The upgrading of the manufacturing sector has become a key focus for the ruling party, serving as a new strategy to drive economic growth and political reform. This shift has significant implications for both political personnel and enterprises. Senior officials from more developed regions are being transferred to the mainland to support the domestic relocation of manufacturing industries. For companies, the question is: what changes must they make in order to gain state support? As global industrial profits decline and trade tensions increase, China's manufacturing industry faces growing challenges.
Over the past few years, China's manufacturing sector has been grappling with frequent trade disputes and competition from other developing countries. This situation has pushed the country to re-evaluate its industrial strategy. Looking at the broader development context, it's clear that the sector is nearing a critical turning point. A series of policy initiatives indicate that the government is aware of the urgency and is taking steps to address these challenges.
Manufacturing plays a central role in China’s economy. Out of 40 major industrial categories, 29 fall under manufacturing, which accounts for 95% of the total industry. For over three decades after the founding of the People’s Republic, China's economic growth was largely driven by manufacturing. In recent decades, the sector has maintained an annual growth rate of 12% to 14%, outpacing overall economic growth. It also serves as a major employer, absorbing more than 10% of the workforce.
However, beneath this surface success lies a serious problem. The structure of China's manufacturing industry resembles a pyramid, with most of the activity concentrated in lower-level sectors like textiles, light industry, and basic materials. High-tech and advanced manufacturing remain underdeveloped. While foreign firms dominate high-end sectors such as electronics, China's equipment manufacturing industry relies heavily on imports, resulting in large trade deficits.
Experts like Gao Liang from the National Development and Reform Commission have pointed out that while China has introduced many advanced technologies through joint ventures, there has been a lack of effective absorption and innovation. Unlike South Korea, which invested significantly in technology digestion, China has spent far less on integrating foreign technology. This has led to a dependency on foreign companies rather than true technological advancement.
China's manufacturing industry remains at the low end of the global value chain, where labor costs are the main competitive advantage. However, this is not sustainable in the long term. The Pearl River Delta, once the heart of China's manufacturing, now faces rising wages and increasing competition. Many companies are considering shifting operations to lower-cost areas or even abroad. Meanwhile, the government is pushing for industrial upgrades, aiming to move beyond low-margin production and into higher-value sectors.
This transition raises important questions about the relationship between the state and the enterprise. Historically, successful industrial nations like the U.S. and Japan have relied on strong government support and strategic policies. China is now following a similar path, with policies aimed at promoting high-end manufacturing and reducing reliance on foreign technology. The challenge lies in balancing economic growth with industrial transformation, ensuring that China can move up the value chain without losing its competitive edge.
As China continues to develop, the need for structural reform becomes more urgent. The government must support key industries while encouraging innovation and self-reliance. The future of China's manufacturing industry depends on its ability to upgrade, not just in terms of technology, but in how it integrates with the global economy and adapts to changing market conditions.
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