Early this southern spring, on the seventh day of the lunar new year, Guangdong's provincial Party committee and provincial government convened a province-wide high-quality development conference. "Manufacturing takes the lead" and "high-quality manufacturing development" became hot topics — underscoring just how important manufacturing is to Guangdong's economy.
China today places great weight on the real economy and on the high-quality development of manufacturing. Guangdong has been China's largest provincial economy for 34 straight years. Its manufacturing categories are comprehensive, its supply chain is complete, and it is one of the most important manufacturing clusters in the world — known as "the world's factory."
A fresh perspective, from a higher vantage point
Manufacturing is the main body of modern industry. Modern civilization is the product of industrial development and industrial civilization. Look back at the history of industrial civilization and you can see its trajectory and its rules.
During the First Industrial Revolution, globalization and scale were the main drivers. Neither Britain nor the rest of Europe produced cotton. So why could they dominate the rules of the cotton empire? Because globalization brought industrial information symmetry. When cotton traders traveled the world and saw textile technology in every country and region, they could act as synthesizers — driving textile technology forward, sometimes in revolutionary leaps.
Of course, you need scale economics to get a continuous stream of innovation. Only when the cotton economy reached market scale could the R&D costs of the flying shuttle, the spinning jenny, the water frame, the power loom, and the steam engine be amortized. That is what produced the First Industrial Revolution.
Technological invention was the driver of the Second Industrial Revolution. Its core technologies were electricity and the internal combustion engine — it was an electrification revolution, in which American inventors and German modern craftsmen played important roles. After the First Industrial Revolution, Britain built out financial, legal, insurance, and futures services on top of its cotton trade. These became the tertiary sector, and slowly drifted off the mainstream of industrial development.
The Third Industrial Revolution came from major scientific-theory breakthroughs. Before and after World War II, large numbers of scientists emigrated to the United States. American society's openness and tolerance produced the information revolution and the golden age of the American economy.
Read the history of industrial civilization this way, and the mainstream is globalization, scale economics, technological invention, scientific theory, and craftsman-driven innovation. The social and cultural backdrop is the liberation of thought brought by the Renaissance, the new social ethics brought by the Protestant Reformation, and the theoretical and technological innovation of an open society.
Trace history; find the trajectory; and only then can you move toward the future. Guangdong has to look for the rules of economic development, for the common logic, and for the factors that drive development in different eras. In the early days of reform and opening up, we "crossed the river by feeling the stones." The economy was small, and the boat was easy to turn.
Today Guangdong's economy has made a qualitative leap. Its 2022 GDP reached 12.91 trillion yuan (about $1.9 trillion) — exceeding South Korea's and placing it in the global top ten. Going forward, if Guangdong wants to continue to lead the country on scale, and to set the pace on high-quality development, it must enter the mainstream of industrial civilization — only then can it go far and steadily. Once off the mainstream, the boat may not be easy to turn back.
Against that backdrop, "manufacturing takes the lead" is Guangdong's path within Chinese-style modernization, and its mainstream of economic development. We have to think through how Guangdong, and Guangdong's manufacturing, grows inside the mainstream of industrial civilization — rather than defaulting to the habits and experiences of the past forty years.
Forty years ago at the start of reform and opening up, Guangdong was in an era of incremental development. Land and cheap labor were the main factors of production. Starting with OEM manufacturing, the economy grew on investment attraction, processing exports, and international trade. Now we are in a stock-economy era. We need new growth engines — and we need to aggregate new high-level factors to bring along and upgrade the existing industries.
In today's global economy, there are 30-plus developed countries with a combined population of 1.1 billion. When Chinese manufacturing pushes a little harder, the world's low-end capacity is in oversupply and the game turns zero-sum. For China to become a developed country, the world's economic structure has to change. China's 1.4 billion people can't just be a manufacturing force — they have to be a force that contributes new momentum to global economic development, a new global market, a new engine of global growth.
Just as Britain contributed the First Industrial Revolution and moved from "war capitalism" to "industrial capitalism"; just as Germany contributed modern dual-track education and drove German manufacturing into depth; just as the United States contributed a brilliant wave of scientific-technological invention and the information revolution — the mainstream of industrial civilization stands for more than growth. It stands for breakthrough, for bringing new increments and new certainty to human development.
Guangdong's "manufacturing takes the lead" must have a fresh perspective from a higher vantage point — a new global perspective and a new productive force — not merely an upgrade within the existing global industrial division of labor.
Guangdong's "manufacturing takes the lead" should have three layers: to represent Chinese manufacturing's exploration of a new economy, to provide advanced productive forces, and to build new game rules and ecosystem institutions. Rao Zhan, an expert at the Guangdong Manufacturing Innovation Center, puts it as new economy and new ecosystem, advanced productive forces, and industrial-ecosystem institutional design.
