Zheng Yongnian: Building a Modernized Industrial System and Chinese Modernization
The construction of a modernized industrial system is a critical component of Xi Jinping Thought on Economy. On May 5, 2023, General Secretary Xi Jinping presided over the first meeting of the Central Financial and Economic Affairs Commission of the 20th CPC Central Committee to study the issue of accelerating the construction of a modernized industrial system. He emphasized that "a modernized industrial system is the material and technological foundation of a modern country. The focus of economic development must be placed on the real economy to provide strong material support for achieving the Second Centenary Goal." On April 30, 2025, while presiding over a symposium in Shanghai on the economic and social development of certain provinces and municipalities during the 15th Five-Year Plan period, General Secretary Xi Jinping stressed that planning for this period requires a forward-looking grasp of how developments in the international situation affect our country, as well as capitalising on favorable trends [1] to adjust and optimize the economic layout. "The CPC Central Committee's Proposals for the Formulation of the 15th Five-Year Plan for National Economic and Social Development," deliberated and adopted by the Fourth Plenary Session of the 20th CPC Central Committee, ranked "constructing a modernized industrial system and consolidating the foundations of the real economy" as the top strategic task and provided a systematic deployment for it.
From an international perspective, the construction of a modernized industrial system is also the core content of contemporary world political economy. In an era of uncertainty, all countries without exception pursue the construction of modernized industrial systems. Today, as humanity welcomes a new round of technological revolution and industrial transformation, the construction of modernized industrial systems has become the focal point of competition among major nations globally. Although an increasing number of countries face internal social and political problems, the root of many of these issues is economic—specifically, problems related to modernized industrial systems. Even though some developed countries possess frontier technologies and frontier economies in terms of industrial modernity, they exhibit characteristics where their industries are unsystematic, incomplete, and uncoordinated. For the vast number of developing countries, industrial systems present even more problems, including the inability to develop industry at all, incomplete industries, or industrial technology that remains stuck at the low end for a long period.
A country's industrial structure determines its economic structure, and the economic structure influences the social structure. An imbalance in industrial structure often leads to an imbalance in social structure, which may ultimately lead to political imbalance. Today, whether it is the problems faced by the United States or those faced by Europe, they are, to a large extent, caused by malfunctions in their industrial systems.
Whether it is the supply chain and industrial chain issues encountered by various countries under the impact of the COVID-19 pandemic, or the mutual sanctions between countries caused by the Russia-Ukraine conflict, all point toward a country's industrial system issues. In essence, the competition between nations today—especially between major powers—is centered on the competition of economic resilience.
In this regard, the realization of Chinese-path modernization needs to answer two key questions: First, as a major power, what kind of modernized industrial system do we need? Second, how can we build such a modernized industrial system? Researching these questions possesses significant theoretical value and practical significance.
I. What Kind of Modernized Industrial System China Needs as a Major Power
The first meeting of the Central Financial and Economic Affairs Commission of the 20th CPC Central Committee emphasized "promoting industrial intelligence, greening, and integration, and building a modernized industrial system characterized by integrity, advancement, and security." For a large economy like China, to achieve these goals, the modernized industrial system should manifest five major characteristics: "comprehensiveness, scale, diversity, density, and strength" (全、大、多、密、强).
First, "comprehensiveness" (全) means possessing a complete, comprehensive, and systematic industrial system. A modernized industrial system is a completely different concept for a large economy compared to a small one. Although all economies require industrial modernity, small economies have neither sufficient capacity nor enough space to construct a relatively complete industrial system. Because of this, a small economy often becomes dependent on a larger economy, or its industries are even embedded within a larger economy. That is to say, the security of small economies often needs to be guaranteed through external relations, manifesting as dependency. Large economies are different; they require a complete, autonomous, controllable, and advanced industrial system. Such a system ensures they can achieve sustainable development without being constrained by the external environment while simultaneously safeguarding national security.
Second, "scale" (大) means high production volume. China has a population of over 1.4 billion, and the middle-income group has exceeded 400 million, accounting for about 30%. Before the Reform and Opening-up, many of China's industrial outputs were insufficient, manifesting as a "shortage economy." Since the Reform and Opening-up, with the improvement of policies and technological progress, most of China's industries—especially those based on middle-to-low-end technologies—have achieved mass production. In the long run, a country's economic development must achieve a balance between supply and demand, particularly avoiding "capacity shortages." For example, although the United States is one of the wealthiest economies in the world, because it abandoned industries based on middle-to-low-end technologies, it experienced the phenomenon of "capacity shortage." This is also the problem its "re-industrialization" seeks to solve.
