I. Manufacturing Industry Remains the Main Body of the Real Economy under the Trend of Informatization

The dominant position of the manufacturing industry in the real economy remains unchanged

The real force driving the bold changes of human lifestyle in the information-based society still comes from the manufacturing industry

Since the first industrial revolution, with the advance of industrialization, “finished products” of the manufacturing industry have thoroughly changed human lifestyle, human’s subsistence and development have been greatly promoted, mankind has entered into the industrial society, and the manufacturing industry has become a main body of the real economy.

With the coming of the post-industrial society of developed countries, the economic service level has been enhanced and the proportion devoted to manufacturing industry has gone into gradual decline, while the financial sector is taking up an increasing share of the national economy, the significance of the real economy has been undervalued, and the virtual economy is getting increasingly separated from the real economy. When the “money-generating-money”-featured virtual economy fully breaks away from the “substance-generating-money”-featured real economy and realizes self-cycling, economic bubbles will appear. On account of endless “money-generating-money” desire, once the speed of “substance-generating-money” based on profits of real economy enterprises is unable to support such rapidly expanding “money-generating-money” desire, economic bubbles will grow ever-larger, and then comes a financial crisis. To a large extent, the international financial crisis that erupted in 2008 could be attributed to the excessive separation of the virtual economy from the real economy. Developed countries have successively drawn lessons from the crisis and re-emphasized the significance of the manufacturing-focused real economy on long-term, stable and sustainable economic development, and have begun to hammer at the reindustrialization strategy and policies attracting manufacturing enterprises back.

In recent years, with the deepening of the new industrial revolution, in-depth integration of industrialization and informatization, informatization is intensifying its influence on human lifestyle, and the connotation of the real economy has been overlaid with more connotations of the information economy and the digital economy. However, though manufacturing industry dominance within the real economy has not changed, the industry itself is undergoing tremendous change in the upgrading and transformation. Informatization, service, green, high-end development and individuation represent important trends of manufacturing industry development, and intelligent manufacturing transformation and upgrading have become commanding heights. Driven by intelligent manufacturing, new industries, new commercial activities and new business models have emerged endlessly, promoting intelligent development of various social and economic fields including intelligent agriculture, smart cities, intelligent transportation, smart grid, intelligent logistics and the smart home. Hence, it is the manufacturing industry that drives bold changes of human lifestyle in the information-based society, which remains dominant in the information-based real economy.

II. Addressing the Supply Imbalance of the Real Economy

Prominent contradictions of the real economy supply structure

Highlighting the “off real to virtual” imbalance

With the progress of rapid industrialization, the real economy has made great achievements but also leaving prominent supply structure contractions, which are reflected as structural imbalance, with excess low and middle-end and non-efficient supply and insufficient high-end and efficient supply. As to the manufacturing industry, the product mix fails to adapt to the upgrade of the consumption structure, the supply capacity of high-quality, individualized, highly complex and high value-added products remains insufficient, and the quality of products made in China awaits improvement; the industrial organization is unreasonable, with numerous “zombie enterprises” while insufficient excellent enterprises; the industrial structure hasn’t been sufficiently optimized, iron and steel, petrochemical, building material and other industries have had seriously excess low-level production capacity for quite a long time, and among traditional manufacturing industry, critical equipment, core components and basic software heavily depend on import and foreign-funded enterprises, while enterprises of emerging technology and industrial field haven’t grasped the high ground of the global competition; the position of the manufacturing industry within the international industrial chain division of labor awaits improvement, and the industry needs to transit and upgrade from low value-added links to high value-added ones; the industry integration is yet to be strengthened.

At present, China has entered the later stage of industrialization and the stage of middle income in terms of per capita income. In this stage, the urbanization process has accelerated, demographic shifts and improved income level have obviously boosted the consumption upgrade, the stage guided by simulation and wave type of consumption has gradually ended, while high-quality, individualized and diversified consumption has gradually turned mainstream. The real economy structure generated from the long-term industrialization process is unable to meet the transformation and upgrading needs of the consumptive demand structure, thus producing supply-demand imbalance. Moreover, globalization and informatization have greatly facilitated the transfer of consumption power abroad, further affected the development of the domestic real economy and intensified the supply-demand imbalance. Such supply-demand imbalance of the real economy is likely to gradually bring down the efficiency of the real economy, and hence weigh down the real economy ROE. Real enterprises are faced with declining domestic ROE and increasing domestic operating costs. More worryingly, some assets have begun to go “off real to virtual”, and pursue self-cycling in the virtual economy, hence increasing asset bubbles and getting farther and farther away from the real economy. Such “off real to virtual” imbalance needs to be attached great importance.

It also needs to be noticed that, as the world industrialization process shows, only a handful of late-mover countries have truly stepped over the “middle-income trap”. Therefore, we need to deepen the industrialization process, boost the transformation and upgrading of the manufacturing industry and improve the supply quality of the real economy through technological innovation, resolve contradictions of the supply structure imbalance, and establish a new and dynamic supply-demand equilibrium, so as to ensure sustainable economic growth and the entry into the high-income development stage. Hence, for China at the present stage, it is of great significance to tackle the real economic structure imbalance and improve the quality and efficiency of the real economy supply system by deepening structural reform on the supply side. We must understand the significance of revitalizing the real economy from a higher height.

