How's China's manufacturing push doing, and what still needs to be done?

Nearly five years after the US-China trade war began throwing wrench after wrench into the workings of an ambitious plan to upgrade the nation's hi-tech industries to Western levels, Beijing's strategic pivot has become increasingly evident.

By introducing a variety of programmes to bolster China's strength and resilience in global supply chains, leaders are trying to make it clear just how critically important the nation's industrial catch-up has become.

China's top two officials, President Xi Jinping and Premier Li Qiang, have taken the lead in repeatedly stressing this endeavour as of late - underscoring the continued importance of the manufacturing sector to the nation's "real economy" in the face of profound changes and challenges in both the domestic and international environment.

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Central government authorities have long strived to maintain the size and scope of China's manufacturing sector to create sufficient jobs while attempting to move production up the value chains.

But the urgency has intensified as Washington's technology curbs, such as its ban on high-end chips, have further complicated efforts - hundreds of Chinese companies are now included on a US blacklist, known as the Entity List, that bars their access to American technology, parts and market.

These types of measures pose unprecedented challenges to both Chinese industries and the nation's economy.

Meanwhile, the world's second-largest economy is in an all-out push to recover from the downturn of the coronavirus pandemic, with efforts to boost market confidence in its private sector.

Chinese manufacturers are facing the risk of losing orders amid a potential global recession and Washington's trade barriers, which are resulting in a number of companies relocating their factories out of China.

Beijing is mobilising resources to produce and secure supplies of critically important technologies that have been cut off or restricted by the US.

Leadership is also keen on cultivating an army of "hidden champions" - an internationally used term to describe mid-sized enterprises that are integral to their industrial chains but generally go unnoticed.

For instance, China has the world's two most prolific producers of essential components for new-energy vehicle batteries - lithium hexafluorophosphate and wet process separators - that supply components to makers of electric vehicles.

China has a firm that holds more than 70 per cent of the global market for photoinitiators - key components in photopolymers - that are needed by companies such as Hitachi in Japan and Eternal Corporation in Taiwan.

Beijing has also identified "little giants" and rolled out schemes to add more potential candidates to the pool of advanced manufacturing enterprises and provide them with further support.

China now has more than 4,700 small and medium-sized speciality enterprises or niche market leaders with multiple patents and annual research and development investments of more than 10 million yuan (US$1.44 million), according to the Ministry of Industry and Information Technology (MIIT).

More than 80 per cent of them are in strategic industrial chains, which helps break through overseas technological barriers and upgrade the domestic industrial structure.

The industry ministry announced 45 national advanced manufacturing clusters last year, most of which are related to information technology, high-end equipment, new materials, biomedicine, high-end medical devices, new-energy and smart network-connected vehicles.

The output value of these advanced manufacturing firms reached 19 trillion yuan in 2021.

In Shanghai, more than 20 per cent of such firms have sales revenue of more than 100 million yuan, the local government data show.

"Manufacturing is an indispensable sector to China," President Xi said during the annual "two sessions" political gatherings in March. "It needs to move to high-end."

The MIIT announced in February that more than 90,000 small businesses would be nurtured - via financial incentives - to help them join the nation's advanced manufacturing army by the end of the year. Beijing alone aims to cultivate or upgrade 10,800 such firms.

Chinese authorities have already stepped up the construction of charging stations while promoting the consumption of new-energy vehicles in rural areas.

The country is also accelerating supportive policies in areas such as 5G, artificial intelligence, bio-manufacturing and digital economy, while providing better services to boost business confidence in these fields, the MIIT's chief engineer, Zhao Zhiguo, said at a State Council press conference in April.

And the manufacturing hub of Jiangsu province announced in March more financing support for SMEs involved in advanced manufacturing, while trying to boost capital investments in SMEs.

This article originally appeared on the South China Morning Post (SCMP).

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