Real economy digitalization + Energy sector upgrade + Supply chains

In this issue of MERICS China Industries, we cover the following topics:

“Matchmaker state”: Mating SMEs and MNCs while fostering real economy digitalization
Energy: China enlists private firms to upgrade the sector and sustain growth
Efficiency and resilience: China digitalizes supply chains
China aims to digitalize its pharmaceutical industry
China moves to support the digital transformation of light industries

1. “Matchmaker state”: Mating SMEs and MNCs while fostering real economy digitalization

At a glance: Two recent documents touch on different aspects of the Chinese state’s role as a ‘matchmaker’ along the country’s innovation chain. The Ministry of Industry and Information Technology (MIIT) and three other agencies published a notice on promoting integration between SMEs and large companies. Key aspects include:

Building industrial clusters that integrate SMEs and larger enterprises into interwoven value chains
Helping export-oriented SMEs to explore new markets through larger partners

The MIIT also released instructions on the ‘Hundred cities and thousand parks’ activity for 2025 to integrate the industrial Internet into industrial parks. Key aspects include:

Integrating industrial and software firms plus financiers in industrial parks
Guiding companies to adopt technologies under the umbrella of the industrial Internet, such as 5G, time-sensitive networks and industrial optical networks.

MERICS comment: The two policies reflect the central government’s efforts to create a whole, integrated innovation chain as it pursues technological self-reliance and a global dominance in manufacturing.

Industrial parks and clusters belong to the category of development zones, a key feature of China’s industrial policy for decades. One of their key functions is to channel state direction: They are focal points for Beijing’s ‘matchmaking’ efforts to generate synergies from better integration of different parts of China’s innovation chain. For instance, by matching industrial software firms with manufacturing companies, Beijing hopes to create a virtuous cycle in which industrial parks create centralized demand for industrial software, increased demand then leads to better software, which leads to better factories, and yet more demand for better industrial software, all while improving China’s competitiveness.

For European companies, both policies could bring opportunities as well as risks. On the one hand, they could benefit from integrating this industrial software into their operations and realizing productivity gains – if allowed to. Or they could profit from being ‘match-made’ with promising Chinese SMEs (e.g., through licensed production or by bringing them into supplier networks). However, if they help Chinese SMEs to go global, they could create future competition in Europe and in third markets. Moreover, if eligible, European industrial software companies may be tempted to participate in ‘Hundred cities and thousand parks’. They should bear in mind that foreign technology firms are permitted only a limited role in the Chinese market and only one tailored to fit Beijing’s long-term ambitions.

Articles: Notice on Organizing the 2025 Industrial Internet Integration into Industrial Parks "Hundred Cities and Thousands of Parks" Activity (工业和信息化部办公厅关于组织开展2025年工业互联网一体化进园区“百城千园行”活动的通知) (Link), Notice on Launching the 2025 "100 Events and 10,000 Enterprises" Large, Medium and Small Enterprise Integration Matchmaking Activities (工业和信息化部办公厅国务院国资委办公厅国家知识产权局办公室全国工商联办公厅关于开展2025年“百场万企”大中小企业融通对接活动的通知) (Link)
Issuing bodies: MIIT; MIIT, SASAC, SIPO, CFIC
Date: April 17, 2025; May 23, 2025

2. Energy: China enlists private firms to upgrade the sector and sustain growth

At a glance: The National Energy Administration (NEA) issued measures to promote the private economy in the energy sector. The measures call for improvements in market access to create a level playing field. Private companies are encouraged to:

Invest in energy infrastructure projects such as nuclear power plants, hydropower, oil and gas storage facilities, liquefied natural gas terminals
Invest in emerging areas like new energy storage, virtual power plants, charging infrastructure and smart microgrids
‘Go global’ and carry out green energy projects related to areas such as wind power, photovoltaic, hydrogen energy, and energy storage in overseas markets

MERICS comment: Traditional energy fields like oil, gas, the power grid and nuclear power have long been dominated by state-owned enterprises (SOEs). Private companies face severe obstacles to entering these sectors, including institutional guarantees of resource allocation for SOEs or restricted access to financing. However, private companies are important drivers of innovation, especially in digital and emerging technologies. Their know-how is likely to be needed for the smart upgrading of old coal mines or power plants. The NEA notice reflects a broader trend in favor of using private companies to upgrade technology and boost innovation in SOEs, while retaining the SOEs hegemony over central sectors of the economy.