Until a few years ago, when talking about China as The ‘factory of the world’ most people thought of products like simple toys with the ‘made in China’ sticker on their reverse. Now, when that expression is used, you no longer think of perishable plastic products or very cheap clothing, also in imposing electric vehicles with toe technology or in modern and affordable electronic devices when not in robotic devices. What has been in the middle is a huge effort on the part of Beijing to enhance the most innovative industries seeking on the one hand a lower dependence on the West (China is no longer the buyer par excellence of Germany) and on the other dominate in the distribution of the world trade cake. Although progress in the matter is unquestionable, as the new world dynamics in commercial matters reflect, something does not finish going well in the Chinese factory. Despite the effort shown (in the form of massive investments), This determination is not translating into a creation of economic value And time ends: it is indeed a reality that Beijing cannot sustain this effort much longer.

At frist glance, China’s industrial policy seems to be successful. Thanks to Beijing’s industrial policies, in particular to Plan ‘Made in China 2025’ launched in 2015 large amounts of resources have been dedicated to promoting national innovation and technological self -sufficiency in order to reduce China’s dependence on the West. The plan covers ten key industries, including Information Technologies (Ti), the robotics las New energies and the biotechnology.

The Rise of R&D Spending

To this end, China has considerably increased its Research and Growth Expenditure (R&D). Although in 2015 this expense represented 2% of the Gross Domestic Product (GDP), in 2023 it had already increased to 2.6%, approaching the OECD average, wich is 2.7%, according to the data collected in a report published by Commerzbank in July. China already spent more on R&D than EU (2.1%), but even less than the United States (3.5%). In absolute terms, adjusted to the purchasing power, China’s R&D spending already represented 95% of the US. In contrast, the EU only reached 61% of the American level.

Another revealing fact lies in the number of patents registered worldwide with China already ahead of the US with a share of 27% in 2022. In addition, China has regained land especially notably in patents related to information and dialog and biotechnology technologies.

According to a study by the Australian Institute of Strategic Policy (ASPI), China is a leader in 37 of the 44 technologies evaluated often publishes more than five times more research of great impact than its closest competitors in areas such as manufacturing and advanced materials, artificial intelligence (AI) and computer science, energy and the environment, quantum computer science, biotechnology, defense, space and robotics (link to classification). Another study by the Foundation for Information and Innovation Technology (ITIF) shows that China is world leader in electric vehicles And it is near world leaders in AI, robotics and quantum computing.

¿What is failing so? “Given the huge investments From China in new industries, in theory, these industries should overcome the rest of the Chinese economy.However, this is not so. The participation of these industries in the total added value has not increased Significantly, despite the fact that its participation in capital investment has increased considerably, “explains Tommy Wu, a senior economist from Commerzbank, in the aforementioned report by the German bank.

As WU develops, the added value, defined as the difference between the sales of a company (sales prices multiplied by volumes) and the value of intermediate inputs, is likely to be the most affected by the fall in sales prices due to excess capacity and the ruinous resulting competition. In recent times these concepts have proliferated in the pages of the financial press.

Excess production (overcapacity) of one Chinese industry inflated stimuli officers has been addressed both for the misgivings of the West (a China flooding regions such as Europe at demolition price and drowning local producers) as for the Internal dynamics in China (In the middle of the Perennial Deflationary threat, FEROCES PRICE WARS As seen in electric cars, with the reference firm Byd announcing scandalous discounts).

The fact that this excess capacity has occured It has a lot to do with the role of local governments underline from Commerzbank. “As China is a very extensive country and each province has different resources and cultures, the Central Government of Be