Manufacturing has never been a simple production activity; it is the core engine for a country to build its economic foundation, ensure national security, and shape its international status. Manufacturing is the field where innovation activities are most active, innovation results are most abundant, innovation applications are most concentrated, and innovation spillover effects are strongest. Essentially, it is the link and fulcrum of a country's innovation system.
This article is excerpted from the newly published book &#34;Manufacturing Prosperity: The Path of China's Industrial Upgrade from Catching Up to Leading&#34; by Renmin University of China Press.
By 2026, our country will have been the world's largest manufacturing nation for 16 consecutive years, with many industries rising to a leading position globally. In the new situation, why is it emphasized that manufacturing must strengthen its foundation? How should we understand the status and role of manufacturing?
From historical experience, the breakthrough development of manufacturing has often been a decisive force for a country to enter modernization. The rise of strong countries such as the UK, the US, Germany, and Japan all began with the leap of manufacturing. Practices in developed countries show that the proportion of manufacturing in GDP exhibits an &#34;inverted U-shaped&#34; change pattern, peaking and gradually declining in the later stages of industrialization. Rediscovering the &#34;soul of industry&#34; essentially means stepping out of the framework of traditional industrialization theory, breaking free from the path dependence of the specific development model of developed countries, and re-examining the deep value and strategic positioning of manufacturing based on our population of 1.4 billion, the mission of latecomer countries to catch up, and the restructuring of global industrial chains.
In the past few decades, people's imagination of manufacturing has often unconsciously been fixed on uniform factories, repetitive assembly lines, roaring machines, and crowds in work uniforms. This perception of &#34;manufacturing&#34; as a physical and localized concept is, in fact, a remnant of the production model from the early industrial era. It leads to a key misunderstanding, namely that the value of &#34;manufacturing&#34; is mainly attributed to the accumulation of fixed assets such as land, factories, and equipment, as well as the input of labor, while neglecting the soul of modern manufacturing, which is the knowledge system and technological capabilities embedded in the entire manufacturing process and continuously evolving through manufacturing practices.
Traditional neoclassical growth theory tends to view capital and labor as the main production factors, while treating technological progress as an exogenous, independent variable. In this framework, the manufacturing process can easily be simplified to a &#34;black box&#34; reliant on factor inputs, underestimating its inherent attributes of knowledge creation and technological advancement. The later popular &#34;smile curve&#34; theory, while helpful in analyzing the distribution of added value across various stages of the value chain, has inadvertently reinforced the stereotype of &#34;manufacturing = low-end&#34; through its widely circulated simplified version. It overlooks a key point: the shape of the &#34;smile curve&#34; itself is shaped by the governance power of value chain leaders, rather than the inherent, unchangeable attributes of manufacturing activities. Some scholars cite a 2004 study by Japanese researchers that found the profit distribution of Japanese manufacturing to exhibit an inverted smile curve, which also proves that developing the manufacturing segment can still yield high market returns.
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Smile Curve and Inverted Smile Curve
Historically, after World War II, particularly during the period of neoliberalism promoted by Margaret Thatcher, the UK fell into this misunderstanding to a certain extent. The government and capital believed that retaining high-profit research and development, branding, and finance while transferring production and manufacturing to lower-cost regions was an economically rational &#34;upgrading&#34; choice. The result, however, was that with the loss of manufacturing links, the closely tied application research and development, know-how, and skilled worker ecosystem also withered. Scholars such as Gary Pisano from Harvard Business School have pointed out through in-depth research that manufacturing is not simply about product production; the loss of manufacturing activities can lead to the erosion of the &#34;Industrial Commons,&#34; which includes the tacit knowledge, shared skills, and supplier networks that exist within manufacturing practices—ultimately undermining the long-term innovation capabilities of the country.
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Loss of Manufacturing Activities Leads to Erosion of the &#34;Industrial Commons&#34;
For late-developing countries like China, manufacturing is by no means just a cost center; it is also the core arena and &#34;training ground&#34; for technological catch-up and independent innovation. Therefore, manufacturing is the soil where technology &#34;takes root and sprouts,&#34; rather than a &#34;cost shell&#34; that can be arbitrarily stripped away. We must transcend the physical limitations of equating &#34;manufacturing&#34; with &#34;factories&#34; and recognize that modern high-end manufacturing is essentially a highly knowledge-intensive capability set centered around complex technological systems, achieved through continuous manufacturing practices that realize technological evolution. Abandoning the pursuit and control of high-end manufacturing capabilities is equivalent to giving up the main battlefield for future industrial technology generation and iteration, putting the national innovation system at risk of becoming mere &#34;talk without action.&#34;
In the long evolution of human civilization, innovation has always been the core engine driving the wheels of history forward. However, when people trace the origins of innovation, they often focus on the flickering glimmers in laboratories. A crucial fact that is often overlooked is that manufacturing is the most profound soil that nurtures, carries, and realizes innovation, forming the most complete closed loop. It is not only the &#34;last mile&#34; for innovative ideas to take root but also the &#34;first mile&#34; that stimulates the demand for innovation.
