Innovation seen as key to China's manufacturing edge

China's manufacturing gains have been driven by decades of investment in innovation, factory upgrades and a complete industrial ecosystem, rather than subsidies, experts said on Wednesday.

They made the comments after the Ministry of Commerce released a document on Tuesday titled "China's Position on the So-called Excess Capacity Issue" to clarify relevant facts and elaborate on China's policy stance on the matter.

The document said that the rapid development of China's modern industries is driven by innovation, and that stable and healthy operation of these industries relies on the continuous deepening of reforms.

During the 14th Five-Year Plan (2021-25) period, China's spending on research and development expanded by around 10 percent annually, making it the world's second-largest investor in R&D. Basic research accounted for more than 7 percent of total R&D expenditure in 2025, the highest level on record, the document noted.

Jorg Gnamm, head of global manufacturing at consulting firm Bain & Company, said: "China's next phase of growth will be defined not simply by producing more goods, but by exporting advanced manufacturing capabilities, industrial know-how and scalable innovation. It is not only about China capturing more of the pie. It is also about Chinese capabilities being combined with global ecosystems."

As geopolitical tensions prompt some multinational companies to diversify production, debates have intensified over whether China's expanding manufacturing capacity is crowding out industrial economies elsewhere — a claim that China has repeatedly refuted on various occasions.

Gnamm said the framing overlooks what increasingly distinguishes China's manufacturing sector.

"What stands out in China is the combination of scale, speed and the ability to integrate across the full value chain. That enables what we call impact at scale," he said.

In June, the World Economic Forum added eight Chinese factories among a new batch of 16 Global Lighthouse Network factories. It means that China now hosts 109 of the world's 238 Lighthouse factories, which are widely seen as the benchmark for the most advanced plants worldwide.

Gnamm said China's manufacturing ecosystem remains structurally distinct due to its complete domestic supply chains and rapid innovation cycles.

"China has almost the entire value chain within one country at massive scale. That creates a very different environment for deploying advanced manufacturing," he said.

Quan Heng, Party secretary of the Shanghai Academy of Social Sciences, said in an interview that overcapacity should refer to production that exceeds market demand, rather than output that surpasses domestic consumption but meets international demand.

"The United States exports semiconductors worldwide, Boeing sells aircraft far beyond domestic demand and Germany, Japan and South Korea all export automobiles on a large scale," Quan said.

"Likewise, China's exports in green industries are built on strengths in research, integrated supply chains, skilled human capital and its vast domestic market. They represent internationally competitive production capacity rather than overcapacity."

China is now betting that another wave of industries — including AI, robotics and innovative pharmaceuticals — will become the next growth drivers.

The Ministry of Industry and Information Technology said the country's industrial robot exports rose 18.6 percent year-on-year in the first half, reaching 141 countries and regions, while exports of surgical robots jumped 3.3-fold as Chinese-made medical technologies gain wider recognition abroad.

Wang Xiaosong, a professor at the School of Economics at Renmin University of China, said: "China understands that there are no shortcuts in scientific research and technological development. Nor can an innovation advantage be copied — it has to be earned through sustained efforts and breakthrough after breakthrough."