Third, "diversity" (多) means that economic activities must be diversified. Although our country is the only one in the world to possess all industrial categories in the United Nations industrial classification, this does not mean that we have the highest variety of economic activities. The phenomenon of "overcapacity" or the situation of economic "inward-looking competition" [2] (involution) is mainly caused by a lack of sufficient new types of economic activities. This so-called "involution" is the result of excessive competition over existing [3] economic activities. The fewer the types of economic activities, the more intense the competition and the more "involuted" it becomes. In recent years, the redundant construction and competition in some regions regarding artificial intelligence, computing power, new energy vehicles, and the low-altitude economy are typical examples. However, if more types of economic activities are released, the intensity of competition will naturally decrease. In many fields, because the reform of the government's administrative management system is not fully in place, there is over-regulation. For instance, some local governments have reduced highly localized, everyday economic activities for the sake of urban "aesthetics." Furthermore, some economic activities in high-tech fields are not permitted or cannot be implemented because relevant policies have failed to keep up. Only when economic activities move toward diversification can we effectively promote the systemization of modernized industry.
Fourth, "density" (密) refers to the density of economic activity. "Density" is different from "diversity." "Diversity" refers to the variety of economic activities, while "density" refers to the segmentation within the same economic activity. The more an economic activity is segmented, the higher its density, which is related to the division of labor. At the enterprise level, the "density" of economic activity in our country's enterprises needs improvement. Some enterprises still adopt the method of "producing everything themselves," involving almost no external supply chains or industrial chains. In the long run, due to a lack of competition, the technology owned by such enterprises will tend to fall behind. At the social level, "density" also manifests in whether the consumption preferences of all social strata can be met. For example, some people like to consume at high-end restaurants, while others prefer roadside stalls; some prefer to buy new shoes when their old ones wear out, while others prefer to have old shoes repaired. A dense industry should be able to meet the consumption needs of different social groups.
Fifth, "strength" (强) refers to the degree of advancement of the industrial system. This is usually measured by the level of technological development and is closely related to the development of new quality productive forces. Externally, to avoid threats such as "bottleneck" (stranglehold) technologies [4] and "decoupling and severing chains," we must focus on the development of new quality productive forces. Internally, developing new quality productive forces is the core and key to constructing a modernized industrial system.
II. The Construction of a Modernized Industrial System Must Properly Handle the Relationship Between the Traditional and the Modern
From an ideological and conceptual level, "new quality productive forces" is a strategic concept. New quality productive forces are the most central manifestation of an economy's modernity; without new quality productive forces as a solid material foundation, it is impossible to construct a modernized industrial system. From this perspective, new quality productive forces should be regarded as a strategic concept concerning national development, rather than referring to specific technologies and industrial sectors. Although new quality productive forces require specific technologies and industrial departments to manifest or represent them, equating new quality productive forces with these specific sectors would undoubtedly cause the concept to lose its intended strategic meaning.
General Secretary Xi Jinping emphasized that during the 15th Five-Year Plan period, we must place the development of new quality productive forces—tailored to local conditions—in a more prominent strategic position. With technological innovation as the lead and the real economy as the foundation, we must persist in advancing the transformation and upgrading of traditional industries, actively developing emerging industries, and planning for future industries ahead of time in a coordinated manner to accelerate the construction of a modernized industrial system. We must improve the national innovation system, stimulate the vitality of various innovation entities, aim at the frontiers of world science and technology, and exert continuous effort in strengthening basic research and improving original innovation capabilities, while rushing to make breakthroughs in key core technologies and frontier technologies. We must coordinate the integrated development of education, technology, and talent to consolidate the foundational and strategic support for the development of new quality productive forces. This is a scientific exposition on several important relationships that must be handled in building a modernized industrial system, including the relationship between the frontier economy and the catch-up economy, and the relationship between traditional industries and future industries. On a global scale, economies can be divided into frontier economies and catch-up economies; correspondingly, technologies can also be divided into frontier technologies and catch-up technologies. Because scientific and technological progress is constantly in a process of change, new quality productive forces must be an evolving concept. Future technologies shape future industries. Because of this, all economies, provided they have the capability, will pursue technological progress.
