China's equipment manufacturing industry is currently facing challenges
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**Abstract** What are the steps in the transformation and upgrading of China's equipment manufacturing industry? How can it break free from the cycle of "high production value but low profit"? The challenges faced by China’s manufacturing sector are fundamental and complex. As the world's largest manufacturing country, China still relies heavily on foreign imports for high-end chips, power generation equipment, high-quality large castings, forgings, high-speed CNC machines, robots, and even nearly 100% of high-speed rail bearings. **The Largest Manufacturing Country, But Not the Strongest** Despite being the leading manufacturer globally, China struggles with critical weaknesses in its industrial foundation. For example, while China produces 85% of the world’s warp knitting machinery, the average export price is only 50.7% of the import price. High-speed, intelligent warp knitting machines are still not fully produced domestically. A marketing director from a Chinese textile machine company once remarked, “We can't even make a single machine for producing stockings.” This highlights the gap between scale and quality. According to Xu Liang, a former executive at Karl Mayer, the speed of these machines—up to 4,000 rpm—requires extremely high steel strength and precision. Any small mistake could result in a defective machine. China’s steel quality, heat treatment processes, and other foundational technologies are still several grades behind global leaders. **The Three Fundamentals: The Core of Industrial Strength** Basic components, basic materials, and basic processes—collectively known as the “three basics”—form the backbone of any advanced manufacturing system. Their level directly affects the performance, quality, and reliability of major equipment. However, China lags significantly in this area. Over 50% of its manufacturing technology depends on foreign sources, with over 80% of high-end chips and large castings imported. Experts like Wang Jun from the China Academy of Cars point out that while China has the capacity to produce large-scale equipment, it faces deep-seated issues in core technologies. The lack of self-sufficiency in key components has become a bottleneck, limiting the industry’s ability to transition from “big” to “strong.” **The Cost of Reliance** The reliance on imported components increases costs and exposes China to supply chain risks. For instance, high-pressure pumps, valves, and motors used in construction machinery are almost entirely imported, with 70% of industry profits going toward these parts. Additionally, the slow development of the “three basics” leads to poor equipment quality, reduced reliability, and shorter lifespans. China also faces a significant challenge in mass-producing high-quality materials. Around 25% of structural materials are still imported, and 45% of components are capable of being made but cannot be mass-produced. The energy consumption of China’s single-machine manufacturing is eight times higher than that of developed countries, and annual losses due to product quality issues exceed 200 billion yuan. **Why Is the Development of the “Three Basics” Lagging?** One reason is the traditional “reverse engineering” model. China has long focused on building whole machines first and then trying to develop supporting components later. While this approach helped meet immediate demand, it left gaps in basic research and core technology development. Moreover, the “heavy host, light foundation” mindset persists. Developing the “three basics” is less visible and takes longer to show results, making it less attractive for corporate leaders under current performance evaluation systems. Many research institutions have shifted focus from basic research to application and industrialization, further weakening the innovation chain. **The Role of Human Capital** High-quality workers are essential for achieving precision and continuous improvement in manufacturing. A case in point is a Chinese textile company that imported German machinery. Despite following the manual, workers had to adjust the final screw multiple times before the machine worked properly. In contrast, German and Japanese products are known for their reliability, largely due to the skill and discipline of their workforce. **Building a Stronger Manufacturing Base** To close the gap, China must prioritize the development of the “three basics.” These industries may have lower investment intensity, but they offer higher profit margins and are crucial for long-term competitiveness. As one industry leader noted, the profit margin of component manufacturers can reach 5.9%, compared to just 5% for finished equipment. Some companies are already taking steps. For example, Tonghe Textile Machinery, a relatively new player in the spinning machine market, captured over 75% of the market in Henan and Shandong within a year. Its success came from focusing on core components and improving quality and service. **Policy Support and Future Outlook** Government policies play a vital role in accelerating progress. Although initiatives like the “Twelfth Five-Year Plan” and the “National Transformation and Upgrade Base Project” have been introduced, more concrete measures are needed. Entrepreneurs call for preferential policies such as tax exemptions and interest-free loans to support the development of the “three basics.” With the recent emphasis on technological independence and innovation, there is hope that the “three basics” will finally receive the attention and investment they deserve. As one expert put it, “It’s time to shift from expanding capacity to developing unique, high-quality products.”

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