Decoding the Underlying Code of China's Innovation and Resilience

Source: CITIC Publishing House

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

In early 2025, DeepSeek suddenly took off and flung open the curtain on a new wave of rethinking China’s narrative and China’s values. This year also marked the completion of “Made in China 2025.” China has all industrial categories 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 output 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 product output ranks first in the world.

In addition, China has more than 570 industrial enterprises that have made it into the global top 2,500 for R&D spending, and in 2024, 64 manufacturing companies were selected for the Fortune Global 500. In 2024, the total number of international patent applications was 273,900, with China accounting for 70,160 applications, or about one quarter of the total.

These data indicate that China’s human capital has shifted from the labor-cost dividend to the engineers’ dividend, and further leaped to the scientists’ dividend. With this upgrading of human capital, and with manufacturing as the carrier, the evolution of China’s knowledge and capabilities has also begun to produce compounding effects.

In January 2025, data from the Ministry of Industry and Information Technology showed that China has 512,000 above-scale industrial enterprises, including more than 140,000 specialized, sophisticated, distinctive, and innovative (specialized) small and medium-sized enterprises, 14,600 “little giant” specialized enterprises, 1,557 manufacturing single-item champion enterprises, as well as a number of leading enterprises and chain leaders. This is the backbone of industrial evolution in China, and it is also the confidence that enables China to stand firm through all kinds of storms and winds in globalization.

The innovative development of China’s industries is closely linked to reform and innovation in the capital markets. On June 13, 2019, the Sci-Tech Innovation Board (STAR Market) of the Shanghai Stock Exchange officially opened. As of June 13, 2025, the number of listed companies on the STAR Market reached 588. Companies in emerging industries such as the new generation of information technology, biopharmaceuticals, and advanced equipment manufacturing account for more than 80%, and the STAR Market has become a forerunner for high-level scientific and technological self-reliance and for the development of new productive forces in the capital market.

At the same time, the STAR Market is also a “test field” for institutional reforms in the capital market, and the starting point for the registration-based system reform. Six years after the STAR Market formally opened, benefiting from diverse and inclusive listing and issuance conditions, the STAR Market has 54 unprofitable companies, 8 companies with special equity-structure arrangements, 7 companies with a red-chip structure, 20 companies listed under the Fifth Set of Standards, and 1 company that has been transferred to listing. This shows that the diverse and inclusive listing and issuance conditions provide support for innovation-driven development that previously did not exist.

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

In my view, over the past decade or more, China has in fact achieved a huge industrial upgrading. This is no longer progress led by only a few enterprises and a few industries in a breakthrough-by-itself style; rather, it is a comprehensive, systematic, and mutually reinforcing overall upgrading.

For China’s industrial upgrading and innovation evolution, many insightful people abroad have already developed a deep understanding, which is completely different from their view of China’s manufacturing several years ago.

Apple’s CEO Tim Cook has repeatedly said that the advantage of China’s manufacturing is not low costs, but people—“skill density.” China has enough skilled professionals, creating the interaction between artisan craftsmanship, precision robots, and the world of computing.

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

The article “The Real China Model” published in 2025 by the U.S. magazine Foreign Affairs points out that China has built an innovation ecosystem centered on a powerful power supply and digital network. Factory managers, engineers, and workers in China have accumulated decades of process know-how—hands-on experience gained through practice, understanding how to manufacture products and how to improve them.

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

This article especially emphasizes the role of artificial intelligence, arguing that the deep integration of AI 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 effect and short-cycle innovation make it possible for China to “successfully embed AI into the industrial operating system.”

The increase in skill density, process know-how, and process knowledge, along with the deep integration of AI and manufacturing, keeps accelerating China’s manufacturing learning curve—thereby enabling faster product iteration and innovation cycles. This is the real key code for China today to move from manufacturing toward intelligent manufacturing.

