China set for further manufacturing upgrades

BEIJING — Once known as the "world's factory" for producing cheap goods, China is relentlessly moving into an advanced stage in manufacturing upgrades in a time when the real economy matters like never before.

Two years after China announced its "Made in China 2025" strategy, despite lingering pressure on overall industries, progress on new industries, mass innovation, and smart manufacturing are painting a new picture.

"Winter is passing"

For many Chinese entrepreneurs, there have been hard times, especially when financing became difficult as the vibrant real estate market and financial sector attracted too much funding from investors.

Ge Zhengang, chairman of Longcheer, a smartphone producer in southern China's Guangdong province, said while innovation is vital for increasing profits, it requires financial support.

On the other hand, the higher costs of energy, labor, logistics and management have further weakened the profitability of manufacturing enterprises.

Facing pressure from financing and rising costs, some of the companies that entered the business in the same period as Longcheer have already turned to real estate, or even closed, according to Ge.

The tendency of capital to flow out of real economy should be regarded as a warning sign that "Made in China" products need transformation and upgrading, according to Xin Guobin, vice minister from the Ministry of Industry and Information Technology (MIIT).

But Xin also pointed out that the problem has not affected the fundamentals of the sector, and such pressure is pushing Chinese enterprises to seek innovation in high-end, smart, and green manufacturing.

Dong Mingzhu, chairperson of China's leading appliances maker Gree Electric Appliances, said that with China's economy gradually firming up, the "winter" for Chinese manufacturers is passing.

"Instead of taking a break, we stored a lot of energy in the winter," she told Xinhua.

In the first quarter of this year, Gree Electric Appliances reported a year-on-year profit surge of 27.6 percent, up from a 23.05 percent annual growth in net profit in 2016.

Dong attributed the strong rise in profit to technological breakthroughs, which turned Chinese manufacturers from followers to trend leaders in the market. Her company now has a research and development team of nearly 10,000 employees.

In a larger picture, in the first half of this year, high-tech and equipment manufacturing sectors are leading the country's industrial growth, with year-on-year output increases of 13.1 percent and 11.5 percent, respectively, compared with a 6.9 percent rise in overall output.

Stronger gov't drive

Meanwhile, the Chinese government have never ceased its efforts to push the industrial upgrading progress to a further stage.

According to decisions at a State Council executive meeting chaired by Premier Li Keqiang on Wednesday, China will establish national-level demonstration areas for the "Made in China 2025" plan, a blueprint to upgrade the country's manufacturing sector.

The national demonstration areas will be established in cities and city clusters in the eastern, central and western regions and help speed up the transformation of the country's manufacturing sector, create innovative mechanisms and facilitate opening up and cooperation.

The "Made in China 2025" strategy was first unveiled in 2015 to promote the manufacturing sector to be smarter, greener and more service-oriented.

Since its launch, average productivity is up by 38 percent for China's first 109 pilot projects in smart manufacturing, while operating costs have dropped by 21 percent, data from the MIIT showed.

A variety of government and industry funds will be used to spur innovation and entrepreneurship, and guide more social capital to support advanced manufacturing, according to the cabinet meeting.

In the demonstration areas, the government will offer stock incentives for employees of some state-owned enterprises.

The priority of boosting manufacturing is to attract both the talented people and funds to the real economy, said Li Beiguang, an official with the MIIT.

At the National Financial Work Conference that ended last Saturday, a key meeting held every five years since 1997, China also unveiled reform plans to make the financial sector better serve the real economy.

"From the medium and long-term view, China's manufacturing sector is on the eve of 'explosive growth,'" said Zuo Shiquan, head of the equipment manufacturing research institute under the China Center for Information Industry Development.

Although pressure remains from industrial transformation and upgrading, Zuo said he could see a convincing trend of a future turnaround.