Decoding the Underlying Code of China's Innovation and Resilience

Source: CITIC Publishing House

Author: Qin Shuo, a well-known commentator on culture and finance

In early 2025, DeepSeek suddenly surged to the top, ushering in the prologue to a renewed reexamination of China’s narrative and China’s values. This year also marks the completion of “Made in China 2025.” China has all industrial categories included in the United Nations Industrial Classification system, including 41 major industrial categories, 207 medium categories, and 666 minor categories. In the past, the common saying was that China’s production volumes of 220 major industrial products ranked first in the world. The latest view from the Ministry of Industry and Information Technology is that among 504 major industrial products, most of China’s products have production volumes that rank first in the world.

In addition, China has more than 570 industrial enterprises that have made the Global R&D Investment Top 2,500 list, and in 2024, 64 manufacturing enterprises were selected for the World Top 500. In 2024, the total number of international patent applications was 273.9k, and China filed 70160 applications, accounting for about one-quarter of the total.

These data show that China’s human capital has shifted from a dividend derived from labor costs to an “engineer dividend,” and has further advanced toward a “scientist dividend.” With this improvement in human capital, using manufacturing as the carrier, the evolution of China’s knowledge and capabilities has also begun to generate the compounding effect.

In January 2025, data from the Ministry of Industry and Information Technology showed that China has 512k regulated industrial enterprises, with more than 140k specialized, refined, distinctive, and innovative small and medium-sized enterprises, 14.6k specialized “little giant” enterprises, 1,557 manufacturing single champions, as well as a group of leading enterprises and chain “boss” enterprises. This is the backbone of China’s industrial development and the underlying confidence that enables China to stand firm through all kinds of storms in globalization.

China’s innovative development in industry is closely related to reform and innovation in the capital markets. On June 13, 2019, the Shanghai Stock Exchange’s STAR Market officially opened. As of June 13, 2025, the number of companies listed on the STAR Market has reached 588. Emerging industries such as next-generation information technology, biopharmaceuticals, and advanced equipment manufacturing account for more than 80%. The STAR Market has become a forerunner in developing high-level scientific and technological self-reliance and self-strengthening in the capital markets, as well as new quality productive forces.

At the same time, the STAR Market is also a “test field” for institutional reform in the capital markets and the starting point for the registration-based system reform. Six years after the STAR Market officially opened, benefiting from diverse and inclusive listing and issuance conditions, the STAR Market has a total of 54 loss-making enterprises, 8 enterprises with special equity structures, 7 red-chip enterprises, 20 enterprises listed under the fifth set of standards, and 1 enterprise that was listed via a transfer. This shows that diverse and inclusive listing and issuance conditions provide support for innovation-driven development that was previously not available.

What is exciting is that many STAR Market companies are aiming at the upstream end of the value chain, redefining the pricing power and discourse power in international competition with the “hard strength” of technological innovation. For example, in global BD (business development) transactions for innovative drugs, STAR Market companies in the innovative drug sector play an important role.

In my view, over the past decade or so, China has in fact achieved a massive industrial upgrading. It is no longer progress driven by only a few enterprises or a few industries making breakthroughs on their own, but a comprehensive, systematic, and mutually reinforcing overall upgrade.

Regarding China’s industrial upgrading and innovation-driven evolution, many insightful people abroad have already developed profound understandings, which are completely different from their views on China’s manufacturing from a few years ago.

Apple’s CEO Tim Cook has repeatedly said that the advantage of China’s manufacturing is not low cost, but people—“skill density.” China has a sufficient number of skilled technicians, forming interactions between artisan craftsmanship, precision robotics, and the world of computers.

Google’s former CEO Eric Schmidt said that China will ultimately win the “epic battle” in the field of artificial intelligence, “because they can apply artificial intelligence technology faster in mass production.”

An article titled “China’s Real Model,” published in the U.S. magazine Foreign Affairs in 2025, points out that China has built an innovation ecosystem centered on strong electricity and digital networks. Factory managers, engineers, and workers in China have accumulated decades of process know-how—hands-on experience obtained through practice, understanding how to manufacture products and how to improve them.

In an article in the World Economic Forum titled “Can ‘Made in China 2.0’ Become the Future of Global Manufacturing?”, it proposes that China’s innovation system is an ecology of overlapping, interwoven, and mutually nourishing elements. Progress in one area (such as lithium batteries) can create spillover effects to other areas (such as electric vehicles, consumer electronics, and energy storage systems). Behind this ecosystem are more fundamental things—accumulation and deepening of “process knowledge.”

