Decoding the Underlying Code of China's Innovation and Resilience

Source: CITIC Press

Author: Qin Shuo, renowned cultural and financial observer

At the beginning of 2025, DeepSeek soared, opening a new chapter in reexamining Chinese narratives and values. This year also marks the completion of “Made in China 2025.” China possesses all industrial categories in the UN’s industrial classification, including 41 major industrial categories, 207 medium categories, and 666 minor categories. The past claim has always been that China ranks first globally in the production of 220 major industrial products. The latest statement from the Ministry of Industry and Information Technology indicates that among 504 major industrial products, most of China’s products rank first globally.

Additionally, over 570 industrial enterprises in China have made it into the global R&D investment top 2,500. In 2024, 64 manufacturing companies were selected for the Fortune Global 500. The total number of international patent applications in 2024 was 273,900, with China’s applications accounting for 70,160, approximately 1/4 of the total.

These data indicate that China’s human capital has shifted from labor cost dividends to engineering dividends, and is further advancing towards scientific dividends. With such an enhancement in human capital, the evolution of knowledge and capabilities in China, carried by its manufacturing sector, is also beginning to enter a compound interest effect.

In January 2025, data from the Ministry of Industry and Information Technology showed that there are 512,000 enterprises in the regulated industrial sector, over 140,000 specialized and innovative small and medium-sized enterprises, 14,600 specialized and innovative “little giant” enterprises, 1,557 manufacturing single champion enterprises, and a batch of leading and chain master enterprises. This is the backbone of China’s industrial evolution and the source of its resilience amid various storms in globalization.

The innovative development of Chinese industries is closely related to the reforms and innovations in the capital market. On June 13, 2019, the Science and Technology Innovation Board (STAR Market) of the Shanghai Stock Exchange was officially launched. As of June 13, 2025, the number of listed companies on the STAR Market reached 588, with over 80% of new industry companies in emerging sectors such as new generation information technology, biomedicine, and high-end equipment manufacturing, making the STAR Market a leader in high-level technological independence and the development of new productive forces in the capital market.

At the same time, the STAR Market serves as a “testing ground” for institutional reforms in the capital market and is the starting point for the registration system reform. By the sixth anniversary of the STAR Market’s official launch, benefiting from diverse and inclusive listing conditions, there are 54 unprofitable companies, 8 with special equity structures, 7 red-chip companies, 20 listed companies under the fifth set of standards, and 1 company that has switched boards. This shows that the diverse and inclusive listing conditions provide unprecedented support for innovation-driven growth.

Excitingly, many STAR Market companies are targeting the upstream of the value chain, redefining international pricing power and discourse power with the “hard power” of technological innovation. For example, in global innovative drug BD (business development) transactions, STAR Market innovative pharmaceutical companies play a significant role.

In my view, over the past decade, China has indeed achieved a tremendous industrial upgrade, moving away from the advancement of a few enterprises and industries to a comprehensive, systematic, and mutually interactive overall upgrade.

Regarding China’s industrial upgrade and innovative evolution, many insightful individuals abroad have developed a profound understanding, which is entirely different from their perceptions of Chinese manufacturing several years ago.

Apple CEO Tim Cook has repeatedly stated that the advantage of Chinese manufacturing is not low costs, but rather people, specifically “skill density.” China has a sufficient number of skilled technical personnel, forming an interaction between craftsmanship, precision robotics, and the world of computers.

Former Google CEO Eric Schmidt has said that China will ultimately win the “epic battle” in the field of artificial intelligence, “because they can apply AI technology faster in mass production.”

An article titled “The Real China Model” published in the 2025 issue of Foreign Affairs points out that China has established an innovative ecosystem centered on a strong power and digital network, where Chinese factory managers, engineers, and workers have accumulated decades of craft knowledge—practical experience gained through hands-on work, understanding how to manufacture and improve products.

In an article titled “Can ‘Made in China 2.0’ Become the Future of Global Manufacturing?” published by the World Economic Forum, it is argued that China’s innovation system is an overlapping and interwoven ecosystem, where progress in one field (such as lithium batteries) brings spillover effects to other fields (such as electric vehicles, consumer electronics, and energy storage systems). Behind this ecosystem lies something more fundamental—the accumulation and deepening of “process knowledge.”

