China’s Policy to Stay Competitive with Advanced Manufacturing | Christine Loh | PI Apparel

A lot of people ask me, because you know, you're all producing things or you're buying things from China, where is China really going to go? Now, I am an academic. I'm Christine Lowe. I'm with the University of Science and Technology. I talk about sustainability and I talk about China. And people ask the same sort of questions. China going forward, it's a bit confusing. Where is it going to go? What's the trajectory? And how are things going to change in the future? So what I've kind of prepared for you today is maybe talk about some of the things, how the Chinese government makes policy. Because you are probably at the front end, right? You're dealing with customers, you're dealing with regional authorities, and so on. So what I'm trying to do is to kind of give you the to-the-horizon picture of how the government as a whole make policy. What are they doing with climate change? You know, can we tell that story in a few minutes? Circular economy, that's a new policy. Well, actually, it's been around for a while, but what I'd like to share with you today is what it is today and where it's going to go. And then the buzzword today in policy terms is advanced manufacturing. So all of these things are kind of coming together, and it's having an impact on all kinds of production and manufacturing. Okay, now I'm gonna start off by talking about Chinese policymaking. You know, I don't know how you make new ideas, right? But in China, it's a big government. You all know about that. And people say, well, you know, it's a state-led system, the Chinese Communist Party, you know, it's the ruling party, it's a giant bureaucracy. Well, all of this is true. But actually, within the Chinese government, within the party, the party system and the Chinese government system are running in parallel, right? So both within the party and within the government itself, there are lots of think tanks. There are think tanks within ministries and departments, and there are overall think tanks about many, many different areas. So actually, when you have a new policy coming out, be sure that the government had already been thinking about it for a really long time. Now, I don't know whether you've heard of this term, called ecological civilization, "Santai Manming," "Xintai Wenming." If you haven't heard about it yet, it's just worth your while to register the term. OK, well, actually, as long ago as 2012, that's more than 10 years ago now, the Chinese Communist Party actually amended their constitution. You know, this is like their mission statement, right? The Communist Party amended their mission statement to say one of the things that China wants to achieve is ecological progress. Well, why did they do this? Well, I think you all know that China at one stage is a bit better today, but you know, still a long way from ideal. But at one stage, it was really polluted. Air pollution was the poster child, right? And then of course there's soil pollution, water pollution, and so on. But from the 1980s when China started with production, with manufacturing, with modernization, one of the causes of the problem was a lot of pollution. And it was getting to the stage where people were getting upset and people were getting sick. So actually, they already started to discuss this in the early years of the 2000s. And by 2012, that means, you know, after some years of thinking, within the ministries and in think tanks, they came up with this idea of ecological progress and ecological civilization. This is the answer to development. It's not just about pollution. If you read all the Bumf, you know, going back many years, you'll see that they wanted to have a new philosophy for development. You can't always dirty, and then clean it up later. So they came up with this term. So by the time the ruling party actually says, this is now our principle, our ideology for development, and it's got to be ecologically sustainable, they were ready to do this in 2012. Now in 2012, if you remember, or if you go back and look at pictures and news, you will still see lots and lots of articles about the pollution in China. So at one of the worst times of the pollution, they actually came up with a new idea. Then there was the Paris Agreement. You probably all remember that. That's when the world came together and said, "We need to do something about global warming." So that was in 2015. And then actually, China as a nation also has a constitution, right? Every country has a constitution. China actually amended the constitution to make ecological civilization a mandate. That means for China as a country, achieving development sustainably is now a constitutional requirement. So more recently, you probably all know this, in 2020, the Chinese government said, "We are going to peak," emissions by 2030, and we will achieve carbon neutrality by 2060. Right? This is a huge— this is just a huge commitment. So what this all means is— and I'm sorry to go back and labor this a bit— when China makes policy, it always comes up with an idea, an ideology, or principle, and then it slowly looks at what kind of laws and projects and plans that you're going to need, right? So this journey to be sustainable has actually been going on for about 20 years. Now, if there's one thing big about what matters, this really matters. So this promise that the Chinese president at the United Nations— there, he said, China has set some new targets. Now, I can't tell you how big this is. This is really big because in Chinese policymaking and in foreign affairs, if you have the top guy comes out on the international stage, right? And you can't have a bigger stage than the United Nations, and makes a promise. This isn't something that a politician just blurbs out. For the Chinese, this is like, I'm making a promise to the world. Right? Really, really important. So what I want to emphasize is low carbon, reaching carbon peak in 2030, is now a major, major driver of pretty much everything in China. OK, now don't worry about— I mean, this is the kind of things that my students look at. But I