This article particularly emphasizes the role of artificial intelligence. It argues that the deep integration of artificial intelligence and manufacturing strengthens the feedback loop between software and hardware—design, engineering, and production all take place within a tightly connected industrial cluster. New tools can be tested and improved on-site in days rather than months. This synergy and short-cycle innovation make it possible for China to “successfully embed artificial intelligence into industrial operating systems.”

With the increase of skill density, process knowledge, and process know-how, and the deep integration of artificial intelligence with manufacturing, China’s manufacturing learning curve is kept accelerating, thereby enabling faster product iterations and innovation cycles. This is the true key to China’s shift from manufacturing to intelligent manufacturing today.

As a well-known investor with profound thinking and a strong foundation in research, Mr. Sheng Xitai’s book Industry, Capital, and Cycles is rooted in front-line industrial research and investment practice in China. It presents vivid yet deep insights and foresight. After reading it, I resonated strongly and found it highly inspiring.

For example, the author believes that “innovation in the Chinese style” is a systemic, problem-driven innovation; that technology democratization comes from extreme cost control; that industry chain coordination and reuse enable “overtaking on a curve”; and that China’s capability for coordinated reuse across its industrial supply chains is, in essence, the concentrated surge of modular capability. The formation of such modular capability is also derived from China’s unique development path in manufacturing: the massive domestic demand market forces companies to enhance flexible production capabilities, while the positioning of the world factory drives the continual refinement of division of labor in the supply chain. When these two come together, it generates industrial resilience that can respond to changes without changing in its fundamentals. No matter what form emerging industries take, China’s manufacturing sector can always quickly decompose their technological requirements and use existing modules to combine and innovate.

I strongly agree with such insights. Back when overseas competitors were studying DJI innovation, after they dismantled DJI drones, they found that with the same functions, if they were to build them, the cost would be doubled. In DJI products, 80% of the components are standard/common parts. Behind this is the complete supply chain ecosystem—“Shenzhen Huaqiangbei + the Pearl River Delta industrial belt”—with full supporting capabilities in consumer electronics components, precision parts, and more, giving it very strong cost competitiveness.

Recently, in its research on China’s innovative company XPeng, Morgan Stanley pointed out that XPeng’s autonomous driving (AD) has extremely strong synergy with its robotics R&D team, and 70% of research work can be achieved through resource sharing. At the same time, autonomous driving and robotics businesses have many overlaps at the hardware level (such as Turing AI chips, camera sensors, domain controllers, etc.). Finally, XPeng’s industrial-side applications are all run on the same underlying model, enabling multidimensional data interoperability. This not only strengthens XPeng’s network effects, but also accelerates data collection and the machine learning process.

These cases all fully demonstrate that as China’s industries have evolved step by step to where they are today, in terms of innovation capability they are already in the forefront of the world. The internal experience and rules are worth deeply exploring and summarizing. I believe the value of Mr. Sheng Xitai’s book lies precisely in this. It is a positive work that delivers strong confidence; it is also a sincere book with facts as the basis, valuable logic, and professional depth. It is worth being read by people in China’s industrial sector and investment community. I believe it will surely be beneficial to open the book and read.

Main title: Industry, Capital, and Cycles

Subtitle: Observations and Reflections on China’s Economic Trends

Author: Sheng Xitai

Price: 78.00 RMB

Book number: 978-7-5217-8537-1

Publication date: March 2026

Book Summary

At present, the global economy is in a deep adjustment phase of the fifth Kondratiev cycle. The window for technological revolutions has opened again, and a series of narratives related to Chinese technology companies are quietly emerging. What the world is witnessing is not only the breakout of individual Chinese enterprises, but also a historic leap of China’s technology industry moving from “follower” to “rule definer.”

Based on more than 30 years of capital market accumulation and in-depth research into nearly 100 companies, Mr. Sheng Xitai, with a broad historical perspective and detailed, evidence-based data, profoundly explains the underlying logic and inevitable trends of China’s economic journey across cycles and toward modernization. The entire book closely follows the pulse of the times and systematically builds an overall analytical framework from micro-level innovation to macro-level game theory.

China’s Miracle: Focusing on the essence of Chinese-style innovation—problem-driven systemic innovation, technology democratization enabled by extreme cost control, and engineering implementation and commercialization practices of “from 1 to 100”—reveals that industry chain coordination and reuse, as well as the error-tolerance space provided by an ultra-large-scale market, are the key paths for Chinese enterprises to achieve “overtaking on a curve.”

