Seven years ago, I invited Sun Yonghui, founder of Guangzhou Shiyuan Electronic Technology Co., Ltd. (CVTE), to join the Guangdong SME Development Promotion Association. Sun Yonghui asked what services the company could enjoy by joining. I replied: CVTE was once a small and medium-sized enterprise, and today it has grown into a large one; doesn't it have an obligation to help more SMEs develop? Sun Yonghui said in response that CVTE would always be a small and medium-sized enterprise — it would always maintain the vitality of an SME, never let any ounce of big-company disease take hold, and would also have an obligation to promote SME development.
To that end, CVTE not only joined the Association but voluntarily contributed its premises, hosting member enterprises of the Association for visits and study sessions free of charge, even providing meals. CVTE's employee cafeteria is the most lavish I have ever seen: breakfast, lunch, and dinner are all free, open to employees and their families. The company has also established a kindergarten and an employee health-screening center, with the screening center open free of charge to family members as well. "Care for one's own elders and extend that to others' elders; care for one's own children and extend that to others' children." Sun Yonghui says an enterprise is not merely a profit-making institution — it should also be a cell of society, carrying out certain social functions.
But a recent notice BYD sent to its suppliers prompted me to reflect on manufacturing development and corporate social responsibility. The gist of BYD's notice was this: November 18, 2024 marked the thirtieth anniversary of BYD's founding, and BYD Auto has become the first automaker globally to reach 10 million new-energy vehicles off the line. This is a milestone for BYD and for the Chinese automotive industry, signaling China's transition from an automotive giant to an automotive power. To reinforce the competitiveness of its passenger vehicles, BYD required its entire supply chain to cut prices by 10% starting January 1, 2025.
In my view, BYD is an excellent company, but this notice reveals that it still has a considerable distance to go before it becomes an outstanding one. It also reveals how far Chinese large enterprises lag behind international peers in values and social responsibility.
An Automotive Power and an Industrial Power
The automotive industry is the foundation of a country's modern industrial base. The world's advanced industrialized nations are essentially also nations with strong automotive industries. Germany, for instance, is a case in point: the national economy is up to 70% reliant on the automotive sector, and automobiles have become the basis of the country's industrialization.
The traditional automotive industry encompasses vehicle-parts manufacturing — engines, transmissions, suspension systems, braking systems, bodies, interiors; automotive materials — steel, aluminum alloys, plastics, rubber, glass; automotive electronics — various devices including navigation systems, audio systems, in-vehicle telematics, and vehicle-control systems; automotive tooling — the design and production of dies for parts, including stamping and injection molds; and automotive coatings, testing equipment, and many other industrial segments.
By developing the automotive industry and driving national industrialization, the body of industrial know-how, innovation, and management knowledge accumulated in the sector can readily be transferred to many other industries, advancing a country's industrialization process.
In the 1990s, Malaysia and Thailand in Asia set themselves the goal of "building the nation through automobiles." Looking across the industrialized developed nations after World War II, nearly all are also major automobile-producing countries. The automotive industry is the leading signifier of a modern industrial nation.
At the end of the last century, China exchanged market access for technology at considerable cost, bringing in numerous foreign auto brands, but it never managed to break into core supply chains or acquire core technologies. The end result was an automotive sector that was large but not strong.
Today, the rapid development of China's automotive industry rests on the rise of new-energy vehicles, bypassing the technological thresholds of the traditional internal-combustion engine and transmission to "overtake on the curve." In truth, China's new-energy vehicle development still benefits from the industrial base built up through reform and opening up and the global industrial relocation that followed.
According to the standard script of industrialization, an industrial system develops fully by drawing nutrients from the automotive industry. China took a different path from the world's industrialized nations and large automotive powers. China's automotive industry grew up by drawing nutrients from China's industrialization. China's industrial system is not one where strong automobiles produced a strong industrial base; it is one where a strong industrial base produced strong automobiles. Of course, the two have also reinforced each other. China's automotive industry needs a clear-eyed view of its role, contribution, and place within the broader Chinese manufacturing system.
High-Quality Development in the Automotive Industry
Looking at the notice above, one can see that BYD has a serious misunderstanding of what "high-quality development" means — substituting quantity for quality. That is the opposite of the high-quality development the nation advocates.