just want to tell you, that, you know, there are 4 things. I mean, how are they going to— people say, "Oh, okay, that's great, you know, targets and so on," but how are they going to do it? So just remember the 4 things on top. They're going to decarbonize electricity. That means that your factory somewhere in China, over the years, right now, probably, you know, the factory is probably powered by fossil fuels. Over the years, it's going to change and it's going to be powered by electricity, and the electricity is going to be cleaner and cleaner and cleaner, right? So that means all the activities in the economy is going to be electrified because the electricity generation is going to get cleaner and cleaner. And then you're going to be much more efficient in how you use all kinds of energy. Now, China has a long way to go in energy efficiency. So the two economies in the world where energy efficiency is really high is Japan and Germany, right? So China still has a long way to go, but it knows that that's the inevitable path. And then lastly, you have circular economy, and we're going to come and talk about that. Now, just now, the previous speaker talked about, well, you know, shortening the cloth that you're going to use. And then he says, well, no, actually we need to start earlier on, right? We need to design the whole thing so you don't we don't need to use so much fabric in the first place, which means you start with the designers. So all of this stuff is part of circular economy. OK, now this is a great picture that Bloomberg drew, but it's based on research from China itself. So this is what China has been thinking, and in a way, this is the curve that the Chinese leaders have approved for China achieving carbon neutrality by 2060. Now, if China is going to go from the top there down to the bottom there in terms of carbon emissions, it's a different economy altogether. So between now and then, which is the same period when we started between 2008, right, when China opened up and modernized to where we are today. So in the same period, China's economy is going to be completely transformed once more. You know, I've shown this picture to many people in different industries and around the world, and I asked them to imagine what they think that economy is going to be like. And whilst it's not so easy for us to totally imagine, You know that's going to be really different. And from wherever you come from, whichever— your company, whether you're operating out of Europe, America, or in Asia, you can take your own country and look at the promises that your government has made. Or you can look at those economies where you do a lot of business and say, well, what has that government promised so far? And what can you plot? Now, I think in another— in many other settings, people talk about carbon neutrality or net zero, right? You know, that's another sexy term, and say, well, do we really know how to get there? Well, the answer is no, we don't actually. We don't quite yet. We know where we need to get to, but we don't actually quite know exactly how we're going to get there. Actually, the Chinese have tried to You know, think about current technologies and technologies that aren't quite there yet. We're going to need both. So every economy, in fact, have to do that. But plot— try and plot those graphs for each of the markets that you may be doing business in. It's quite, you know, electrifying. Okay, now you might not know who this man is. You can see his name here. His name is Xie Zhenhua. He is China's climate environmental envoy, and he's my hero. He's my hero because he's one of the most honest, capable guy in China who's been working on the environment forever. What I want to link you with him is this thing called 1+N. How many of you have heard about 1+N? You've all heard about 1+N. How many of you haven't heard about 1+N? OK, OK. Now, it's really simple, right? 1 n, you're not going to forget. So actually, when China said, I'm going to make these commitments, right, 2030, 2060, of course everybody immediately said, and how are you going to get there? So what China's answer was is, we're going to lay out a plan. So they made this big statement in the year 2000— 2020. So in 2001, What the Chinese government did was they explained and say, okay, here's my plan. And their plan, the summary is 1+N, right? 1 means this is an unchanging policy. This is it, right? Carbon neutrality, carbon peak in 2030, carbon neutrality in 2060. This is the 1. And then N is many numbers off. For those of you who are from Hong Kong, you know we have a casual statement that says, "N gam tok go," right? You know, so many Ns, meaning just many things are gonna be done. So this is the Chinese policy, 1+N in climate change. So this man, he put forward these 10 areas of things. So you can actually see from these 10 areas of things that basically N will cover pretty much all policies in China relating to production, transportation, and so on. Very, very important. Okay, so remember 1+N, and then now think about circular economy. Now earlier on, We said that when the Chinese start thinking about new policy, they always kind of ideate, right? You know, they gestate and think about it. So this term actually already came about in the year 2002. And the 11th Five-Year Plan already, you know, start to put forward some specific. And then in 2008, China actually has a Circular Economy Law. And then today, We actually have targets. The reason I'm just laying this out is circular economy is now beginning to bite. It's now beginning to bite in terms of production. So you can see from here that it is about redesign. It's about reuse and recycling. It's about a lot of green tech. So all the stuff that you're looking at today, many of them will fit into the kind of technologies that are coming and being used. And China also is thinking why circular economy is important is because of security. You know, security is kind of like the latest concept, right, uh, in politics. What you want to do is to be secure in your needs of running your economy. The less you use, the more secure you are. So therefore, if you reduce your waste, if