Transformation and Upgradation in Chinese Manufacturing Industry

Chinese Manufacturing transformation and upgradation – Manufacturing is defined as the processing of raw materials obtained from the earth for the production of new, innovative, and useful products. Organizing and modernizing the manufacturing industries in a country promotes economic growth, eradicates unemployment and poverty, introduces advanced technologies and innovative products, and brings a lot of foreign exchange by exporting the local manufactured goods.

World’s most developed economies today have stabilized their industrial networks to encourage goods production at national level. In this way, these countries are generating large revenues every year by selling their products worldwide. According to Engels, industrial revolutions transform the living conditions of the community and lead to innovation. The modern technology and current progress in China is the essence of transformation and upgradation of its industries, which have captured the attention of industrialists across the world to make heavy investments in China’s manufacturing sector.

Since its appearance on the world map in 1949, China has been on the way of continuous progress and development. World Economic Forum report states that China is the world’s largest manufacturing economy today and considered to be the most competitive country with highly skilled and hardworking people (CEO Policy). Besides delivering low-cost labour and materials, China has now acquired a number of advanced drivers, such as infrastructure, favorable prices, and a well-established consumer-based supplier network (CEO Policy).

With the successful implementation of five-year plans, China has achieved most of the targets set by its financial representatives, but at the same time, many executives believe that the Chinese economic growth momentum has been weakened, and there is an ultimate need to spur a new round of progressive evolution (CEO Policy).

A recent report by United Nations Industrial Development Organization has provided some astonishing statistical figures on China’s industrial development (UNIDO). According to this report, China had manufacturing value added (MVA) share of more than 30% in comparison to that of developing countries, whose average share was around 11-14% (UNIDO).

The report also claims that in manufacturing employment, China had a share of 18-19%, while that of developing economies was 11-12%. China’s industrialization can be compared with collective industrialization of all the African countries due to China’s greater population (UNIDO). These figures show that with current progress, China will soon surpass the U.S. economy, which is currently the biggest economy in the world.

Chinese Manufacturing and Industrial Transformation and Upgrade Plan (2011-2015)

In 2011, the Chinese State Council released China’s Industrial Transformation and Upgrade Plan for the year 2011-2015 (Analysis on China’s Industrial Transformation). The plan proposed 8% annual increase in China’s total industrial added value, concentrating on emerging industries of strategic importance with a share of 15% (Analysis on China’s Industrial Transformation).

Moreover, the energy and water consumption per unit of industrial added value was to be reduced this by 21% and 30% respectively, while the carbon dioxide discharge was planned to decrease by over 21% (Analysis on China’s Industrial Transformation). The transformation plan had the following six transformational goals:

• To transform the development mode to improve quality and profit margins;
• To transform the development by innovating systems and processes;
• To emphasize the proper utilization of available resources in order to ensure safety;
• To decrease the percentage of carbon emissions;
• To transform the current manufacturing models into digital, computerized, intelligent, and service technologies;
• Proper adjustment of industrial designs to enhance working efficiency and employees’ coordination;
• To change the macro-control practices on the basis of market force.

China Development Bank Industry Transformation and Upgrade Plan

In 2015, the China Development Bank (CDB) announced its industry transformation and upgradation plan, which was aimed to promote the “Made in China 2025” strategy and strengthen risk prevention and control as well as to boost the industrial development in China for successful implementation of the 12^th Five-Year Plan (Industry Transformation). The key steps of the CDB plan are given below:

• To introduce a diversified mechanism of foreign investment and provide loans to the manufacturing sector for industrial upgradation and technological transformation;
• To provide financial support to key innovation strategies by particularly concentrating on high-tech industries;
• To prioritize the large enterprises that are the backbone of economy in terms of support for research & development and systematic upgradation;
• To endorse the “One Belt and One Road” plan by enhancing production capacity and providing loans for overseas megaprojects;
• To upgrade the internal structure in industries and increase the regional coordination in China;
• To ensure all the theoretical and practical assistance for innovative projects for the development of manufacturing industries and economic growth.