Industrial Resilience: Tracing the 40-year history of China’s industry from enlightenment, through evolution, to transformation, and using data and facts to prove that the next “China” is still China, because no country can replicate China’s combined advantages of an industrial ecosystem, an engineer dividend, and an ultra-large-scale market.

Capital Transformation: Exploring the symbiotic relationship between capital markets and the real economy, and pointing out profoundly that capital markets are the infrastructure for the rise of great powers; it elaborates on the key role of building patient capital and serving hard technology in cultivating new quality productive forces.

Crossing the Cycle: Looking at the historical key of the rise and fall of great powers, analyzing the rules of strategic interaction between leading countries and rising countries, and pointing out that China is charting a new path of development through openness, inclusiveness, mutual benefit, and win-win outcomes.

We hope this book can provide new perspectives for relevant research, offer useful references for entrepreneurs, investors, and policymakers, and open a window for readers who focus on the global economy and the games between great powers to better understand future trends.

About the Author

Sheng Xitai

Founder Partner and Chairman of Hongtai Fund, first Chairman of Huatai United Securities, a senior investment banker, one of the earliest witnesses and full participants in China’s capital markets, and a leading figure in empowerment-based equity investment in fields such as industry, capital, and management. During his 20-year investment banking career, he has over 100 IPO experiences, and he has cultivated China’s top M&A teams. After transitioning to the investment field, he accurately discovered and invested in a number of industry-leading enterprises. He has achieved abundant results in professional research and writing, including works such as “The Complete Guide to Warrants,” “The Myth of Making 1 Earn 10: Eight Families of Overseas Private Equity Funds,” “From Sparks to Gold: Creating a New Era of Financial Investment for PE,” “Crisis and Turning Points: Certain Investing in an Uncertain Market,” “Practical Marketing for Securities Brokers,” “Construction of a Marketing Management System for Securities Brokers,” “Seeking Growth: Condensing the Essence of Research Findings and Finding the Path to Enterprise Growth,” “Practical Work on Securities Issuance and Listing Underwriting and Sponsorship in China,” and more. He holds extensive social posts and has deep involvement in youth innovation and entrepreneurship, development of small and medium-sized enterprises, and alumni public welfare areas. He concurrently serves as Vice Chairman of the Board of Supervisors of Nankai Alumni Association, Honorary Chairman of the Board of Directors of the New York Alumni Association, Chairman of the Presidium of the Beijing Nankai Alumni Association, Vice Chairman of the Board of Supervisors of the Nankai Alumni Entrepreneurs Friendship Association. He was awarded the honor of “Nankai Economics Centennial—One Hundred People” by Nankai University. He has previously served as a Standing Member of the All-China Youth Federation, and Deputy Chair of the youth federation for central and state organs, among other roles, continuing to support the growth of youth, the development of small and medium-sized enterprises, and social innovation.

Table of Contents

Preface I

Preface II

Author’s Preface

Introduction

Chapter 1 China’s Miracle: A Chinese-Style Leap That Was Not Predicted

Section 1 Defining Chinese-style innovation—systemic innovation driven by problems

Section 2 From “hegemony” to “equality”—technology democratization enabled by extreme cost control

Section 3 Dare to “stand on the shoulders of giants”—industry chain coordination and reuse to achieve “overtaking on a curve”

Section 4 Reject “self-entertainment” style innovation—big markets provide an error-tolerance space for strategy-level industries

Section 5 Cultural confidence born with you—Chinese brands begin the global premium expedition route

Summary

Chapter 2 Industrial Resilience: The Next “China”—Still China

Section 1 Enlightenment: The enlightenment path of China’s industry (1990—2000)

Section 2 Evolution: The refining path of China’s manufacturing (2001—2010)

Section 3 Correction: The transformation path of China’s economy (2011—2020)

Section 4 Future: Who will lead the world factory

Summary

Chapter 3 Capital Transformation: A New Ecology of China’s Capital Markets

Section 1 The necessity of developing capital markets

Section 2 Great-power specificity of capital markets

Section 3 The genes of China’s capital markets

Section 4 Challenges facing China’s capital markets

Section 5 Survival rules of RMB funds

Summary

Chapter 4 Crossing the Cycle: The Historical Key to the Rise and Fall of Great Powers

Section 1 Strategic interaction between leading countries and rising countries

Section 2 The known certainty regarding the rise of great powers

Section 3 The borrowable lessons regarding leading great powers

Summary

Acknowledgments