Finance
Where ‘Made in China 2025’ missed the mark
Smart robotic arms work on the production line at the production workshop of Changqing Auto Parts Co., LTD., located in Anqing Economic Development Zone, Anhui Province, China, on March 13, 2025. (Photo by Costfoto/NurPhoto via Getty Images)
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BEIJING — China missed several key targets from its 10-year plan to become self-sufficient in technology, while fostering unhealthy industrial competition which worsened global trade tensions, the European Chamber of Commerce in China said in a report this week.
When Beijing released its “Made in China 2025” plan in 2015, it was met with significant international criticism for promoting Chinese business at the expense of their foreign counterparts. The country subsequently downplayed the initiative, but has doubled-down on domestic tech development given U.S. restrictions in the last several years.
Since releasing the plan, China has exceeded its targets on achieving domestic dominance in autos, but the country has not yet reached its targets in aerospace, high-end robots and the growth rate of manufacturing value-added, the business chamber said, citing its research and discussions with members. Out of ten strategic sectors identified in the report, China only attained technological dominance in shipbuilding, high-speed rail and electric cars.
China’s targets are generally seen as a direction rather than an actual figure to be achieved by a specific date. The Made In China 2025 plan outlines the first ten years of what the country called a ‘multi-decade strategy’ to become a global manufacturing powerhouse.
The chamber pointed out that China’s self-developed airplane, the C919, still relies heavily on U.S. and European parts and though industrial automation levels have “increased substantially,” it is primarily due to foreign technology. In addition, the growth rate of manufacturing value add reached 6.1% in 2024, falling from the 7% rate in 2015 and just over halfway toward reaching the target of 11%.
“Everyone should consider themselves lucky that China missed its manufacturing growth target,” Jens Eskelund, president of the European Union Chamber of Commerce in China, told reporters Tuesday, since the reverse would have exacerbated pressure on global competitors. “They didn’t fulfill their own target, but I actually think they did astoundingly well.”
Even at that slower pace, China has transformed itself over the last decade to drive 29% of global manufacturing value add — almost the same as the U.S. and Europe combined, Eskelund said. “Before 2015, in many, many categories China was not a direct competitor of Europe and the United States.”
The U.S. in recent years has sought to restrict China’s access to high-end tech, and encourage advanced manufacturing companies to build factories in America.
Earlier this week, the U.S. issued exporting licensing requirements for U.S.-based chipmaker Nvidia’s H20 and AMD’s MI308 artificial intelligence chips, as well as their equivalents, to China. Prior to that, Nvidia said that it would take a quarterly charge of about $5.5 billion as a result of the new exporting licensing requirements. The chipmaker’s CEO Jensen Huang met with Chinese Vice Premier He Lifeng in Beijing on Thursday, according to Chinese state media.
The U.S. restrictions have “pushed us to make things that previously we would not have thought we had to buy,” said Lionel M. Ni, founding president of the Guangzhou campus of the Hong Kong University of Science and Technology. That’s according to a CNBC translation of his Mandarin-language remarks to reporters on Wednesday.
Ni said the products requiring home-grown development efforts included chips and equipment, and if substitutes for restricted items weren’t immediately available, the university would buy the second-best version available.
In addition to thematic plans, China issues national development priorities every five years. The current 14th five-year plan emphasizes support for the digital economy and wraps up in December. The subsequent 15th five-year plan is scheduled to be released next year.
China catching up
It remains unclear to what extent China can become completely self-sufficient in key technological systems in the near term. But local companies have made rapid strides.
Chinese telecommunications giant Huawei released a smartphone in late 2023 that reportedly contained an advanced chip capable of 5G speeds. The company has been on a U.S. blacklist since 2019 and released its own operating system last year that is reportedly completely separate from Google’s Android.
“Western chip export controls have had some success in that they briefly set back China’s developmental efforts in semiconductors, albeit at some cost to the United States and allied firms,” analysts at the Washington, D.C.,-based think tank Center for Strategic and International Studies, said in a report this week. However, they noted that China has only doubled down, “potentially destabilizing the U.S. semiconductor ecosystem.”
For example, the thinktank pointed out, Huawei’s current generation smartphone, the Pura 70 series, incorporates 33 China-sourced components and only 5 sourced from outside of China.
Huawei reported a 22% surge in revenue in 2024 — the fastest growth since 2016 — buoyed by a recovery in its consumer products business. The company spent 20.8% of its revenue on research and development last year, well above its annual goal of more than 10%.
Overall, China manufacturers reached the nationwide 1.68% target for spending on research and development as a percentage of operating revenue, the EU Chamber report said.
“‘Europe needs to take a hard look at itself,” Eskelund said, referring to Huawei’s high R&D spend. “Are European companies doing what is needed to remain at the cutting edge of technology?”
Dutch semiconductor equipment firm ASML spent 15.2% of its net sales in 2024 on R&D, while Nvidia’s ratio was 14.2%.
Overcapacity and security concerns
However, high spending doesn’t necessarily mean efficiency.
The electric car race in particular has prompted a price war, with most automakers running losses in their attempt to undercut competitors. The phenomenon is often called “neijuan” or “involution” in China.
“We also need to realize [China’s] success has not come without problems,” Eskelund said. “We are seeing across a great many industries it has not translated into healthy business.”
He added that the attempt to fulfill “Made in China 2025” targets contributed to involution, and pointed out that China’s efforts to move up the manufacturing value chain from Christmas ornaments to high-end equipment have also increased global worries about security risks.
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In an annual government work report delivered in March, Chinese Premier Li Qiang called for efforts to halt involution, echoing a directive from a high-level Politburo meeting in July last year. The Politburo is the second-highest circle of power in the ruling Chinese Communist Party.
Such fierce competition compounds the impact of already slowing economic growth. Out of 2,825 mainland China-listed companies, 20% reported a loss for the first time in 2024, according to a CNBC analysis of Wind Information data as of Thursday. Including companies that reported yet another year of losses, the share of companies that lost money last year rose to nearly 48%, the analysis showed.
China in March emphasized that boosting consumption is its priority for the year, after previously focusing on manufacturing. Retail sales growth have lagged behind industrial production on a year-to-date basis since the beginning of 2024, according to official data accessed via Wind Information.
Policymakers are also looking for ways to ensure “a better match between manufacturing output and what the domestic market can absorb,” Eskelund said, adding that efforts to boost consumption don’t matter much if manufacturing output grows even faster.
But when asked about policies that could address manufacturing overcapacity, he said, “We are also eagerly waiting in anticipation.”
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
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New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
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