you can reuse many things, if you can keep using them in a circular way, then actually that presents a greater security for your economy. You don't have to keep going out to buy new things. So in the 14th Five-Year Plan, we now have some hard targets, and you don't need to actually, you know, remember what these are. You just need to remember today that how China makes policy, right, with the idea, with laws, and then gradually with harder and harder targets. So today with circular economy, we're beginning to see these harder targets. So in the next 5 years, right, up till 2025, we're already at 2023, Nationally speaking, China wants to increase 20% resource productivity. So somebody up in the Chinese government, they've created an index, and they're actually counting, looking at the big economy, how are they saving resources in terms of productivity. Now obviously, many of you work with factories in particular locations. And as you know, in China, they have national policies that every province Regions have to have their own 5-year plan. So these kinds of things are now percolating throughout the Chinese economy. And so therefore, it's actually always very interesting to note at the end of every year what progress have been made in these areas. OK, I'm going to now talk about advanced manufacturing. Some of you, particularly perhaps if you were from the US, you might remember that during President Donald Trump's era, there was some discussion about this policy in China called Made in China 2025. It was one of the things that excited people in the US. And they said, well, you know, China wants to be a leader in electric vehicles and batteries and robotics and AI and so on, right? You know, these were actually part of the Made in China policy that was put out before 2015. So what China said was, well, you know, we are a manufacturing economy. We make things. We're good at making things. We make a lot of things that the rest of the world needs. The quality is getting better and better. And prices are pretty good. So China is the biggest manufacturing economy in the world. And its goal is to continue to make things. And they will go upscale to make things that are more and more sophisticated, right, as you can see here. So that excited actually a negative reaction from the United States. Can't let China be the best in all of these things that are considered the most important things in the future. So in a way, it excited the US to have some of the policies that the Biden administration are now putting forward. But the point that I'm really trying to make is even though China hasn't talked so much about Made in China, the policy anymore, because it got a negative reaction from the US, it actually has continued to promote the policy because that's how China is. It goes from 5-year plans to 5-year plans. And what you can see here that I think it's interesting interesting is people also talk very excitedly about manufacturing, the value from manufacturing against GDP has been getting smaller. Well, which is true because some people say, well, manufacturing is less valuable than services, right? Well, but nevertheless, however you look at it, manufacturing in China is big. It's the biggest in the world, and it's going to continue. And China's goal is to continue to upgrade in manufacturing. So advanced manufacturing means all the things that we were talking about, right? So it's got to be more energy efficient, design's got to be better, using less material, recycling material, you know, all these things that we've been talking about and others have been talking about at this conference. It's got to be better done. Now again, don't worry about sort of this, but I just wanted to show the 10 industries that China has itemized under advanced manufacturing. And IT, robotics, green energy, these are all things, and new materials, right? These are all things that are very much part of the fashion and manufacturing industry. And then R&D, all these areas, strategic initiatives, Industries 4.0, the application of all the tech that you've heard about. This is all a part of advanced manufacturing in China. I know you're trying to take pictures of it. I'm quite happy to leave this with you. So if you're interested in the PowerPoint, I'm definitely happy to give you a copy if you're interested. Now perhaps I can just touch on something local. Hong Kong Rita is— really big in Hong Kong in terms of remanufacturing. And I'm just assuming that these are technologies that you already know about. So we're looking at the Pearl River Delta, now called— now reimagined and called the Greater Bay Area. We're looking at the kind of research that is possible in Hong Kong. And you know, the Hong Kong REITs, some of their licenses have been bought by H&M and others in Europe. I mean, this whole notion of being able to take fabrics, having a technology that will then allow it to be spun into a new yarn, and for this new yarn to then make a fresh, high-quality fabric, you know, this is exactly the sort of thing that is both circular and advanced manufacturing. So in Hong Kong, the government is investing more in encouraging this kind of R&D. And I guess, you know, for many of you, you know some of the players rooted in Hong Kong that are making things in China, whether they can continue to then use Hong Kong as a research base and then have the production and the trials either here or across the border. And of course, this sort of things fits very well into this whole notion of advanced manufacturing. OK, well, there are always challenges. And this is my last slide, because everybody says, well, my experience in working in manufacturing is that there's all kinds of issues, which is all true. So we always talk about, what are some of the challenges? That China has in executing those policies that they talked about. Well, first of all, whenever there is a big policy, right? You know, circular economy, advanced manufacturing, ecological civilization. How do you tell 1.4 billion people? Or how do you, in a particular province, how do you let it seep through to different levels of society about these policies? Well, one