First, manufacturing is the &#34;gravitational field&#34; that drives innovation demand. Innovation does not arise from nothing; its fundamental motivation often stems from an urgent desire to enhance real productive forces. Looking back at various industrial revolutions, the emergence of iconic technologies has always been deeply rooted in the pain points and dreams of manufacturing. In the First Industrial Revolution, James Watt's improved steam engine was initially designed to solve the problems of mine drainage and insufficient power for textile factories; in the Second Industrial Revolution, the large-scale application of electrical technology arose from the manufacturing industry's relentless pursuit of more efficient and flexible energy; in the Third Industrial Revolution, the birth of computers was initially to meet the enormous demands of military industry and complex engineering calculations. The complex scenarios, severe challenges, and infinite possibilities of manufacturing constitute the strongest and most enduring &#34;gravitational field&#34; for driving technological breakthroughs
Second, the manufacturing industry is the &#34;alchemical furnace&#34; for innovation transformation. Breakthroughs achieved in laboratories are like uncut jade. Their true value must be refined through the rigorous processes of this &#34;alchemical furnace&#34; to transform into &#34;real gold&#34; that changes the world. &#34;Innovation transformation&#34; is by no means a simple linear transfer; it is a complex engineering process filled with trial and error, iteration, and integration. It involves a series of daunting challenges such as process development, production line design, quality control, cost management, and supply chain integration. Many cutting-edge technologies stop at papers or prototypes precisely because they lack a strong manufacturing system as support. In contrast, historically successful transformations often benefit from the deep integration of manufacturing and innovation. After World War II, the invention of the transistor by Bell Labs in the United States relied on its robust electronic manufacturing ecosystem to quickly solve the process challenges of large-scale production, transforming this groundbreaking technology from an expensive laboratory treasure into a core component of radios, televisions, and even computers, thereby opening the door to the information age.
Third, the manufacturing industry is the &#34;accelerator&#34; for promoting innovation iteration. True innovation does not happen overnight; it evolves and improves continuously through ongoing application, feedback, and refinement. The manufacturing industry provides an irreplaceable &#34;accelerator&#34; and &#34;verification field&#34; for this iterative process. In the vast scenarios of large-scale production and real market applications, every subtle defect in technology is magnified, and every potential user demand is captured. This makes the manufacturing industry the most effective source of feedback for technology optimization. For example, industrial robot technology has evolved from clumsily repeating handling tasks in its early days to today being able to perform precise assembly, flexible grasping, and autonomous decision-making. Each algorithm upgrade, precision enhancement, and perception improvement stems from repeated practice and problem-solving on complex production lines in the automotive and electronics sectors. The harsh scrutiny of the market and the complex requirements of manufacturing scenarios force technology to continuously break its own limits and achieve rapid iteration.
Therefore, the manufacturing industry has become the most active field for innovation activities, the richest in innovation outcomes, the most concentrated in innovation applications, and the strongest in innovation spillover effects. According to statistics, the value added by the manufacturing industry accounts for 11% of GDP in the United States, but 70% of technological innovations directly or indirectly rely on the manufacturing sector. In Germany, enterprises have always been the main body of technological innovation. In 2022, German enterprises' R&amp;D expenditure was €81.8 billion, accounting for 67% of total research funding. In recent years, the dominant position of corporate R&amp;D investment in China has also gradually emerged. In 2022, China's corporate R&amp;D expenditure was CNY 2.38786 trillion, accounting for 77.6% of the total R&amp;D expenditure in society. The development of the manufacturing industry has provided a broader application space for technology and has greatly stimulated technological innovation.
In recent years, developed countries represented by the United States, Germany, and Japan have launched &#34;re-industrialization&#34; strategies, which may seem like &#34;going back,&#34; but in fact, it is a process of reshaping national innovation capabilities, and this time it is the essence of the problem.