High-quality development means that China's economy has moved from a phase of high-speed growth to a phase of high-quality growth — from a development driven simply by quantity and speed to one with quality and efficiency as the first objectives. The basic requirements of high-quality development are low input of production factors, high efficiency in resource allocation, low resource and environmental costs, and strong economic and social returns.
In essence, BYD's achievement of surpassing 10 million new-energy vehicles is commendable, but we must still have a clear-eyed view of the problems the Chinese new-energy vehicle industry currently faces.
First, the Chinese automotive industry has not played a leading role for Chinese industry more broadly. Its pull on the overall industrial system is weak, and in particular the industrial spillovers of automotive technology are not as strong as in countries with advanced traditional automotive industries.
Second, the Chinese automotive industry's margins are generally thin. In 2023, BYD's total sales were about 3 million vehicles, while Toyota's exceeded 10 million, placing BYD roughly eighth globally in vehicle sales. On the profit side, the profit attributable to Toyota's parent company reached $34.197 billion, while BYD's was about 30 billion yuan. BYD's global profit ranking was around fifteenth.
Third, the spillover effect of the automotive industry's management capabilities onto the industrial system is not obvious. Germany's automotive system contributed the "dual training" education system as it developed. Ford contributed line production and the quality-management system. Japan's Toyota contributed Toyota lean manufacturing. Tesla carved out a new track for new-energy vehicle development. What has China's automotive industry contributed to the management of China's industrial system?
BYD is a leader in China's new-energy vehicle industry. The Chinese automotive industry has also achieved steadily better results on the new-energy track. Achievements deserve recognition, but the problems also demand a clear-eyed view. True leadership is not modeled on imitation — it sets the example.
The Value of the Supply Chain
Recently, I read Supply Chain Attack and Defense, a book by industry expert Lin Xueping. Supply chains bear on national and industrial competitiveness, and their importance goes without saying.
Chinese large enterprises clearly underappreciate the importance of manufacturing supply chains. Chinese large companies need to understand this: if a firm's competitiveness is built on squeezing supply-chain enterprises, that is certainly not a path of sustainable development — and at minimum it does not meet the requirements of high-quality industrial development.
The relationship between a large enterprise and its supply-chain enterprises is by nature a community of shared destiny. The large enterprise should empower the supply chain — not just with orders, but also with management and technology-roadmap planning. Experts note that Tesla understands manufacturing better than its suppliers; Musk is a master of cost reduction, and Tesla has contributed its own technical research to the industry.
Look by contrast at the leading Chinese companies. They seem to have only one demand on supply-chain enterprises: price cuts, price cuts, more price cuts — together with endless delays in paying accounts receivable. The national regulation is one month; many large enterprises take nine months, a year, or even longer. The supply-chain financing profits of one Chinese home-appliance leader in a given year exceeded its manufacturing profits.
In Supply Chain Attack and Defense, Lin Xueping notes that the iPhone's manufacture in China spurred the development of a large group of precision equipment and materials suppliers. If Apple decided to relocate to India, this capacity might be permanently lost, and nearby equipment makers might follow suit and move to India. He writes with unmistakable concern: "For China, if connective capacity is weakened, the grade of the supply chain will deteriorate, which will then impede the climb of Chinese manufacturing up the value chain. Protecting the connective capacity of the supply chain is an urgent task for the relevant industries."
The existence of an outstanding chain-leading enterprise is a blessing for a country's industry. Guangzhou-based SHEIN has brought its supply-chain enterprises not only orders but also digital transformation, substantially raising their management and manufacturing capabilities.
In my view, even if it must enhance its competitiveness through cost reduction, BYD should have a methodology, and should set up a department to guide cost reduction across supply-chain enterprises in a differentiated way. Through the service practice of the Guangdong SME Development Promotion Association, we have found that Chinese manufacturing still has considerable room for cost reduction — but it needs concrete methodological guidance. That is precisely where large enterprises can play a constructive role, rather than simply and crudely demand 10% cuts. If there is no room to cut and the cut is still forced through, is quality being sacrificed? If there is still 30% room to cut, isn't a 10% demand leaving too much on the table?
The supply chain is a community of shared destiny bound to a large enterprise's own interests, and it is a core component of market competitiveness. But it operates on value, not price.
Corporate Social Responsibility
When we speak of corporate responsibility, we often mention CSR — Corporate Social Responsibility — which requires an enterprise, while creating profit and bearing legal responsibility to shareholders and employees, also to bear responsibility to consumers, the community, and the environment. Corporate social responsibility demands going beyond the traditional view that profit is the sole objective, emphasizing attention to human value in the course of production, and contribution to the environment, consumers, and society.