The article emphasizes the role of artificial intelligence, asserting that the deep integration of AI with manufacturing strengthens the feedback loop between software and hardware—design, engineering, and production occur within a tightly knit industrial cluster, allowing new tools to be tested and improved on-site in days rather than months—this synergy and rapid-cycle innovation make it possible for China to “successfully embed artificial intelligence into the industrial operating system.”

The increase in skill density, craft knowledge, and process knowledge, along with the deep integration of AI and manufacturing, allows China’s manufacturing learning curve to accelerate continuously, achieving faster product iterations and innovation cycles. This is the true key to China’s transition from manufacturing to intelligent manufacturing today.

As a renowned investor with a profound intellectual and research background, Mr. Sheng Xitai’s book “Industry, Capital, and Cycles” is rooted in frontline industrial research and investment practices in China, presenting vivid and deep insights. I found it very resonant and inspiring.

For example, the author believes that “Chinese-style innovation” is a problem-driven systemic innovation, a technological inclusiveness brought about by extreme cost control, and a pathway to “leapfrog” achieved through industrial chain collaboration and reuse. The collaborative reuse capability of China’s industrial chain is essentially a concentrated explosion of modular capabilities. The formation of this modular capability stems from China’s unique development path in manufacturing, where a large domestic market forces enterprises to enhance their flexible production capabilities, while the positioning as the world’s factory drives the continuous refinement of the supply chain. When the two combine, they give rise to an industrial resilience that adapts to changes; regardless of the form emerging industries take, Chinese manufacturing can quickly deconstruct their technological needs and utilize existing modules for combinatorial innovation.

I deeply resonate with such insights. In my research on DJI Innovations years ago, overseas competitors found that after deconstructing DJI drones, the same functionality would cost them twice as much to produce. Over 80% of the components in DJI products are generic parts, backed by the complete supply chain in consumer electronics components and precision parts in “Shenzhen Huaqiangbei + the Pearl River Delta industrial belt,” which possesses a strong cost competitiveness.

Recently, Morgan Stanley pointed out in its research on Chinese innovative company Xiaopeng that Xiaopeng’s autonomous driving (AD) and robotics R&D teams have extremely high synergy, with 70% of the R&D work capable of resource sharing. Additionally, there are many overlaps at the hardware level between autonomous driving and robotics (such as Turing AI chips, camera sensors, domain controllers, etc.). Ultimately, Xiaopeng’s industrial applications operate based on the same foundational model, enabling multidimensional data intercommunication, which not only strengthens Xiaopeng’s network effects but also accelerates the data collection and machine learning processes.

These cases fully demonstrate that China’s industry has evolved step by step to today, with its innovative capability already leading the world, and its intrinsic experiences and laws are worth deep exploration and summarization. I believe the value of Mr. Sheng Xitai’s book lies in this; it is a work of strong confidence and positive energy, as well as one that is sincere, with factual basis, valuable logic, and professional depth, deserving of reading by China’s industrial and investment sectors. I believe it will be beneficial to open and read.

Main Title: Industry, Capital, and Cycles

Subtitle: Observations and Reflections on Trends in the Chinese Economy

Author: Sheng Xitai

Price: 78.00 yuan

ISBN: 978-7-5217-8537-1

Publication Date: March 2026

Content Summary

Currently, the global economy is undergoing a deep adjustment period in the fifth Kondratieff wave cycle, and the window for technological revolution has reopened. A series of narratives about Chinese technology companies are quietly emerging. The world is witnessing not only the explosion of individual Chinese enterprises but also the historic leap of a country’s technology industry from “follower” to “rule maker.”

Based on over 30 years of accumulation in the capital market and in-depth research on nearly 100 enterprises, Mr. Sheng Xitai profoundly explains the underlying logic and inevitable trends of China’s economy traversing cycles and moving towards modernization through a broad historical perspective and solid empirical data. The book closely follows the pulse of the times and systematically constructs an overall analytical framework from micro-innovation to macro-game.

Chinese Miracle: Focusing on the essence of Chinese-style innovation—problem-driven, extreme cost control, and the engineering realization and commercialization practice of “from 1 to 100,” revealing that the collaborative reuse of the industrial chain and the fault tolerance space of a super-large market are key paths for Chinese enterprises to achieve “leapfrogging.”

Industrial Resilience: Retracing the 40-year journey of Chinese industry from enlightenment, evolution to transformation, and using data and facts to prove that the next “China” is still China, because no other country can replicate the combination advantages of China’s industrial ecosystem, engineering dividends, and super-large market.