Open Up Policies and Foreign Direct Investment (FDI)

FDI is the investment made by foreign investors after analyzing the economical atmosphere in a particular country. This investment not only introduces the latest technologies but also provides various employment opportunities. China introduced its ‘open-up’ policies in 1979 so that more and more FDIs are brought to China.

The results of adopting these policies were exceptional as the FDI in China increased from US$ 1.23 billion in 1986 to US$92.40 billion in 2008 (Liu and Daly). In terms of aggregate FDI, China became the largest destination of FDI inflow among the developing nations and the second largest in the world following the United States (Liu and Daly).

The investor-friendly policies of China forced the investors from foreign countries to invest comparatively more in the manufacturing sector rather than the Agriculture and Service sectors (Liu and Daly). Consequently, more than 60 percent of total utilized FDI inflow was made in establishing manufacturing industries between 1997 and 2008 (Liu and Daly).

The most common reasons for large foreign investments in manufacturing were cheap labor and the relative low cost of materials in China (Liu and Daly). The increased FDI has enabled China to possess high technology, particularly in chemical, automotive, electronics, and petroleum industries.

China’s Five-Year Plans

Five-year plans are based on strategic planning for achieving specific goals and financial targets. A competitive advantage of FYPs is that they provide a clear direction to the financial experts and governments for their economical position in the future. So far, China has introduced 13 FYPs; the last one was published in October 2016 by Klynveld Peat Marwick Goerdeler China (KPMG). This article has discussed the 12^th and the 13^th FYPs and has analyzed the implementation of the 12^th FYP in terms of accomplishing the set targets.

The 12^th Five-Year Plan and Chinese Manufacturing

China’s 12^th Five-Year Plan focused on the emergence of seven strategic industries: energy saving and environmental protection, new generations of IT technology, biotechnology, high-end equipment manufacturing, new energy, new materials, and new energy vehicles (CEO Policy). The plan moved the Chinese economy in the right direction with the development of numerous new industries creating thousands of employment opportunities.

The World Bank China 2030 report proves that China has maintained and expanded its presence as one of the most competitive countries in the world (China 2030). Since the implementation of 12^th FYP, China has posed an imminent threat to the developed economies in terms of economic competition.

Analysis of the 12^th FYP

The article by Li, Wang, and He analyzed the implementation of China’s 12^th Five-Year Plan in terms of its prospects for the next five years. An analysis of eight essential aspects related to economy, society, and ecological environment of the plan revealed that the achievements found in the plan implementation have consolidated the confidence for organizing an all-round well-off society of China by the year 2020 (Li, Wang, and He).

The authors concluded that most of the issues were controlled through appropriate measures (Li et al.). The research work also presented various useful suggestions for the preparation of the National Economic and Social Development 13th Five-Year Plan (Li et al.).

13^th Final-Year Plan

China’s 13^th Final-Year Plan for the years 2016-2020 was announced in October 2016 by Klynveld Peat Marwick Goerdeler China (KPMG). This plan had seven development priorities, which are listed below:

• To develop an economic structure that is focused on innovations, industrial upgradation, and foreign investments in the manufacturing sector;
• To enhance foreign investment for transformation and upgradation of all the industries in China;
• To increase the mutual coordination for regional development by investing in service and operational infrastructure;
• Introducing ecology-first mechanism in industrial development by promoting green finance, green development, and green technology;
• To improve the quality of lifestyle of Chinese people by increasing public spending and bringing transparency in financial matters;
• To escalate the global interaction by making investments in natural resources and importing technologies from different countries;
• To expand the institutional and market-oriented reforms.

Current Status of the Chinese Manufacturing Sector

According to the National Bureau of Statistics (NBS), 29 industrial divisions managed to increase their profits, while 12 out of 41 divisions have recorded a decline (China’s Industrial Transformation). Oil processing, cooking, and nuclear fuel-processing divisions had a substantial growth of 9.7 times, whereas the power and heat production, electrical machinery and equipment manufacturing, textile, and automobile manufacturing industries all grew in different degrees (China’s Industrial Transformation).

