.

Beijing revealed in January that gross domestic product growth had slowed to 6.9 per cent last year, the lowest rate in 25 years. It is expected to hover between 6.5 per cent and 7 per cent this year.

Meanwhile, global manufacturing giant Foxconn embarked on its expansion plan of building 12 new factories last year and employing up to one million workers in India.

“We are at a time that calls for transformation,” Li said. “Robots still cannot replace workers. They are still too expensive.”

To plug the gap, China is moving to reform its education system to produce talented workers for a more advanced manufacturing industry. One such reform involves encouraging lower-tier universities to become vocational schools.

“If a skilled worker is making more money than a university graduate, why not(change to a vocational school)?” Li said.

But the plan faces a number of challenges ranging from inefficient government bureaucracy to security policies that result in fewer international exchanges, said Kitty Fok, managing director at IDC China.

The government is encouraging the use of domestically produced technologies rather than foreign ones out of security concerns and this could slow down R&D operations, she added.

“You cannot get away with being slow nowadays because the technology world changes so quickly,” she added.