Interpretive power and the future
Interpreting the economy is not about looking at the past. It is about earning the future. In The Reconstruction of Chinese Knowledge, Zheng Yongnian writes that Western intellectuals' power comes from their ability to interpret reality. Britain's contribution to the world was not only the advanced productive forces it provided in its time, but also the interpretive power behind them — producing classical economists like Adam Smith and David Ricardo. In the course of American economic development, a strong roster of economists emerged in parallel.
Economic development and the power to interpret the world reinforce each other. Only by interpreting the world can one earn the right to remake it.
One crucial part of "manufacturing takes the lead" is how we earn the right to interpret manufacturing's development. Neither "manufacturing takes the lead" nor "mainstream of industrial civilization" is a slogan, and neither is just an economic policy. We have to find the living source, trace the roots, and only when starting from source and root will we stay on the main channel. China's economic development, and Guangdong's manufacturing development, has to find its historical logic and rules, and — by interpreting micro-level phenomena — find meso-level development space.
Micro observation and meso research matter because they build new understanding on the basis of fact, distill a set of judgments, connect points into lines and lines into surfaces, and weigh the internal systemic relations and developing contradictions among macro, meso, and micro — ultimately forming a new whole-view understanding of industry and producing new forms and models of industrial development.
In years past, equity-research analysts from multinational investment banks regularly came to Guangzhou to talk with me. Since late last year, when pandemic controls were lifted, a number of global economists have come too. After a few conversations, many feel the social variables in China are now so large that Western analytical frameworks can't explain Chinese economic phenomena.
Innovation from folk-level economic forces is an important source of vitality and momentum for China's economy. "Grassroots innovation" always looks for opportunity in the fine grain and the small shifts of economic development, triggering changes in existing structures and creating new business models. Guangdong's "grassroots innovation" is exactly the fertile soil for this kind of economic observation. We may not yet be able to build fully new economic theory, but we can keep catching clues to the future through the glimpses we do get.
For instance: through the SHEIN model, I found that Guangdong manufacturing has a major opportunity for industrial verticalization. A large number of very traditional apparel firms, under SHEIN's organization and collaboration, turned into digital enterprises, AI-design enterprises, and modern supply-chain enterprises. Founded just 13 years ago, SHEIN has triggered a structural shift in the industry and a shift in global business models. The global fast-fashion retailer ZARA was founded in 1975.
I also recently studied Gaodesi Precision Technology in Shantou. A plastic-brick OEM is using specialization to raise the production efficiency of its industrial cluster — large-scale production under specialized division of labor — and change the business form of a traditional industrial cluster.
Based on observation, Rao Zhan argues that the way new business forms arise is by rebuilding the industry model and finding the business model first — centered on growth and innovation — and then adding technology and supporting services.
Manufacturing and the digital economy
Many institutions have come to the Guangdong SME Development Promotion Association (the Association) asking for help with investment attraction. My view: the great era of investment-attraction-as-usual is behind us. It is hard to do incremental development in a stock-economy era. The positive meaning of government attention to investment attraction is that it signals a push for growth.
In a stock-economy era, if everyone does investment attraction, then investment attraction itself turns cutthroat. So you can't do it the old way. You have to use stock to bring in increment, or bring in high-level factors that drive industrial consolidation and upgrading. Zhongke Kechuang recently helped Foshan bring in two internet projects — using industrial internet platform-type companies to consolidate existing traditional industries. "Digital" played an important role.
Digitalization and the digital economy are not the same thing. Digitalization in its early phase is mostly about management digitalization and business digitalization. The future of Guangdong manufacturing's digitalization is industrial digitalization. Management digitalization still sits within the category of industrialization. Industrial digitalization is in the category of the digital economy — it has begun to change the business forms and shape new business models.
Lifting industrial efficiency substantially to change existing business forms, development models, and structures — that is the real high-quality development of manufacturing, and that is the real competitiveness of Guangdong and of China.
Zhongke Kechuang's leader told me the digital economy is China's destiny. He said that without the digital economy, much of Guangdong's manufacturing could become obsolete capacity and lose international competitiveness. With the digital economy, they become much more efficient and get activated as "branches and leaves" of new business forms.
Rao Zhan, also a digital-economy expert, argues that digital-economy enterprises are fought out in the market, outlined by entrepreneurs through business scenarios, and reached through market resource allocation. Government's role is to back them — to guide the industry, sort out relationships, and handle logistics. Associations and investment institutions do cross-region resource allocation and bring in key factors.
The digital economy is the mainstream of Guangdong's industrial-civilization development — it may also be Chinese manufacturing's new contribution to human civilization.