of the things that China has always said is, this is why it's so hard to govern such a big place. It is difficult. So in each of the provinces, as you know, there are bureaucrat schools. So if you're running anything in China, regularly, every year, you now have to go to party school or you have to go to a bureaucracy administrative school. So the— This giant system there actually spews out information to people who are in the bureaucracy. They need to oversee these new laws and policies that are coming through. So that's one way of doing it. But even that's really hard because then the officials need to go and work with people in the industry and get them to understand this is what you have to do. So aligning everything within the economy is actually a big, big challenge all the time. But it's, you know, something that China has been doing for hundreds of years. Implementation gaps, because you're making big policies at the top, you can't quite imagine all the challenges that you're going to have as you start running those policies. There are always gaps, and gaps only get filled as they're identified. And sometimes, you know, People complain because policies don't seem to align very well. Insufficient talent. Well, actually, we're going, you know, the net-zero world is a revolution, is a total revolution for all of us. We've all got to go and learn new skills. So, you know, not having enough people to actually implement all of this, not just the problem of China, is the problem for the rest of the world too. Distorted incentives. People talk about, well, you know, Costs are a bit hidden because in China, you use subsidies and different types of incentives. And we're not quite sure how scarce resources are really being allocated. Well, some people criticize China and say, well, you're not a market system. You're a kind of government bureaucratic mandated system. Well, that's true. But economies and these systems, they're man-made system. China has a different system from some other parts of the world. Even those market capitalist system in different countries, they actually operate, you know, they don't operate in exactly the same way. And China will say, well, I have a socialist system. What I do is, you know, we run it quite differently where the government has a lot of power. And yes, sometimes we over-provide for certain things and under-provide for certain things. But what they do is they say, well, you know, you say, well, what do you do What do you do about it then? Well, actually, their answer is constant tinkering. You know, we'll kind of get it right eventually. So you could say the market is— is it more responsive? Sometimes you also have to pass different laws to mandate certain things. So what I'm saying is these are mandate— you know, markets and systems are man-made. So China has its system, It just requires constant adjustments. And then of course, there are some new issues out there that are challenging everybody. There are geopolitical challenges. The US-China relationship is difficult. There are tariffs and sanctions. There is tech decoupling going on at the moment. Maybe it won't affect the business that we're talking about here in the fashion industry, but semiconductors and so on, those are difficult. As well as high-tech issues. And then this notion about deglobalization. Are we deglobalization or are we reglobalization? You know, are different countries going to align with each other in terms of, you know, economy and production? We're at that time where people like you and I might feel some sense of unease because we're not quite sure. We know things are shifting. We don't know how they're going to end. But that is a challenge for everybody. Okay, my last slide is really kind of a summary. So what I've said is, Chinese policymaking needs a philosophy to start with, and then it targets performance. And you need to remember today that whichever government officials that you might have to deal with from time to time in China, he or she, has a target, has a KPI to fulfill today. And they have KPIs to fulfill that are also connected with the environment. So they have a whole long list of KPIs that they need to deal with today. The government does, and specific officials who are responsible for various policies, they all have KPIs if they want to advance. Then in implementation, I think 1+N, you're not going to forget that, I know. Circular economy, it's now beginning to bite because they're a hard target. Advanced manufacturing. Maybe the point I just want to make here is China has a bias towards making real things. Sometimes elsewhere we are concerned about maybe developing an app that will, for example, 3:00 AM in the morning, somebody could deliver within 15 minutes a drink that I want, right? You know, in the minds of policymakers, they say, no, no, that's not the real economy. We want to be able to make things that the world really needs. So there's a bias about making things, which is why manufacturing will continue to be really important. And one of the earlier slides about training people, training new talent to go into manufacturing, Young people from the universities, young people from technical colleges, they are still incentivized and in a way encouraged to go into jobs that actually make things. And as I said, challenges, well, we're going to keep on seeing a lot of tinkering as China goes along. So thank you very much. We have about 9 minutes in case any of you would like to share your experience in Chinese policymaking. or you might have some questions for me. Any questions or any comments? What was friendshoring? Friendshoring. Oh, okay. Um, the— this is a new term, uh, that has come out of the US. Uh, the notion started during COVID because there was insufficient PPE, right? You will remember not enough masks and so on. So the idea was, well, some of these things are quite important. To different economies because when you have a crisis, suddenly you don't have enough. And then you find that you don't actually make that stuff yourself anymore. So the friendshoring idea is, well, maybe what we should do is align our needs, right, what we need