The U.S. and China are at loggerheads over most everything today: tariffs, intellectual property theft, industrial espionage, hacked elections, territorial disputes, trade imbalance, currency manipulation… the list seems to grow by the day. Out of the spotlight but equally concerning is the Made in China 2025 initiative, which may directly impact the long-term health of America’s fluid power industry.
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In a report, “Made in China 2025: Should the Global Hydraulics Industry Be Concerned?” researchers from Frost & Sullivan explained that while China has been the world’s factory for several decades, its competitive advantage in manufacturing is eroding as Chinese labor costs have risen substantially. That’s causing many manufacturers to consider moving their production elsewhere. And despite the higher costs, Chinese products are still viewed as lower quality compared to those made in Europe, North America, and Japan. Goods from these regions carry a higher price-tag but are generally considered higher quality and worth the investment.
To address this challenge, the Chinese government initiated Made in China 2025 to ensure that the country’s manufacturing sector does not get sandwiched between low- and high-end manufacturing countries, with China losing out on both ends. The aim is to transition from volume-based to high-tech and high-value production, and turn China into a powerhouse that influences global standards and drives innovation—much like Germany’s Industry 4.0 strategy.
Goals include encouraging digitalization and innovation and tackling pressing issues like quality, safety, and environmental protection. Ten priority sectors for the manufacturing industry’s digital transformation include aerospace equipment, agricultural machinery, marine, rail, renewable energy, and robotics—all markets of keen interest to hydraulic-equipment producers.
A key concern for the Chinese government is that in the high-end manufacturing segment most core components, including hydraulics, come from other countries. This initiative aims to improve manufacturing competitiveness and product quality. If successful, it will increase the domestic content of Chinese-made products to 70% by 2025 and facilitate higher sales outside China.
Government investments in technology and automation could, in particular, pay off for small and medium-sized manufacturers that use a lot of manual labor. Such domestic suppliers would benefit by tapping the technical expertise and system-design capabilities of foreign hydraulic equipment manufacturers, said the report. Supposedly, the initiative offers opportunities for companies based in industrialized countries to profit, by helping China implement the changes. The government claims it would establish a “level playing field” and permit foreign hydraulic-equipment suppliers to generate new revenue streams and thrive alongside Chinese companies. Foreign companies will likely remain skeptical, especially with regards to poor intellectual property protection, the authors admit.
U.S. hydraulic suppliers should watch these developments carefully. In the near term, it may mean more revenue for the bottom line. But the initiative could improve the manufacturing capabilities and product quality of Chinese hydraulic suppliers. That, in turn, would let them gain greater market share among Chinese OEMs, be more competitive in foreign markets, establish a foothold in North America and Europe, and exert greater price pressure in those regions.
Made in China 2025 could potentially upset the status quo for hydraulics manufacturers and consumers in industrialized markets around the globe.
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