We shouldn't take the digital economy to be just about "competing on economy" or "developing economy." That reading confines it to the category of industrialization. If we really understand what the digital economy means for "manufacturing takes the lead," we may be looking at shaping a new global industrial order and a new order of globalization. That is the proper reading of "manufacturing takes the lead."
In the whole world, only China — and within China, only Guangdong manufacturing — has a deep understanding of consumer internet and rich manufacturing scenarios at the same time. If we cannot grasp the meaning, the competitiveness, and the discourse power within that, and if we keep defining the digital economy through the old manufacturing mindset and the old mindset of global industrial division of labor, Guangdong manufacturing may lose the moment, and Chinese manufacturing may miss a full rise.
We have to interpret the digital-economy world carefully, build manufacturing competitiveness grounded in digital-economy development, earn discourse power over that development, and drive the digital economy toward a broader, society-wide and humanity-wide digitized world.
Cultural meaning and spiritual leadership
Guangdong's economy is, at root, a grassroots economy and a market economy. Only when market forces lead can society-wide innovation and vitality be unlocked, and entrepreneurial innovation activated. "Manufacturing takes the lead" should let entrepreneurs lead, let the entrepreneurial spirit lead, let innovation lead, let market economy lead.
In the sixteenth century, Martin Luther's Reformation unlocked the moral drive and spiritual leadership of commercial activity, and returned the power to rationally interpret commerce to society itself. Once the grip of theology was gone, the pursuit of knowledge in the secular world became possible. In The Protestant Ethic and the Spirit of Capitalism, Max Weber interprets how modern Western capitalism arose and what it is, and the relationship between social ethics and economic behavior — affirming that spiritual and cultural factors are major drivers of economic and social development.
As we develop a socialist market economy with Chinese characteristics and develop Chinese manufacturing, if we have not built a commercial ethics that belongs to our own discourse system, we risk either reading Chinese economic behavior through Western ethics and values, or weighing the role of commerce using the values of China's agrarian civilization.
"Manufacturing takes the lead" has to expand the cultural meaning of China's new era. It has to explain how entrepreneurs and craftsmen play their part in a modern commercial society and socialist market economy, how their innovative spirit is given room, and how the spiritual and cultural layers work on China's economic development.
Without the Reformation's interpretation of commercial behavior, any Western merchant activity would have been sinful. Without a modern interpretation of commercial behavior, Chinese merchants are still in the "scholar, farmer, artisan, merchant" social hierarchy — and there is still value prejudice against entrepreneurs. So: how the entrepreneurial and innovative spirit contributes to developing the economy and advancing society is an important question.
"Manufacturing takes the lead" must affirm the place of entrepreneurs and craftsmen in modern commercial society and release their moral drive and spiritual leadership.
Read in step with Confucian ethics, the "scholar" class of today's commercial society should include the entrepreneur class. Any entrepreneur with the ideal and moral sense of serving the country through industry and serving society is a "scholar" — a "social elite" who cultivates the self, manages the family, governs the state, and brings peace to all. The Chinese entrepreneur's worldview is not a China-under-Heaven view, but a World-under-Heaven view — a community of shared destiny for humankind.
Without the material base of manufacturing, there is no foundation for China's modernization. Without modern social ideals and values, there is no cultural root for Chinese-style modernization.
Looked at another way, modernization is first the modernization of people's ideas, and only then the modernization of material conditions. "Manufacturing takes the lead" should, within the context of building "Chinese-style modernization," develop new meaning for modern social and cultural building. Modern commercial ethics should embody the entrepreneurial spirit, the craftsman's spirit, and the industrial spirit of scientific rationality and the pursuit of perfection.
"Manufacturing takes the lead" is about protecting the innovative drive of entrepreneurs and strengthening their social responsibility. Protecting that drive means policy continuity, social stability, and market certainty.
The craftsman's spirit is a broad concept — a civic quality and character of modern industrial society. From the craftsman's spirit in manufacturing to a society-wide pursuit of meticulous care and the perfection of craft — it should become part of the spiritual meaning and value orientation of a modern society. Work is honorable, and deserves respect.
Manufacturing and industry are the real support of the modern national economy. An industrial economy is an important organizational support for modern society. Industrial civilization is the base of modern human civilization. "Manufacturing takes the lead" also means extending the culture and values of manufacturing into the rest of society — so that society forms a shared value orientation that takes the real economy seriously and sticks with long-termism.
"Manufacturing takes the lead" is a value proposition. It is the building of a new Chinese commercial civilization grounded in Chinese-style modernization. It is the soft power of Chinese manufacturing. It is a new exploration in China's modernization.
Originally published: Economic Observer · Microscope · 2023-02-17 · 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.