Additionally, there is a viewpoint in society that believes &#34;industrial upgrading means eliminating manufacturing,&#34; which is also an unobjective understanding that severs the symbiotic relationship between manufacturing and services. This cognitive bias mechanically interprets the labor transfer trend described by the &#34;Piedras-Clark theorem&#34; as a linear evolution picture with a hierarchy between industrial forms, believing that the service industry is a more &#34;advanced&#34; and &#34;sophisticated&#34; economic form than industry, and thus deducing that &#34;industrial upgrading means continuously reducing the proportion of manufacturing.&#34;
The single path of &#34;increasing the proportion of the service industry.&#34; This understanding has given rise to the simplistic policy impulse of &#34;retreating from the secondary industry to advance into the tertiary industry,&#34; mistakenly believing that simply moving factories and replacing them with office buildings and financial districts will naturally lead to an &#34;upgrading&#34; of the economic structure.
It should be pointed out that the high proportion of the service industry in developed economies (usually exceeding 70%) is a result rather than a cause. The deep support for this structural characteristic is that their manufacturing industry has achieved extremely high labor productivity through long-term development. Through automation, intelligence, and global resource allocation, a small amount of manufacturing employment can create a vast amount of social wealth and tax base, thereby &#34;releasing&#34; a large amount of labor force and economic surplus to be invested in research and development, design, finance, education, healthcare, cultural entertainment, and other broader service industries to meet the higher-level and more diversified needs of society. In other words, without a strong and efficient manufacturing industry as a foundation, high value-added modern service industries would be like water without a source.
From the perspective of global industrial development trends, the deep integration of high-end manufacturing and modern service industries is an inevitable trend of industrial upgrading. Taking Apple Inc. as an example, its core competitiveness lies not only in the design and manufacturing of hardware products such as phones and computers but also in the ecosystem of &#34;hardware + software + services.&#34; Without strong manufacturing capabilities as a guarantee, Apple's iOS system and App Store services would lose their carriers, and its business model would be impossible to discuss.
For China, the significance of the &#34;manufacturing-service&#34; symbiosis is even more special. With a super-large market of 1.4 billion people, China needs the manufacturing industry to provide employment opportunities and ensure people's livelihoods, while also requiring the service industry to meet the growing needs for a better life. At the same time, China's manufacturing industry has a complete range of categories and supporting facilities, providing a huge demand space for the development of productive services; the development of the service industry can also provide comprehensive support for the upgrading of manufacturing. The two form a positive cycle: a strong manufacturing industry is the &#34;demand driver&#34; for the development of productive services, while a developed productive service industry is the &#34;efficiency multiplier&#34; for the upgrading of manufacturing. Severing the two and advocating for the &#34;elimination of manufacturing&#34; could not only lead to a fracture in the industrial ecosystem and an imbalance in employment structure but also cause us to miss the historic opportunity to achieve an overall leap in the industry through the integration of &#34;manufacturing - services.&#34;
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Manufacturing Prosperity: The Path of China's Industrial Upgrade from Catching Up to Leading
Qiao Biao Author
ISBN: 978-7-300-34741-7
Publication Date: December 2025
Pages: 232
Based on years of research by the Vice President of the China Electronic Information Industry Development Research Institute, with a preface recommendation by Liu Wei, former President of Renmin University, exploring why manufacturing must be solidified, and where the upgrading path of Chinese manufacturing lies, through the rise of a network, the transformation of a train, the counterattack of a car, the breakthrough of a screen, and the revolution of a kilowatt-hour
[Author Introduction]
Qiao Biao, Ph.D., researcher, and deputy director of the China Academy of Information and Communications Technology. He has long focused on research and practice in the fields of industrial planning and industrial policy. He has led or participated in several national key projects, including research on the construction of a strong manufacturing country and the promotion of new industrialization paths and policies.
Table of Contents
Chapter 1 Strategic Pivot of Great Power Rise
Chapter 2 Communication Equipment - The Rise of a Network
Chapter 3 High-speed Rail Equipment - The Transformation of a Train
Chapter 4 New Energy Vehicles - The Counterattack of a Car
Chapter 5 New Display - The Breakthrough of a Screen
Chapter 6 Photovoltaic Equipment - The Revolution of a Kilowatt-hour
Chapter 7 Repositioning - Why Manufacturing Must Be Strengthened
Chapter 8 New Long March - The Upgrading Path of Chinese Manufacturing
References
Postscript: An Everlasting Revolution

The manufacturing industry is the core engine of a country's economic foundation and security, driving innovation and enhancing international status. By 2026, China will have been the world's largest manufacturing country for 16 consecutive years, with many industries already in a leading position. Historical experience shows that breakthrough development in manufacturing is a key force for national modernization. It is essential to re-examine the deep value and strategic positioning of manufacturing, emphasizing the importance of knowledge systems and technological capabilities, and to move beyond the traditional perspective of production factors

Why is it said that manufacturing is the cornerstone of a great nation's rise and fall, and the strategic pivot of the economy?