NIE 2023 | Guoke Jiahé and Lu Jiaqing: The Growth Path of High-End Manufacturing in a Complex and Varying Environment

Lu Jiaqing pointed out that the competitive landscape of the US strategy towards China has unfolded in multiple aspects such as politics, economy, technology, and ideology. For instance, the US has formed a chip Quadriga alliance and is stepping up its layout.Indo-Pacific Economic Framework"Both bullish and bearish forces are at play, with financial pressure on Chinese enterprises and restrictions on US-funded investments in China; ideological challenges against China have been launched, intensifying cross-strait tensions, as well as suppression of China's development in military and technology fields, and blockades in key technical areas.

Against this backdrop, the capital markets of China and the US decoupled, with Chinese concept stocks almost becoming orphaned in the US market; fundraising for dollar funds, which were once active participants in China's primary market, has become more difficult; the once star sectors of the A-share market, such as biomedicine and technology, have seen significant corrections, and there has been a substantial decline in primary market investment cases and amounts. In the first half of 2023, China's primary market raised 734.1 billion yuan, a year-on-year decrease of 23.5%. The investment amount was 293 billion yuan, a year-on-year decrease of 42%. The number of investments was 3,638 cases, a year-on-year decrease of 37.5%.

Currently, the United States is focusing on dismantling China's industrial chain, promoting its disconnection from China, and strengthening its own alliance system in order to secure the return of manufacturing industries. In the future, through restricting Chinese scientific and technological personnel, limiting exchanges in the field of technology, and curbing the establishment of technology industrial chains, the competition and decoupling between China and the US in science and technology will further intensify. The Chinese scientific and technological manufacturing sector needs to 'break through' the 'dilemma'.

Lu Jiaqing stated that under the current international competitive backdrop, China faces an increasingly severe technological blockade situation, making it more difficult to absorb advanced scientific and technological achievements from abroad. International competition is determined by the objective trend of relative strengths between two parties, which is not subject to human will. It is unrealistic to expect the United States to take the initiative to ease the blockade. Only by achieving self-control, ensuring security and reliability, accelerating scientific and technological progress, vigorously developing high-end manufacturing industries, can the necessity of further 'blockades' be reduced.

China has the best soil for high-end manufacturing entrepreneurs, including a huge market scale advantage, internet application advantages, complete industrial supporting facilities, upgraded consumer demand, and professional and scientific research talent. Many advantageous industries already possess international competitiveness, such as communication technology, internet innovation applications, AI and AI+ applications, high-end technologies and equipment, and new energy locomotives, laying a solid foundation for the long-term development of China's high-end manufacturing industry.

Lu Jiaqing pointed out that manufacturing is the lifeblood of the national economy and the foundation for establishing a strong country. Since the 18th National Congress of the Communist Party of China, China has made tremendous achievements in the development of manufacturing. The added value increased from 1.698 trillion yuan in 2012 to 3.14 trillion yuan in 2021, and its share in the global economy rose from about 20% to nearly 30%, continuously maintaining China's position as the world's largest manufacturing country. High-end manufacturing has also made significant progress, with continuous improvement in scientific and technological levels and innovation capabilities, and steady enhancement of comprehensive strength and competitiveness.

As of September 7, 2023, the number of listed manufacturing companies in A-share markets in China reached 3,537, accounting for 67% of all listed companies on A-share exchanges. Among them, the number of high-end manufacturing listed companies reached 2,021, accounting for 57% of the total number of manufacturing listed companies on A-share markets. In 2022, the revenue scale of high-end manufacturing listed companies in China reached 13.16 trillion yuan, with a compound growth rate of 14.97% over the past five years. The revenue growth rate is significantly higher than the GDP growth rate, indicating that high-end manufacturing companies are in a period of rapid development and upward trend, and they have also become one of the new drivers of China's economic growth.

With the acceleration of R&D investment intensity, China's core competitiveness in high-end manufacturing has been continuously enhanced. In 2022, listed companies in high-end manufacturing spent 761.149 billion yuan on R&D, with a compound growth rate of 22.81% over the past five years and annual growth rates consistently maintained above 15%. The proportion of R&D expenditure to revenue has grown rapidly, rising from 4.44% in 2018 to 5.78% in 2022, indicating continuous and rapid increase in R&D investment. In 2022, listed companies in high-end manufacturing achieved net profits of 875.081 billion yuan, a year-on-year increase of 7.49%, with a compound growth rate of 25.52% over the past five years, indicating a rapid improvement in profitability in the past five years. Over the past five years, the overall net profit margin of listed companies in high-end manufacturing increased from 4.68% to 6.65%, reflecting a significant enhancement in profitability, demonstrating that China's core competitiveness in high-end manufacturing is continuously strengthening and the industry shows strong development vitality. However, the road ahead for China's high-end manufacturing is long, and compared with leading enterprises in China and the United States, there is still a need to strive hard to catch up.

High-end manufacturing startups in the new era face relative advantages and disadvantages. These include advantages such as a high starting point, broad vision, attention from stakeholders, and unique strategies, as well as disadvantages such as incomplete leadership teams, lack of understanding of scenarios and needs, challenges in role transition, and state-owned asset management.

Currently, the country is promoting the innovative transformation and upgrading of traditional enterprises through a series of internal and external measures:

• Equipment updates, technological transformation, and process route optimization (intelligentization, digitization, measurement and control technology)

• Improved management level, led by an innovative culture (corporate culture, processes, and systems are well coordinated).

• Carry out industry-university-research cooperation (such as entrusted development and technology achievement introduction) with universities, research institutes, etc.

   

• Utilize capital leverage for industrial integration

• Utilize early capital accumulation to invest in high-quality enterprises

• Integration based on industrial chain and exploration of upstream and downstream (enterprises with innovative technologies)

   

Lu Jiaqing believes that enterprises should focus on their main business, be vigilant against excessive expansion and diversification, and cash flow management is the lifeline of an enterprise. Since investors attach great importance to the protection of management's interests, premature distribution of equity may lead to an early loss of control.