An industry insight from a noteworthy investor

In early 2025, DeepSeek suddenly surged to the top, opening the curtain for a renewed reexamination of China’s narratives and China’s values. This year also marked the completion of “Made in China 2025.” China has all industrial categories within the United Nations Industrial Classification, including 41 major industrial categories, 207 medium categories, and 666 minor categories. In the past, the common saying was that China’s output of 220 major industrial products ranks first in the world. The latest view from the Ministry of Industry and Information Technology is that among 504 major industrial products, most of China’s product outputs rank first in the world.

In addition, more than 570 industrial enterprises in China have made the Global R&D Top 2500 list, and in 2024, 64 manufacturing companies were selected for the Fortune Global 500. In total, there were 273,900 international patent applications in 2024, with China filing 70160 applications—about one quarter of the total.

These data show that China’s human capital has shifted from the labor cost dividend to the engineers’ dividend, and further leaped to the scientists’ dividend. With such an upgrade in human capital, and with manufacturing as the carrier, the evolution of knowledge and capabilities in China has begun to enter a compounding effect.

In January 2025, data from the Ministry of Industry and Information Technology showed that China has 512,000 industrial enterprises above designated size, including more than 140,000 specialized, sophisticated, distinctive, and innovative (SME) enterprises; 14,600 “little giants” enterprises; 1,557 manufacturing single champions; and a number of leading enterprises and “chain leaders.” This is the backbone of industrial upgrading and evolution in China, and also the confidence that enables China to stand firm through all the storms of globalization.

The innovative development of China’s industries is closely linked to reform and innovation in the capital markets. On June 13, 2019, the Sci-Tech Innovation Board (STAR Market) on the Shanghai Stock Exchange officially opened. As of June 13, 2025, the number of listed companies on the STAR Market reached 588. Companies in emerging industries such as the new generation of information technology, biopharmaceuticals, and high-end equipment manufacturing account for more than 80%, making the STAR Market the vanguard for high-level scientific and technological self-reliance and self-strengthening in the capital markets, as well as for the development of new-quality productive forces.

At the same time, the STAR Market is also a “test field” for institutional reform in the capital markets and the starting point of the registration-based system reform. Six years after the STAR Market officially opened, benefiting from diversified and inclusive issuance and listing conditions, the STAR Market has a total of 54 unprofitable companies, 8 companies with special shareholding structures, 7 red-chip companies, 20 companies listed under the fifth set of standards, and 1 company that listed after transferring boards. This shows that diversified and inclusive issuance and listing conditions provide support for innovation-driven development that did not exist in the past.

What’s exciting is that many STAR Market companies are targeting the upstream of the value chain, redefining the international competition’s pricing power and discourse power with technological innovation’s “hard power.” For example, in global BD (business development) transactions for innovative drugs, STAR Market innovative drug companies play an important role.

In my view, over the past decade or so, China has in fact achieved a huge industrial upgrade—not the progress of a few enterprises or a few industries making breakthroughs on their own, but a comprehensive, systematic, mutually reinforcing overall upgrade.

For China’s industrial upgrading and innovative evolution, many well-informed people abroad have already formed deep insights—completely different from their understanding of China’s manufacturing from several years ago.

Apple CEO Tim Cook has repeatedly said that China’s manufacturing advantage is not low cost, but people—“skill density.” China has a sufficiently large number of skilled vocational and technical personnel, forming an interaction between craftsmanship skills, precision robotics, and the world of computers.

Google’s former CEO Eric Schmidt said that China will ultimately win the “epic battle” in the field of artificial intelligence—because it can apply AI technology faster in mass production.

A 2025 issue of the U.S. journal Foreign Affairs published an article titled “The Realistic Chinese Model,” stating that China has built an innovation ecosystem centered on strong power and digital networks. Factory managers, engineers, and workers in China have accumulated decades of process know-how—hands-on experience gained through practice—understanding how to manufacture products and how to improve them.

In a World Economic Forum article titled “Can ‘Made in China 2.0’ Become the Future of Global Manufacturing?”, it proposed that China’s innovation system is an ecosystem of overlapping interweaving and mutual nourishment. Progress in one area (such as lithium batteries) creates spillover effects for other areas (such as electric vehicles, consumer electronics, and energy storage systems). Behind this ecosystem is something more fundamental: the accumulation and deepening of “process knowledge.”

This article particularly emphasizes the role of artificial intelligence, arguing that the deep integration of AI with manufacturing strengthens feedback loops between software and hardware—design, engineering, and production all take place within a tightly clustered industrial ecosystem. New tools can be tested and improved on-site in days rather than months. This synergy and short-cycle innovation make it possible for China to “successfully embed AI into industrial operating systems.”

With more skill density, process know-how, and process knowledge, and with the deep integration of AI and manufacturing, China’s manufacturing learning curve is accelerating continuously, thereby enabling faster product iterations and innovation cycles. This is the true key to China’s shift from manufacturing to intelligent manufacturing today.

As a well-known investor with deep thinking and research foundations, Mr. Sheng Xitai’s book, Industry, Capital, and Cycles, is rooted in on-the-ground industrial research and investment practice in China. It presents vivid yet profound insights and perspectives. After reading it, I resonated strongly and found it enlightening.

For example, the author argues that “Chinese-style innovation” is a system-level innovation driven by problems: scientific and technological benefits for the broader public brought about by extreme cost control; “overtaking on the curve” achieved through coordination and reuse across the industrial supply chain; and that China’s supply-chain coordination and reuse capabilities, at their core, are the concentrated explosion of modular capabilities. The formation of these modular capabilities, in turn, comes from China’s unique development path in manufacturing—China’s huge domestic demand market forces companies to enhance flexible production capabilities, while the positioning of the “world factory” drives the supply chain to continuously refine its division of labor. When the two come together, it creates industrial resilience that can respond to change without being changed. No matter what form emerging industries take, China’s manufacturing industry can always rapidly decompose their technology needs and draw on existing modules to enable combined innovations.

I deeply agree with such insights. Back then, in research on DJI Innovation, once overseas competitors had dismantled DJI’s drones, they found that with the same functions, if they were to build them themselves, the cost would be doubled. In DJI’s products, 80% of the components are standard parts. Behind that is the complete supply chain and supporting ecosystem of “Shenzhen Huaqiangbei + the Pearl River Delta industrial belt” in consumer electronics components, precision accessories, and more, giving it extremely strong cost competitiveness.

Recently, Morgan Stanley, in its research on China’s innovative company XPeng, pointed out that XPeng’s autonomous driving (AD) and robotics R&D teams have very strong synergy, with 70% of R&D work able to share resources. At the same time, there is a great deal of overlap at the hardware level between autonomous driving and robotics businesses (such as Turing AI chips, camera sensors, domain controllers, and so on). Finally, XPeng’s industrial-side applications are all run based on the same underlying model, enabling multidimensional data interconnectivity. This not only strengthens XPeng’s network effects, but also accelerates data collection and machine-learning progress.

These cases fully demonstrate that as China’s industries have evolved step by step to where they are today, its innovation capabilities have already been in the world’s front ranks. The internal experience and underlying rules are worth deeply exploring and summarizing. I believe the value of Mr. Sheng Xitai’s book lies precisely in this: it is a work of positive energy that builds strong confidence, and even more so, it is a sincere work grounded in facts, with valuable logic and professional depth—worth reading for people in China’s industrial and investment communities. I believe it will definitely be beneficial to open the book.