Zhang Yansheng: How Do We Nurture China’s Manufacturing Industry?

According to the statistics of the Northwest Research Institute of the Chinese Academy of Sciences, China’s high-end equipment manufacturing industry has made another significant improvement as the sales revenue exceeded 9 trillion yuan in 2017, the proportion of the high-end equipment manufacturing in the total equipment manufacturing industry increased to 15%, and the compound growth rate reached 32.3%. Despite the huge potential of the high-end equipment manufacturing industry, we must also clearly understand the problem of China’s manufacturing industry: big size but not strong enough.

Improving China’s manufacturing industry is like raising a child. How do we raise our “Child”? How to transform China’s manufacturing from a big one to a strong one? What challenges facing China’s manufacturing? CCIEE chief researcher Zhang Yansheng will answer these questions for us.

In his presentation, Zhang Yansheng said that 2018 marks the 40th anniversary of China’s reform and opening up. Over the past 40 years, China’s GDP has increased by 33.5 times. It has become the world’s largest manufacturer and produces 220 of the world’s 500 industrial products. The development of China’s manufacturing industry is a miracle in the world! Over the past 40 years, the growth of China’s manufacturing industry can be summarized as one word: fast, or high-speed growth as we call it. The next task is to make the manufacturing industry stronger.

Zhang Yansheng summarized the development of China’s manufacturing industry into three modes: “attracting the child”, “raising the child” and “supporting the eldest son”.

The first mode of China’s manufacturing development: “attracting the child”.

Zhang Yansheng said that the local governments have launched preferential policies to attract excellent manufacturing enterprises from all over the world and help these “Good kids” to grow together with local Chinese companies.

“During our most difficult time, enterprises from Taiwan, Hong Kong, Macao and other countries sent us the “first barrel of gold” in the market economy by implementing the so-called ‘three bring-in and one supplement’ mode,” said Zhang Yansheng.

What is the “three bring-in and one supplement mode?” Three “Bring-in” means that those enterprises brought equipment, orders and materials to China. The “one supplement” means that all the products were produced by the peasant workers in the Pearl River Delta region. In other words, those enterprises brought management, technology, sales, and brands from abroad and produced the products they needed in China, then the products were sold worldwide. China’s processing trade only got a small amount of profit. This is how China started its manufacturing industry many years ago. 

The second mode of China’s Manufacturing development: “raising the child”.

 To raise a child is a lengthy process and requires a lot of hard works. Zhang Yansheng believes that a good market environment needs to be created in order to raise the child. Both the government and the market are indispensable because the market competition will motivate people to put in more efforts, while the government is responsible for providing better public goods and services.

Taking the development of Germany’s manufacturing as an example. Why can Germany’s manufacturing make the best and most sophisticated products? What supports the technological innovation and R&D of the German companies? The Fraunhofer Society in Germany has 22,000 engineers focusing on R&D and many research institutes. This organization is responsible for solving the production-related problems faced by SMEs, such as lack of materials, technology and components. There are three institutions like this in Germany and each of them has tens of thousands of R&D engineers. 70% of their fund is financed by the government. Zhang Yansheng pointed out that the example of the Fraunhofer Society shows that key technologies, common technologies and public technologies are all part of government public goods and services. Some Chinese cities have been very successful in developing its manufacturing industry such as Foshan in Guangdong, Qingdao, Ningbo and the cradle of China’s national industry, Suzhou and Wuxi, which have great endogenous growth momentum for China’s grassroots economy, private economy, small and medium-sized economy.

The third mode of China’s manufacturing development: “Supporting the eldest son.”

Zhang Yansheng has divided China’s manufacturing industry into three levels: the national team, the local team, and the private team.

The national team is closely related to people’s livelihood and economic development and responsible for such core technologies and industries as the large aircraft, high-speed rail, cloud computing, chips and so on. The local team includes leading local enterprises. The private team covers the grassroots economy, small and medium-sized enterprises, and private enterprises.

Zhang Yansheng said that the best case for our policy of “supporting the eldest son” is Shenzhen. Shenzhen ranks in the top three in a number of fields, such as patented technology, trademarks, newly registered companies, venture capital, local entrepreneurs and foreign investors, which can be set as a good example for China and the rest of Asia.