Decoding the underlying code of China's innovation and resilience

Source: CITIC Publishing House

Author: Qin Shuo, Renowned Cultural and Financial Observer

In early 2025, DeepSeek soared to new heights, opening a new chapter in re-examining China’s narratives and values. This year also marked the completion of “Made in China 2025.” China encompasses all industrial categories in the United Nations industrial classification, including 41 major industrial sectors, 207 sub-sectors, and 666 small categories. Past claims have been that China leads the world in the output of 220 major industrial products. The latest statement from the Ministry of Industry and Information Technology is that among 504 key industrial products, most are produced in China at the top global levels.

Moreover, China has over 570 industrial enterprises listed among the global top 2,500 in R&D investment, and in 2024, 64 manufacturing companies made the Fortune Global 500 list. The total number of international patent applications in 2024 reached 273.9k, with China filing 70,160, accounting for about one-quarter of the total.

These data indicate that China’s human capital has shifted from labor cost advantages to engineer advantages, and further leaped toward scientist advantages. With such an enhancement in human capital, using manufacturing as a carrier, China’s knowledge and capability evolution has begun to enter a compounding effect.

In January 2025, data from the Ministry of Industry and Information Technology shows that China has 512k above-scale industrial enterprises, over 140k specialized and innovative small and medium-sized enterprises, 14.6k “Little Giants” specialized and innovative enterprises, 1,557 manufacturing single-competence champions, and a group of leading and chain-leading companies. These form the backbone of China’s industrial evolution and the confidence to stand firm amid global storms.

The innovative development of China’s industry is closely linked to reform and innovation in the capital market. On June 13, 2019, the STAR Market of the Shanghai Stock Exchange officially launched. By June 13, 2025, the number of listed companies on the STAR Market reached 588, with over 80% in emerging industries such as new-generation information technology, biomedicine, and high-end equipment manufacturing. The STAR Market has become a leader in high-level technological independence and the development of new productive forces.

At the same time, the STAR Market is also a “test field” for institutional reform of the capital market and the starting point of registration-based reform. Six years after its official launch, benefiting from diverse and inclusive listing conditions, the STAR Market has seen 54 unprofitable companies, 8 with special equity structures, 7 red-chip companies, 20 companies listed under the fifth standard, and 1 company transferred to the main board. This demonstrates that diverse and inclusive listing conditions have provided unprecedented support for innovation-driven growth.

Excitingly, many STAR Market companies are targeting the upstream of the value chain, redefining international competitiveness and discourse power through technological innovation “hard strength.” For example, in global BD (business development) transactions of innovative drugs, STAR Market biotech firms play a significant role.

In my view, over the past decade or so, China has effectively achieved a major industrial upgrade, no longer just a few enterprises or industries making isolated progress, but a comprehensive, systematic, and interactive overall upgrade.

Foreign experts have also gained profound insights into China’s industrial upgrade, which differ markedly from their perceptions years ago of Chinese manufacturing.

Apple CEO Tim Cook has repeatedly said that China’s manufacturing advantage is not low cost, but people—“skill density.” China has enough skilled technicians, forming an interaction between craftsmanship, precision robotics, and the digital world.

Former Google CEO Schmidt stated that China will ultimately win the “epic battle” in artificial intelligence because it can apply AI technologies faster in mass production.

An article titled “The Real Chinese Model” published in Foreign Affairs magazine in 2025 pointed out that China has built an innovation ecosystem centered on powerful electricity and digital networks. Factory managers, engineers, and workers have accumulated decades of craftsmanship—hands-on experience gained through practice, understanding how to produce and improve products.

The World Economic Forum’s article “Can ‘Made in China 2.0’ Become the Future of Global Manufacturing?” suggests that China’s innovation system is a layered, intertwined, and mutually nourishing ecosystem. Progress in one area (like lithium batteries) creates spillover effects in others (such as electric vehicles, consumer electronics, and energy storage systems). Behind this ecosystem is a more fundamental element—the accumulation and deepening of “process knowledge.”

This article particularly emphasizes the role of artificial intelligence, believing that deep integration of AI with manufacturing enhances the feedback loop between software and hardware—design, engineering, and production all occur within a tightly knit industrial cluster. New tools can be tested and improved on-site within days rather than months. This synergy and rapid innovation cycle enable China to “successfully embed AI into industrial operating systems.”

The increase in skill density, craftsmanship, process knowledge, and the deep integration of AI and manufacturing accelerate China’s learning curve, leading to faster product iteration and innovation cycles. This is the true secret behind China’s transition from manufacturing to intelligent manufacturing today.

As a renowned investor with deep thought and research background, Mr. Sheng Xitai’s book “Industry, Capital, and Cycles” is rooted in frontline industry research and investment practice in China, presenting vivid and profound insights. I resonate deeply with it and find it highly inspiring.

For example, the author believes that “Chinese-style innovation” is a problem-driven, systemic innovation, driven by extreme cost control, enabling technological inclusiveness, and achieving “overtaking on curves” through industry chain collaboration and reuse. The core of China’s industrial chain’s collaborative reuse capability is the concentrated explosion of modularization. This modularization stems from China’s unique development path—an enormous domestic market pushing enterprises to enhance flexible production, while the role of the world’s factory drives supply chain segmentation. The combination of these factors fosters industry resilience that can adapt to any change. No matter what form emerging industries take, Chinese manufacturing can quickly decompose technological needs and recombine existing modules for innovation.

I strongly agree with this insight. During my research on DJI Innovation, overseas competitors, after dissecting DJI drones, found that if they produced the same functions, costs would double. 80% of DJI’s parts are standard components, supported by the complete supply chain in Shenzhen’s Huaqiangbei and the Pearl River Delta, giving it a strong cost advantage.

Recently, Morgan Stanley’s research on Chinese innovative company Xpeng pointed out that Xpeng’s autonomous driving (AD) and robotics R&D teams are highly synergistic, with 70% of R&D resources shared. Moreover, the hardware overlap—such as Turing AI chips, cameras, domain controllers—is significant. Finally, Xpeng’s industry applications run on the same foundational models, enabling multi-dimensional data sharing, which not only strengthens Xpeng’s network effects but also accelerates data collection and machine learning.

These cases fully demonstrate that China’s industry has evolved step by step to today’s forefront of innovation, with internal experience and laws worth deep exploration and summary. I believe the value of Sheng Xitai’s book lies in this—it is a work of strong confidence, based on facts, with logical value, and professional depth. It is highly recommended for China’s industry and investment circles. I am confident it will be beneficial upon reading.