The Deputy Director of NBS reported that as a result of innovative and entrepreneurial activities and achievements, various new industries grew rapidly in 2015, and the value added of high-tech and equipment manufacturing industries reached up to 10.2% and 6.8% respectively (China’s Industrial Transformation). The growth is still continued, and with the implementation of “Make in China 2025” strategy, China is likely to become the world’s biggest exporter in the next decade.

Conclusion

Since technological advancement was necessary for improving manufacturing processes and the quality of products, the transformation of manufacturing industries in China showed remarkable achievements. During the early stages of the plan, country’s exports in manufacturing sector shared just 50% of the total national exports (Liu and Daly). These low values of exports were the result of traditional manufacturing techniques and less developed industrial productivity, which attracted only a few foreign investors to make investments in China (Liu and Daly).

In order to bring more and more foreign investments into the country, several foreign investment policies and upgradation plans were devised by the government, which increased the total share of manufactured exports from 74.4% in 1990 to 104.2% in 2012 (Zhang et al.).

Today, Chinese products are available in every corner of the world, and due to better quality with reduced price, customers prefer Chinese products to the national ones. To achieve further economic growth, China needs to develop energy-efficient manufacturing sectors, improve its property protection policies and innovation capabilities, invest more in training new talents, and increase spending in the research and development sector.

Though Chinese manufacturing has a competitive advantage of being a talented and hardworking nation, they still need to learn innovation in advanced future technologies and organize their own standards in engineering.

Works Cited

Analysis on China’s Industrial Transformation and Upgrade Plan (2011-2015). Hanking, n.d.,

CEO Policy Recommendations for Emerging Economy Nations. WEFORUM, n.d., 2016,

China 2030: Building a Modern, Harmonious, and Creative High-Income Society. Worldbank, n.d., 2012.

China’s Industrial Transformation and Upgrading: New Highlights in 2015. Xfafinance, n.d.,

Engels, Friedrich. The Condition of the Working-Class in England in 1844. Swan Sonnenschein & Co., 1892.

Industry Transformation & Upgrade. CDB, n.d., 2015,

KPMG. October 2016 The 13th Five-Year Plan; China’s Transformation and Integration with the World Economy. KPMG, 2016.

Li, Shantong, Huijiong Wang, and JianWu He. Analysis of Implementation of China’s 12th Five Year Plan and Prospects of Its Next Five Years. Journal of Chinese Economic and Foreign Trade Studies, vol. 9, no.1, 2016, pp. 40-59.

Liu, Kelly, and Kevin Daly. Foreign Direct Investment in China Manufacturing Industry – Transformation from a Low Tech to High Tech Manufacturing. International Journal of Business and Management, vol. 6, no. 7, 2011, pp. 15-27.

UNIDO. Inclusive and Sustainable Industrial Development Working Paper Series. United Nations Industrial Development Organization, 2016.

Zhang, Xianhui, William A. Peek, Bohdan Pikas, and Tenpao Lee. The Transformation and Upgrading of the Chinese Manufacturing Industry: Based on German Industry. Journal of Applied Business and Economics, vol. 18, no.5, 2016, pp. 97-105.97-105.

Chinese Manufacturing Relevant Dissertation Links

Does Foreign Direct Investment Influence Economic Growth In Rapidly Growing Economies? An Examination of China and India

MBA Dissertation – Chinese Business Culture

External Finance and Firm Performance – Evidence From China

International Business Entry Mode in China

What challenges does the Textile structure of Shandong Province Face in the Developmental process of Industries? A Study of Textile Industries in Shandong Province China?

If you enjoyed reading this post on Chinese manufacturing, I would be very grateful if you could help spread this knowledge by emailing this post to a friend, or sharing it on Twitter or Facebook. Thank you.