Over the course of modern commercial development, the responsibilities of enterprises have iterated alongside advances in productivity and social progress.
Classical economics held that society can best determine its needs through markets; if an enterprise uses resources as efficiently as possible to provide the goods and services society needs, sold at prices consumers are willing to pay, the enterprise has discharged its social responsibility.
In the early 19th century, two industrial revolutions brought leaps in social productivity, and the scale and competitiveness of enterprises reached unprecedented levels. Influenced by social Darwinism, enterprises emphasized survival-of-the-fittest free competition rather than the bearing of social responsibility. Large enterprises squeezed closely connected suppliers and employees to the maximum in order to maintain competitiveness.
In the mid-to-late 19th century, as enterprise systems matured and labor's demands to safeguard its own rights rose, antitrust and consumer-protection ideas and laws arose alongside them. Taken together, this placed new demands on the social responsibility of large enterprises, and the concept of corporate social responsibility gradually took shape.
In the 1980s, the corporate social responsibility movement began to rise in Western developed countries, covering environmental protection, labor, and human rights. Society's attention to enterprises also extended from product quality to a broader field: the environment, occupational health, and labor protection.
In February 2002, at the World Economic Forum in New York, 36 chief executives called on companies to fulfill social responsibility, on the theoretical ground that corporate social responsibility "is not a luxury" but an essential part of core business operations. In 2002, the United Nations formally launched the UN Global Compact, which includes nine principles calling on enterprises to respect those principles in their treatment of employees and suppliers.
On August 19, 2017, 181 chief executives of top US companies, meeting in Washington at the Business Roundtable, jointly signed the Statement on the Purpose of a Corporation. The statement redefined the purpose of corporate operation and declared that shareholder interests are no longer the most important objective of a company; the company's primary task is to create a better society.
The statement laid out several key objectives. First, delivering value to customers — companies need to attend to customer needs and provide high-quality products and services to meet customer expectations. Second, investing in employees — companies should invest in employees by hiring diverse groups and providing fair treatment, and by attending to their growth and development in a positive work environment. Third, dealing fairly and ethically with suppliers — companies should build supply-chain relationships based on integrity, transact fairly and reasonably with suppliers, and jointly advance sustainable industry development. Fourth, supporting the communities in which companies work — companies should be active in philanthropy, giving back to society and contributing to social prosperity and progress. Fifth, generating long-term value for shareholders — companies should attend to environmental protection and sustainability, take proactive steps to reduce environmental impact, and create long-term value for shareholders.
The statement was not only a challenge to and reflection on the traditional view of commerce, but also a guide to, and an expectation of, the future of business. It encourages enterprises not to pursue only economic returns but to bear social responsibility, contributing their strength toward a better society.
In my view, corporate social responsibility is not an agreement imposed from outside but a self-commitment — it should be the expression of an enterprise's values.
Ideas and Culture
Over the past few hundred years, commerce has undeniably been a major driver of human progress. Whether commercial demand has driven productivity or productivity has driven commerce forward, the two reinforce each other.
At the same time, humanity's original aspirations have also pulled society onward. East and West, philosophers pursue human wisdom, morality, and social harmony, guiding people through different paths and methods to know the true self, pursue truth and wisdom, and realize harmony and happiness for the individual and society.
Without that original aspiration, humanity falls into a mire of rampant material desires and cannot pull itself out. With it come ideals and aspirations, and only then can entrepreneurs persist unwaveringly. Paths and methods may differ, but I believe that only when original aspirations and goals align can business and humanity share a common future.
The management scholar Peter Drucker likened the enterprise to an organ of society, emphasizing the inescapable obligation of enterprises to bear social responsibility, and stressing that "do no harm" is the moral bottom line an enterprise must hold. An enterprise cannot knowingly carry on business that harms society.
Drucker held that in order for an enterprise to do good and also make money, it must produce innovation based on solving social problems and defusing social tensions. In the process of innovation, an enterprise can turn the harmful effects it creates, or the problems already present in society, into opportunities beneficial to itself. Such innovation is what Drucker called social innovation.
China has only a few decades of modern commercial practice since reform and opening up. The pace of commercial iteration rivals the pace of China's economic development — but the accompanying commercial civilization is uneven, a mix of the very good and the very bad.
