The People’s Daily reported today that China’s Coordination Bureau under Ministry of Industry and Information Technology (MIIT) will replace “Made in China” with “Created in China.” The intent is show the world that China is no longer a copycat maker of disposable junk, but has risen to become a true manufacturing innovator.

Why should investors care?

Because China’s transition to a high-quality manufacturer comes at a time when the economy is softening — perhaps prolonging a slump in stocks, real estate and exports.

For example, the Wall Street Journal ran a story today that speculated China’s economy could be worse than stated by government agencies.

China’s economic policy has been to maintain a minimum growth rate of 8% for its GDP. Below 8% means that the Beijing is failing in the eyes of the world. Aside from the notion that China could inflate the GDP as its economy softens, one has to wonder how it can sustain 8% if it makes manufacturing more expensive by highlighting innovation over low cost.

The global recession has already hammered China’s exports — sending the economy into a nose dive. Now China wants to further increase the cost of its manufacturing?

As it stands, manufacturing in China has already been on the rise for the past few years — the higher margins stimulating its domestic economy.

The People’s Daily cited the United Nations Industrial Development Organization’s estimate that a total of 172 kinds of Chinese manufacturing products were high on the world lists in 2007. Specifically, 70% of toys, 50% of telephones, and more than one- third of color TVs were “Made in China.” The country’s manufacturing accounted for 11.44 percent of world’s total.

By moving to “Created in China,” the MIIT is promoting the integration of manufacturing and state-of-the-art computer systems, manufacturing and service, and the acceleration of innovation, according to the People’s Daily.

MIIT is proposing several steps to facilitate the transition from “Made in China” to “Created in China.”

Among them are guidelines for higher R&D spending, develop new brands that benefit from home-grown intellectual property, create entrepreneurial incubators that nurture creative products and businesses, and stimulate government purchases of original products as a form of recognition for innovation.

While this may pay off in the long term, the shift could present investors with a bigger challenge for finding near-term profits in China.