This report is the latest from in our thematic and strategic research series, J.P. Morgan Perspectives, which brings together views and analysis from across the broad scope of J.P. Morgan’s Global Research franchise. This series features in-depth analysis of critical global issues impacting economics and markets across all disciplines. In this report, we examine the dynamics shaping U.S.-China relations and explore the implications of Made in China 2025 for China and the global economy. We hope this series will both inform and foster public debate on evolving economic, investment, and social trends.
Joyce Chang, Global Chair of Research
J.P. Morgan Perspectives
Made in China 2025: A New World Order?
Will Made in China 2025 reshape the global economy?
- China’s supercycle is winding down with the old growth drivers—export and investments— slowing, debt remaining disconcertingly high; the work force having peaked; and US-China trade frictions intensifying.
- China aspires to reshape its economy through Made in China 2025—a 10-year plan—to usher in the fourth industrial revolution and secure dominance in global technology while expanding its global influence via the Belt and Road Initiative.
- China is well-placed to achieve self-sufficiency if not world leadership in tech, telecommunications, AI, Fintech, internet, NEVs, high-speed rail, and clean energy by 2030.
- But as the rise in US-China trade frictions indicate, these aspirations will be challenged if they continue to be implemented through extant industrial policies and controls on market access.
What are the global implications of a slowdown in China’s growth?
- Made in China 2025 does not make China’s inexorable rise inevitable as deleveraging and public sector restructuring are needed to keep China from slowing below 4.5% over the next decade.
- China’s high debt level remains its Achilles heel, requiring both financial-sector and SOE restructuring, with the risk that policy mistakes could trigger a “man-made financial crisis.”
- China's medium-term growth could slow by 2%-points to 4.5% by the end of the next decade, reducing global growth by 0.4%-points, with a risk that base metals prices fall 40% to 60% from current levels.
How will the reshaping of US-China strategic relations impact the world?
- Markets are focused on the risk for a “great power competition” between the US and China with implications for technology leadership, supply chain and end product makers reorganizing along security alliances.
- Cybersecurity is the new frontier with a persistent state of conflict due to the lack of effective deterrence structures. We think both sides will seek self-sufficiency rather than global domination in technology, but China’s large internet players may take global leadership in AI.
- China is rising to global leadership in clean energy across autos, solar and wind power, and green bonds.
- US-China tensions can potentially trigger the existing manufacturing supply chain to permanently shift out of China to ASEAN countries and others.
How quickly will China open its financial markets?
- The global reach of China’s financial markets and currency will proceed gradually even as China enters mainstream equity and fixed income indices.
- Successful execution of the Made in China 2025 agenda likely makes MSCI China a structural overweight, though without corresponding strength in the currency.
