Today is August 15, 2024, the 79th anniversary of Japan’s surrender. Air raid alarm have been sounded across the country, reminding the nation not to forget national humiliation and to strive for the development of the country.
Industry has always been the foundation of a country. After decades of development, China’s industry has become an indispensable part of the world economic development. So what does the current industrial landscape look like?
China’s industrial structure is divided into three tiers. The first tier is still firmly dominated by global brands, with some domestic companies competing with foreign brands in various sectors.
The second tier is mainly composed of large domestic enterprises, with some small foreign brands. The third tier consists of a large number of private enterprises, some of which are small factories run by one or two individuals, a common sight in the Jiangsu and Zhejiang provinces.
Let’s start with the first tier. The industrial sector is mainly divided into the machinery industry and the automation industry. In the machinery industry, the technological gap between domestic and international brands is narrowing, and domestic substitution can be achieved unless it is a critical industry. However, in some large enterprises, there is still a habitual preference for imported brands for reasons such as advanced technology, reliable quality, strategic development partnerships, and overseas support. Most Chinese companies can only provide local services and cannot offer global support. In the industrial automation industry, foreign brands still occupy a large market share, but this is gradually decreasing as domestic companies increase their technological investments. In some special industries, China has even overtaken others, with the most typical example being new energy vehicles. Due to a lack of significant breakthroughs in the engine sector, the emergence of new energy vehicles has propelled Chinese automotive companies to the forefront.
The second tier is mainly composed of large state-owned enterprises and large private enterprises, with some medium and small foreign enterprises also present. China has a strong demand for industrial products across various sectors, and downstream applications are extensive. Well-managed companies that have been operating for years can evolve into first-tier enterprises, with BYD being the most prominent example. BYD entered the automotive industry in 2003 and, after years of producing new energy vehicles, has now become a top-tier automotive company globally, with annual sales ranking in the top 10. However, many companies that fail to seize industry developments or timely transition may drop from the second tier to the third, or even face bankruptcy. Some of these foreign enterprises are also experiencing decline. For instance, Eaton’s low-voltage electrical division, originally leveraging its foreign brand status, has been continuously acquired by its parent company without being able to streamline its portfolio. As a result, its presence in the market is dwindling, with the once prestigious brand now struggling to compete with industry giants like ABB and Siemens in terms of technology or with domestic brands like Chint and Delixi in cost competitiveness.
The third tier embodies the diligence and wisdom of the Chinese working class. If high IQ and highly educated talents in China are being recruited by foreign enterprises and large state-owned enterprises, then those who are not highly educated but exceptionally astute businessmen form a vast third tier. They may have started as technical personnel in companies or as self-made entrepreneurs. They are ubiquitous across the 41 industry classifications in the Chinese national economy, dealing with everything from fishing rod batteries to excavators. These millions of small and medium-sized enterprises constitute the resilience of China’s industry; they are hardworking, resilient, and highly adaptable.
Foreign brands have moved beyond the realm of myth. The thirty years of China’s industrial backwardness provided ample time for the development of foreign brands. After another 30 years of development, China’s industry is catching up, although the process has been challenging. Originally managed solely by foreigners, foreign enterprises are now increasingly localized, with fewer foreign executives in China leadership positions. They are now competing side by side with private enterprises. In the future, the halo of foreign companies will fade, and they will be just one of the many industrial players, competing with Chinese enterprises on technology, pricing, and services.