In 2019, the total scale of R&D expenses of China’s top 500 manufacturing enterprises reached 711.087 billion yuan (RMB, the same below), an increase of 8.63% over the previous year, and the R&D intensity was 2.14%, achieving the “three consecutive increases” in R&D intensity since 2016.

51198947-100 China is a global manufacturing power, but the problem of large but not strong manufacturing still exists.

Data show that in 2018, China’s manufacturing value added accounted for about 30% of the global manufacturing industry, ranking first in the world. However, the average profit margin of China’s manufacturing enterprises is only 2.59%, lower than the average profit level of 4.37% of the top 500, and much lower than the 6.57% of the world’s top 500 enterprises.

The low profit of manufacturing enterprises not only means that the production of enterprises is in the middle and low end of the industrial chain, but also increases the vulnerability of enterprises, so that when enterprises encounter changes in the global economic and trade situation, the ability to resist risks is weaker, and their performance is more likely to be affected.

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51198947-100 Photo of Fa Lin for China News Service

How does China’s manufacturing industry get out of the “Libby paper thin”? How do you go from big to big?

Enhance innovation capability

China’s manufacturing industry out of the “Libby paper thin”, you need to break the smile curve. At both ends of the smile curve, enterprises obtain high profits with technology, patents, brands and services, and at the bottom of the smile curve, enterprises can only obtain small profits by relying on assembly and manufacturing.

51198947-100 For a long time, Chinese enterprises have become the world’s production and assembly factories with low factor costs and scale advantages, and have obtained low profits. In recent years, with the increase of production materials and labor costs, the profits of manufacturing enterprises have become thinner, so that some enterprises can only operate in a bleak situation.

How can this be changed?

Liu Wenqiang, vice president of the China Electronics and Information Industry Development Institute, pointed out that to break this situation, China must strengthen the construction of innovative talents, and promote the manufacturing industry from the low-end of the industrial chain to the high-end through technological breakthroughs and technological innovation.

51198947-100 In other words, Chinese manufacturing enterprises to change the status quo of low profits, it is necessary to adjust their position in the smile curve.

Many companies have realized this and are trying to change.

Data show that in 2019, the total scale of research and development expenses of China’s top 500 manufacturing enterprises reached 711.087 billion yuan (RMB, the same below), an increase of 8.63% over the previous year, and the research and development intensity was 2.14%, achieving the “three consecutive increases” in research and development intensity since 2016.

The international experience of Chinese manufacturing enterprises in enhancing their innovation capability is worth learning from.

In Germany, manufacturing leadership is not only created by large enterprises, but also supported by millions of small and medium-sized enterprises. Many of these smes are “hidden champions” who win the market in segments with technological innovation. A previous report by the German Savings Banks Association showed that the average profit margin of its small and medium-sized companies was higher than that of large companies.