As a famous investor with deep thinking and research foundations, Mr. Sheng Xitai’s book, Industrial, Capital and Cycles, is rooted in first-line industrial research and investment practice in China. It presents vivid yet profound insights and perspectives. After reading it, I felt a strong resonance and also gained inspiration.

For example, the author argues that “innovation in the Chinese style” is a systematic, problem-driven innovation; it is technological inclusiveness brought about by extreme cost control; it achieves a “catch-up at the bend” through industrial-chain coordination and reuse. The underlying essence of China’s industrial-chain coordination and reuse capability is a concentrated burst of modularization capability. The formation of this modularization capability, in turn, comes from China’s unique development path in manufacturing: the enormous domestic demand market forces enterprises to enhance flexible production capacity, while the positioning of the world factory keeps pushing the supply chain to further refine and divide labor. When the two come together, it generates industrial resilience that responds to changing conditions without changing principles. No matter what form emerging industries take, China’s manufacturing can always quickly break down their technical needs and call on existing modules to create combination-based innovations.

I deeply agree with such insights. Back then, in research on DJI innovation, overseas competitors—after disassembling DJI drones—found that with the same functions, if they were to build them, the cost would double. In DJI products, 80% of components are standard parts. Behind this is the full supply-chain support of “Shenzhen Huaqiangbei + the Pearl River Delta industrial belt” in consumer-electronics components, precision accessories, and more, which gives DJI extremely strong cost competitiveness.

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

All these cases fully show that as China’s industries have evolved step by step to what they are today, in innovation capability they are already in the forefront of the world. The internal experience and rules behind this are worth deeply exploring and summarizing. I believe the value of Mr. Sheng Xitai’s book lies precisely in this: it is a positive source of energy that conveys strong confidence; it is also an earnest work backed by facts, with valuable logic and professional depth. It is worth reading for practitioners in China’s industrial sector and for investors alike. I believe it will surely prove beneficial once opened.

Main title: Industry, Capital and Cycles

Subtitle: Observations and Reflections on China’s Economic Trends

Author: Sheng Xitai

Price: 78.00 yuan

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

Publication date: March 2026

Book Summary

Currently, the global economy is in the deep adjustment phase of the fifth Kondratiev wave cycle. The window for technological revolution is opening again, and a series of narratives concerning China’s technology enterprises are quietly emerging. What the world is witnessing is not only the breakout of individual Chinese companies, but also a historic leap of a country’s technology industry—from “follower” to “rule setter.”

Based on more than 30 years of accumulation in the capital markets and in-depth research on nearly 100 companies, Mr. Sheng Xitai, with a broad historical perspective and substantial empirical data, profoundly explains the underlying logic and inevitable trend of China’s economy in crossing cycles and moving toward modernization. The entire book stays closely attuned to the pulse of the times, and systematically constructs an overall analytical framework ranging from micro-level innovation to macro-level strategic games.

China’s Miracle: Focusing on the essence of innovation in the Chinese style—problem-driven system-wide innovation, technology that benefits the many brought about by extreme cost control, and the engineering implementation and commercialization practices of “from 1 to 100,” revealing that industrial-chain coordination and reuse, as well as the tolerance space of very large-scale markets, are the key paths for Chinese enterprises to achieve a “catch-up at the bend.”

Industrial Resilience: Tracing the 40-year journey of China’s industry from enlightenment, to evolution, to transformation, and using data and facts to prove that the next “China” is still China—because no country can replicate China’s combination of industrial ecosystem, engineers’ dividend, and the advantage of very large-scale markets.

Capital Transformation: Exploring the symbiotic relationship between the capital market and the real economy, and pointing out profoundly that the capital market is the infrastructure for the rise of great powers. It elaborates on the key role of building patient capital and serving hard technologies to nurture new productive forces.

Crossing Cycles: Standing within the historical long river of the rise and fall of great powers, it analyzes the game rules between leading countries and rising countries, and points out that China is finding a new path to rise through openness and inclusion, and through mutual benefit and win-win cooperation.