to import with countries that are friendlier to us, right? So this is why we were— that there's a debate about are we deglobalizing, right? Which is because globalization was about let's try and make things in places that has the highest productivity that are affordable, right? And then, you know, we have the efficiency of scale around the world and so on. So this idea is, well, maybe are we gonna split the world up into friends and less friends? Right? So if you regard certain countries as more friendly, shall we do more business with those countries? So friendshoring might mean, well, maybe we should relocate some of the production away from certain countries to those countries where we have a friendlier relationship with. Any other comments or questions? I mean, is this sort of stuff of interest, or is it just kind of too far-flung? Does it fit into kind of any of the things that you have to face, or you have to think about? Not that you have to deal with any of this stuff. Yes. No, sorry, you didn't put your hand up. Anyone? Oh, sorry. Do you foresee manufacturing business will be eliminated? No, no. How can we eliminate manufacturing? What am I going to wear? Even if you make a new skin for me, right? So we never have to buy clothes again, somebody still needs to make it. Yeah, no, actually I'm interested in the question. How do you— maybe you have a different vision in your mind about what's possible, you know, but do share with us if you want to. How many of these policies the Chinese manufacturing companies carry when they move to other parts of the world? Ah, this is a very good question. The issue is if you are a company and you are operating in another jurisdiction, I think it depends on who you are. If you're a private company, you don't have to— you have to follow the law of that country, but There isn't a government there to necessarily drive you to do the same thing, but there'll be another government there. So what would the priorities of that government be? And I'll give you a very simple example. If you're shifting your manufacturing to a place where the government doesn't have policies, for example, to clean up the energy system, Your energy system will be higher carbon. The question is, with ESG and sustainability and all those other factors, is it going to be better for you? So there might be other issues driving you as to where you go and relocate your production. Now, cost is obviously really important, so I would also imagine for a number of other countries that want to capture some of the business coming out of China, what are you going to be able to provide apart from price that manufacturers or, you know, brands are going to want? [SPEAKING CHINESE] Well, Chinese government mandate the consumers to purchase more ecological things. Well, first of all is, if you can imagine, you know, that graph again where energy, you know, China decarbonizes, because when you decarbonize, you're really dealing with the core of any industrial system, which is your energy usage for everything. That will, by definition, make a lot more things more efficient and use less energy. So, plus the design of things, that's at the front end, right? All of these things are being done at the production and transportation end. The bit that is hard is at the consumption end. So one of the thing— you know, we had a panel discussion just now about sustainability. The question that I have is, are there some new business model that will help me as a consumer? And in the fashion industry in particular, what I want is I want to look good. I don't necessarily need a whole wardrobe of things. So how can the fashion industry help me to always feel I'm looking my best? What do I really need to do that? How much I need to pay for that? Do I get a new kind of recycled wardrobe every so often? I mean, you know, these are the sort of new business models. Now, maybe I'm talking crap here, but I'm talking as a consumer. It's the sort of thing I think about. If I— Brands want me to have a relationship with the brand. So if I like a certain brand and I'm their customer, if they have a service that allows me to have, you know, new things from time to time, do I bring back those things that I no longer need? And then they deconstruct it, right? And make it into something else. I get a discount or, you know, I mean, what kind of relationship can I have with the different brands where I have a continuous relationship with them? They're guaranteed that I would come back, and they make me look good. I mean, so I don't know. I don't know, because right now I kind of feel bad every time I have to give something away, or worse, I throw something away, right? So, hmm. Policy government, Chinese management, how to balance. Yes, I know, policy governance and change management, how to balance. That's really a great question for any government. I mean, China has a really unique system of giant retraining of bureaucrats. I don't know, I mean, every government in a way has certain official development kind of scheme. China just does it at a giant, giant scale. It's the same thing as maybe your company, right? You know, you have corporate development, you have refresher courses for, for your staff. So I think all of these things are necessary. And if you believe, like I believe, that we're going on a trajectory of a revolution in sustainability, then this is kind of the new stuff that all of us need to focus on and talk about. And we need to work with people across different disciplines in order to learn what are some of the latest things that would help us. And then the government officials actually need to also understand this, because what we need from them is that they need to create the kind of policies that would allow us to go faster, both in terms of production, right? The kind of disincentives and incentives and subsidies. Can you put it in the right places that would drive certain things? So I always advocate that government also learns a little bit more about your pain point and talk with industry about which are the areas that they can intervene so that you can do a better job. Thank you very much. Time is up.