III. Promoting Real Economy Revitalization through Manufacturing Transformation and Upgrading

Properly deal with the relationship between cost reduction and quality improvement

Properly deal with the relationship between the service industry and the manufacturing industry

Properly deal with the relationship between opening up and independent innovation

Properly deal with the relationship between industrial policies and competition policies

The revitalization of the real economy and the addressing of real economy supply structure imbalance must be promoted under the policy framework of structural reform on the supply side. With the manufacturing industry as the main body of the real economy, while firmly reducing institutional costs of the manufacturing industry, alleviating various policy burdens, reducing low-end and inefficient capacity supply and disposing of “zombie enterprises”, more effort should be put forth to promote the transformation and upgrading of the manufacturing industry, to drive the development of strategic emerging industries and technological transformation of traditional manufacturing industry, to improve the supply quality of the manufacturing industry, and to cultivate new economic growth impetus, which are no doubt of crucial importance to addressing real economy supply structure imbalance and revitalizing the real economy.

Firstly, we need to properly deal with the relationship between cost reduction and quality improvement and continuously improve the quality of products made in China. Although the manufacturing industry in China has a quite complete system, some products are of relatively low grade, standard level, and reliability is not high, there are few world-renowned brands, and the quality of Chinese-made products and brands has not been effectively promoted. An ultimate reflection of manufacturing transformation and upgrading is the promotion of product quality and enterprise brand, and to be a manufacturing power, China needs to be a quality power first. China’s manufacturing industry must turn away from sacrificing quality to reduce costs. To improve the quality, China’s manufacturing enterprises must continuously strengthen total quality management, constantly carry out management innovation and process innovation, and establish an excelsior “craftsmanship” culture; moreover, China must enhance national quality technological infrastructure including metering, standardization, certification and accreditation, inspection and detection, among which, metering is the basis of quality control, standardization is the basis guiding quality improvement, certification and accreditation are the basis of establishing quality trust, while inspection and detection are the basis of quality measurement.

Secondly, properly deal with the relationship between the service industry and the manufacturing industry, and make the production service industry development facilitate the transformation and upgrading of the manufacturing industry. In recent years, China has presented an obvious economic service-oriented trend and the proportion of manufacturing industries has continued to decline. But because of the slow transformation of the service industry itself, the service industry has a far lower efficiency than manufacturing industry and China is faced with economic structure upgrading and declining efficiency. Crossing the “middle income trap” requires a benign mechanism between the manufacturing industry and the service industry which promotes transformation and upgrading of both industries and improves the efficiency of the manufacturing industry. The construction of the capital market needs to emphasize the cultivation of strategic emerging industries and the use of new technologies to transform its traditional manufacturing industry center, while resolutely avoiding the deviation of the virtual economy from the manufacturing industry and the formation of a bubble economy.

Thirdly, properly handle the relationship between opening up and independent innovation, and attach importance to the role of foreign capital in China’s manufacturing transformation and upgrading. Although China has entered a development stage emphasizing more on independent innovation, independent innovation is not contradictory to opening up; digesting and introducing advanced foreign technology, promoting fair market competition and other policies, not to mention the introduction of innovation and innovation itself, is an important way of innovation. Without doubt, any country needs to cultivate its independent innovation capacity and strive to occupy the technological high ground and reduce the dependence on foreign technology, but in today’s world, the way to cultivate independent innovation capacity is exchange, integration and innovation based on opening up instead of seclusion. Nowadays, China needs to further create a level playing field, promote a new round of high-level opening up, give full play to the role of foreign capital in high-end, intelligent, green and other advanced manufacturing industry and industrial design, modern logistics and other production service industries, and promote the transformation and upgrading of China’s manufacturing industry, characterized by high-end, intelligence, green and service.

Fourthly, properly handle of the relationship between industrial policies and competition policies, and pay attention to the role of competition policies in optimizing the organization of the manufacturing industry. As expressly indicated in the Opinions of the CPC Central Committee and the State Council on Advancing Pricing Mechanism Reform, China needs to enhance market price regulation and the enforcement of the anti-monopoly law, gradually establish the fundamental position of competition policies, accelerate the establishment of a mechanism coordinating competition policies with industrial, investment and other policies, and implement a competition review system, to promote a unified, open and orderly competitive market system. Hence, it is of great importance for manufacturing transformation and upgrading to establish and improve the action mechanism of competition policies, to promote the fair participation of medium, small and micro-sized manufacturing enterprises in the manufacturing industry, to optimize the organization structure of the manufacturing industry and to give play to the role of medium, small and micro-sized enterprises in disruptive innovation.

(Source: Economic Daily, Huang Qunhui, the author, is the Director of CASS Institute of Industrial Economics and a member of the Academic Committee of Shanghai Academy)