We hope this book can provide new perspectives for relevant research, offer useful references for entrepreneurs, investors, and policy makers, and open a window for readers who are concerned about the global economy and games among great powers to understand future trends.

About the Author

Sheng Xitai

Founder and managing partner of Hongtai Fund, chairman; first chairman of Huatai United Securities; a senior investment banker; an early witness and firsthand participant in China’s capital markets; a leading figure in empowerment-focused equity investment in fields such as industry, capital, and management. During his 20-year career in investment banking, he has experience with IPOs for over 100 companies, and he has nurtured top M&A teams in China’s capital markets. After transitioning to the investment sector, he has accurately identified and invested in a group of industry-leading enterprises. His achievements in professional research and writing are abundant, including works such as “All-in-One Guide to Warrants,” “The Myth of Earning 10 from Investing 1: The Eight Major Families of Overseas Private Equity Funds,” “Turning Stones into Gold: Opening a New Era of Financial Investment for PE,” “Crisis and Opportunity: Certainty Investing in Uncertain Markets,” “Practical Sales Operations for Securities Brokers,” “Building Sales Management Systems for Securities Brokers,” “Finding Growth: Condensing the Essence of Research Results and Finding the Path of Corporate Growth,” “Practical Operations of Underwriting Business for China’s Securities Offerings and Listings,” and others. He holds a wide range of social positions and has deep involvement in areas such as youth innovation and entrepreneurship, the development of small and medium-sized enterprises, and alumni public welfare. He serves concurrently as vice chairman of the National University Students Innovation and Entrepreneurship Alliance, and vice chairman of the China Youth Innovation and Entrepreneurship Investment Alliance; vice chairman of the China Association of Small and Medium Enterprises; vice supervisor-general of the Nankai Alumni General Association; honorary chairman of the board of directors of the New York Alumni Association; chairman of the executive committee of the Nankai Beijing Alumni; vice chairman of the board of supervisors of the Nankai Alumni Entrepreneurs Friendship Association. He was awarded the honorary title of “Nankai Economic Centennial: One Hundred People” by Nankai University. He previously served as a standing committee member of the All-China Youth Federation, and deputy chair of the All-China Youth Federation for central and state organs, among other roles, and he continues to support the growth of young people, the development of small and medium-sized enterprises, and social innovation endeavors.

Table of Contents

Recommended Preface I

Recommended Preface II

Preface

Foreword

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

Section 1 Define Innovation in the Chinese Style—Systemic Innovation Driven by Problems

Section 2 From “Hegemony” to “Equality”—Technology Inclusiveness Brought by Extreme Cost Control

Section 3 Dare to “Stand on the Shoulders of Giants”—Industrial-Chain Coordination and Reuse Enable a “Catch-Up at the Bend”

Section 4 Reject “Self-Indulgent” Innovation—Big Markets Provide a Tolerance Space for Strategy-Level Industries

Section 5 Cultural Confidence Born Naturally—Chinese Brands Launch an Overseas Premium-Priced Expedition

Summary

Chapter 2 Industrial Resilience: Is the Next “China” Still China?

Section 1 Enlightenment: China’s Industrial Enlightenment Path (1990—2000)

Section 2 Evolution: China Manufacturing’s Path of Refinement (2001—2010)

Section 3 Correction: China’s Path of Economic Transformation (2011—2020)

Section 4 Future: Who Will Lead the World Factory

Summary

Chapter 3 Capital Transformation: A New Ecosystem for China’s Capital Markets

Section 1 The Necessity of Developing Capital Markets

Section 2 The Great-Power Specificity of Capital Markets

Section 3 China’s Capital Market Genes

Section 4 Challenges Facing China’s Capital Markets

Section 5 The Survival Rules of RMB Funds

Summary

Chapter 4 Crossing Cycles: 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 Certainties About the Rise of Great Powers

Section 3 The Lessons That Can Be Borrowed About Leading Great Powers

Summary

Acknowledgments