Today, I read an article worrying about China’s de industrialization, and the analysis is reasonable. In the 10 years since 2010, the proportion of secondary industry in China’s economy has decreased from 46.5% to 37.8%, while the proportion of tertiary industry has increased from 44.2% to 54.5%. On the good side, the economic structure is upgraded from the secondary industry to the tertiary industry; on the bad side, the secondary industry is shrinking too fast, which means that the industry is hollowing out. After all, China is not a high-income country and still needs manufacturing industry to build a country.

From the perspective of industry segments, the shrinking proportion of manufacturing industry has been more obvious. Industry is the main component of China’s secondary industry. In the past 10 years, the proportion of industry in the economy has decreased from 40.1% to 30.1%, a decrease of 10 percentage points. The proportion of the tertiary industry increased rapidly, among which the proportion of the financial industry increased from 6.2% to 7.8%, and the proportion of the real estate industry increased from 5.7% to 7%. Considering that many industrial enterprises are more closely related to the real estate industry, and some enterprises rely on factory buildings and land value-added to make a living, the real proportion of the real estate industry is much higher than the statistical data.

Although the gradual decline of the proportion of manufacturing industry is in line with the current law of China’s economic development, it is unhealthy for the proportion of manufacturing industry to drop by 10 percentage points in the past 10 years. We should know that South Korea, whose per capita output value is higher than China’s, is still climbing in the proportion of its manufacturing industry in recent years. There are many reasons for the rapid decline of the proportion of manufacturing industry in China, including the rising cost of labor, land price and other factors, the rapid development of indirect financing squeezing the profits of the real economy, the crowding out effect of real estate on manufacturing industry, and so on.

In order to reduce the squeeze on the manufacturing industry, the policy will be further adjusted, focusing on the financial industry and the real estate industry. In the reform of the financial industry, the general direction is to expand the proportion of direct financing, such as the full implementation of the registration system. The direct financing market is mainly the stock market and bond market, and the secondary market investment will usher in a new spring. It also requires the indirect financing financial institutions represented by banks to give up their profits and squeeze the profits from the tertiary industry represented by finance and real estate to the industry, especially the secondary industry represented by high-end industry. The real estate financing policy has been tightened, and the next step is to guide the released liquidity to the real economy, especially the manufacturing industry.

The capital market of direct financing is more market sensitive than the banking institutions of indirect financing, and has more advantages in promoting the transformation and upgrading of manufacturing industry. In particular, the development of high-tech manufacturing industry, which lacks sufficient collateral, relies heavily on the support of capital market. Taking the robot industry as an example, since 2013, China has been the world’s largest demand market for industrial robots, which is warmly sought after by the capital market. China is also the world’s largest producer of industrial robots. In 2020, the number of industrial robots produced in China will reach 237068, a significant increase of 19.1% over the same period of last year. Most of the enterprises have obtained direct financing support from the capital market.

In the high-end manufacturing industry represented by robots, there is still a lot of room for development and good investment opportunities in China. Although China is the largest producer and consumer of industrial robots, there are still many shortcomings. According to one of the goals of the “made in China 2025” plan proposed in 2014, local robot manufacturers should provide half of the domestic market by 2020 and 70% of the domestic market by 2025. However, we have failed to achieve the 2020 target. In view of this, policy support will only increase, and there is great room for imagination in related fields in the future.

At present, there is still a big gap in core technology between domestic robot brands and foreign top brands. Especially in high-end industries such as automobile and 3C manufacturing, foreign brands are still dominant. As the two core components of industrial robot, the manufacturing of reducer and servo motor is mainly dominated by Japan. More than 75% of the reducers used in China are imported from Japanese engineering companies, which account for more than one third of the cost of industrial robots made in China. Driven by the market and supported by policies, there will be domestic substitutes in these fields in the future, and some leading enterprises in subdivision fields will grow up, which investors can focus on.

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Editor Lynn

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