Current economic challenges give more enterprises reason to reflect calmly on the future. Difficulties are not there to be solved — they are there to be surpassed. Excellent entrepreneurs solve problems; outstanding entrepreneurs surpass themselves. Both require innovation, and innovative thinking is not inheritance but creation grounded in first-principles thinking.
Lin Xueping says Huawei is an excellent company. After the US cut off supply, another kind of value in Huawei began to emerge: it has powerful supply-chain organizing capabilities and can replicate a supply chain from scratch. Huawei's Hubble Investment began targeted investments in every corner of the supply chain: third-generation semiconductor materials such as silicon carbide, analog chips, sensors, memory chips, power semiconductors, software design tools, and more. These outstanding "little giants" target, one by one, the nodes that had been constrained, and push their way through.
One Huawei executive said that big data did its work: they completely disassembled and analyzed the supply chain in a month in order to avoid violating US-law restrictions. According to Lin Xueping, Huawei spent four years completing substitute development for more than 13,000 components and repeated board-redesign development for more than 4,000 circuit boards.
I have also met many "backup" suppliers to Huawei. They say Huawei's help to them lies not only in R&D direction but also in building data-analysis capability, which is enormously valuable to the enterprise. Once a supplier has R&D data, it can analyze problems, and with that data foundation it can respond to Huawei's R&D more quickly.
Many suppliers say that after being "promoted to regular" with Huawei, they have gained a new capability: based on their R&D database, they can provide technical solutions to customers other than Huawei, and the experience gained in other industries further enriches that database, improving their service to Huawei in turn.
Merchants have a profit-seeking side, but with advances in productivity and society, commercial ethics have also evolved. The Reformation in the West, for example, enormously advanced the commercial logic of capitalism. For much of the reform and opening-up era, modern Chinese business was deeply shaped by American management thought. Ren Zhengfei himself has acknowledged the profound influence of the US — and of the West more broadly — on Huawei and on himself.
Ren Zhengfei gave most of his shares to employees and retained only 0.58% for himself. Yu Donglai gives 95% of profits to employees. Sun Yonghui also distributed most of his shares to his founding team, and his own holding is not the largest in the firm. On how to treat wealth and society, Chinese entrepreneurs have begun to form their own value judgments. And the values of traditional Chinese culture have been at work behind this.
Chinese entrepreneurs are deeply shaped by the spirit of the Chinese shi (scholar-gentleman): "The gentleman cannot but be broad-minded and resolute, for his burden is heavy and his road is long. To take benevolence as one's own burden — is that not heavy? Only to stop at death — is that not long?" China's outstanding entrepreneurs tend to carry a sense of mission toward the nation and history.
Breaking the problem that Chinese manufacturing is large but not strong — the decisive point may lie not in manufacturing capability or innovation capability, but in ideas and culture. We must understand the role of the enterprise in society from a broader vantage point. If the value of an enterprise consists only in creating wealth, it cannot win society's respect. That is why the traditional Chinese merchant, and the historical Jewish merchant, did not receive respect.
Only when merchants advance economic and social development through innovation — solving social problems and turning problems into opportunities — do they begin to grow into entrepreneurs. Entrepreneurs must examine their enterprises from the vantage of history and the future to stand any chance of breaking through historical limits and weathering cycles. The ultimate mission of the entrepreneur is to benefit society and to benefit all humanity.
China must build its own modern industrial civilization. Beyond the oft-emphasized virtues — scientific rationality, meticulousness, relentless pursuit of perfection, reasonable pursuit of profit — Chinese enterprises must also emphasize equality with their partners and the spirit of contract.
I am so "demanding" of firms like BYD today because the future of Chinese commerce requires its large enterprises to lead. Just as the development of world commercial civilization was inseparable from the push of its commercial leaders, the shaping of China's new commercial civilization needs the strength of companies like Huawei, BYD, and SHEIN. Only when China can represent the direction of this new commercial civilization can Chinese enterprises earn the world's respect, and only then will China be entitled to speak of cultural confidence.
The existence of large enterprises is about responsibility, not extraction. That belongs to the cultural outlook of a modernizing country, and it should be the starting point of awareness for any modern enterprise.
Originally published: Economic Observer · Microscope · 2024-12-14 · Read original →
Originally published in the "Economic Observer · The Walker’s View" column. The author is Executive President of the Guangdong SME Development Promotion Association. For reprints or citations, please contact the author or the Association Secretariat.