Capital Transformation: Exploring the symbiotic relationship between the capital market and the real economy, profoundly pointing out that the capital market is the infrastructure for a great power’s rise, and elaborating on the key role of building patient capital and serving hard technology in cultivating new productive forces.

Traversing Cycles: Standing in the historical river of great power rise and fall, analyzing the game rules between leading countries and rising countries, pointing out that China is taking a new path of rise through openness, inclusiveness, and win-win cooperation.

I hope this book can provide new perspectives for related research, offer useful references for entrepreneurs, investors, and policymakers, and open a window for readers concerned with global economy and great power games to understand future trends.

Author Biography

Sheng Xitai

Founding partner and chairman of Hongtai Fund, the first chairman of Huatai United Securities, a seasoned investment banker, and one of the earliest witnesses and participants in China’s capital market. He is a leading figure in empowering equity investment in the fields of industry, capital, and management. Throughout his 20 years in investment banking, he has over a hundred IPO experiences and has cultivated a top-notch M&A team in China’s capital market. After transitioning to the investment field, he has accurately identified and invested in a number of leading enterprises. He has achieved fruitful results in professional research and authorship, with works including “Comprehensive Guide to Warrants,” “The Myth of Investing 1 to Earn 10: Eight Families of Overseas Private Equity Funds,” “Turning Stones into Gold: PE Creating a New Era of Financial Investment,” “Crisis and Opportunity: Certain Investments in Uncertain Markets,” “Securities Broker Marketing Practices,” “Building a Marketing Management System for Securities Brokers,” “Finding Growth: Condensing Research Results to Explore Paths for Enterprise Growth,” “Practical Business of Securities Issuance and Listing Sponsorship in China,” etc. He holds extensive social positions and is deeply involved in youth innovation and entrepreneurship, the development of small and medium-sized enterprises, and alumni charity work. He serves as co-chairman of the National University Student Innovation and Entrepreneurship Alliance, co-chairman of the China Youth Innovation and Entrepreneurship Investment Alliance, vice chairman of the China Small and Medium Enterprises Association, and holds various honorary titles including vice chairman of the Nankai University Alumni Association, honorary chairman of the New York Alumni Association Council, chairman of the Nankai Beijing Alumni Association Presidium, and vice chairman of the Nankai Alumni Entrepreneurs Association. He has been awarded the honorary title of “One of the Hundred People in a Century of Nankai Economics” and has served as a standing committee member of the National Youth Federation and vice chairman of the Youth Federation of the Central and State Organs, continuously supporting youth growth, the development of small and medium-sized enterprises, and social innovation.

Table of Contents

Recommendation Preface 1

Recommendation Preface 2

Self-Preface

Foreword

Chapter 1 Chinese Miracle: An Unforeseen Leap in Chinese Style

Section 1 Defining Chinese-style Innovation—Problem-driven Systemic Innovation

Section 2 From “Hegemony” to “Equality”—Technological Inclusiveness Brought by Extreme Cost Control

Section 3 Daring to “Stand on the Shoulders of Giants”—Achieving “Leapfrogging” through Industrial Chain Collaboration and Reuse

Section 4 Refusing “Self-Indulgent” Innovation—The Large Market Provides Fault Tolerance Space for Strategic Industries

Section 5 Innate Cultural Confidence—Chinese Brands Embark on the Journey of Global Premium Expedition

Summary

Chapter 2 Industrial Resilience: The Next “China,” Still China

Section 1 Enlightenment: The Enlightenment Path of Chinese Industry (1990-2000)

Section 2 Evolution: The Refinement Path of Chinese Manufacturing (2001-2010)

Section 3 Correction: The Transformation Path of the Chinese Economy (2011-2020)

Section 4 Future: Who Will Lead the World Factory

Summary

Chapter 3 Capital Transformation: The New Ecology of the Chinese Capital Market

Section 1 The Necessity of Developing the Capital Market

Section 2 The Great Power Specificity of the Capital Market

Section 3 The Genes of the Chinese Capital Market

Section 4 Challenges Facing the Chinese Capital Market

Section 5 The Survival Rules of RMB Funds

Summary

Chapter 4 Traversing Cycles: The Historical Key to Great Power Rise and Fall

Section 1 Strategic Interaction Between Leading Countries and Rising Countries

Section 2 Known Certainties About Great Power Rise

Section 3 The Borrowing Value of Great Power Leadership

Summary

Acknowledgments