Particularly crucial is handling the relationship between new quality productive forces and traditional productive forces. We cannot simply regard traditional productive forces as backward, nor can we believe that new quality productive forces can solve all our problems. If governments at all levels hold such views, rushing headlong [5] as soon as they see something considered to be a "new quality productive force," it will have a very negative impact on the construction of a modernized industrial system. What a modernized industrial system emphasizes is industrial modernity, rather than the idea that only modern or future technologies represent modernity. Put simply, even traditional agriculture, forestry, animal husbandry, sideline production, and fisheries can possess modernity. Therefore, if one believes that only industry possesses modernity and ignores agriculture, forestry, animal husbandry, sideline production, and fisheries, an economy will surely encounter major problems.
In this regard, some Western countries have learned profound lessons. Take the United Kingdom and the United States under the dominance of neoliberal economics as examples. After the start of the British "Thatcher Revolution," the financial industry was regarded as the most modern industry and the one that would dominate the future economy; consequently, the British government abandoned manufacturing and shifted its focus of development toward finance. Although this industrial policy shaped the future City of London, the UK bid farewell to manufacturing from that point on. The UK originally possessed a relatively complete manufacturing system, but this policy led to a massive loss of British manufacturing. This error in judgment caused traditional industries to disappear and disconnected the UK from new manufacturing. Today, almost all of the UK's ailments—deformed industrial structure, underemployment, reduced local tax revenue, a shrinking middle class, and high social polarization—are related to this.
The situation in the United States is slightly better, but similar. After World War II, the United States formed a systematic and complete industrial system. However, after the "Reagan Revolution," the U.S. also relaxed financial regulations, leading U.S. capital to leave the American mainland along with its technology and flow to all parts of the world. This resulted in the "de-industrialization" situation the U.S. faces today. Although the U.S. has consistently held a firm grip on the world's frontier technologies, it lacks the capacity to produce middle-to-low-end products, and the daily commodities market is flooded with foreign products. De-industrialization has long been seen as the fatal wound of the U.S. economy, resulting in the loss of technology, employment, and tax revenue, and a rapid shrinking of the middle class. There is a high dependence on imports for middle-to-low-end products, while high-tech exports are restricted because they are seen as impacting national security. Thus, the trade deficit generated by middle-to-low-end imports cannot be balanced by high-tech exports, naturally leading to trade imbalances. However, once tariffs are used to solve this problem, it leads to domestic inflation and affects the people's livelihood.
Therefore, as an ultra-large economy, constructing a modernized industrial system requires a scientific understanding of the relationship between new quality productive forces and traditional productive forces. We must have a complete industrial system, which requires both developing new quality productive forces and consolidating traditional productive forces. Industrial upgrading can basically be divided into two types. For example: first, producing shoes and hats today, and producing electronic products tomorrow; second, continuing to produce shoes and hats, but increasing the technological content and added value of the products. The first is an upgrade between different industries—that is, upgrading from a traditional industry to a modern industry; the second is an upgrade within the same industrial category. Both types of upgrading are very important. Therefore, a scientific understanding of the relationship between new quality productive forces and traditional productive forces should be: on the one hand, shaping future industries by pursuing new technological progress; on the other hand, empowering old industries through new technologies to promote their upgrading and modernization.
In terms of policy implementation, this also requires attention to issues in two areas: first, we must vigorously develop new quality productive forces and new industries based upon them; second, for every new technology, we must avoid "rushing headlong into action" [6]. We cannot pour all resources into new industries while neglecting old ones. While developing new technologies, we need to consider how to use them to empower old industries and facilitate their upgrading.
III. Providing Safeguards for the Deep Integration of Scientific-Technological Innovation and Industrial Innovation
General Secretary Xi Jinping has emphasized that "new quality productive forces are led by innovation; they break away from traditional economic growth models and development paths for productive forces. They feature high technology, high efficiency, and high quality, and constitute an advanced state of productive forces that aligns with the New Development Philosophy." He further noted that we must "firmly grasp the primary task of high-quality development and develop new quality productive forces according to local conditions," and "strengthen the deep integration of scientific-technological innovation and industrial innovation." This series of important expositions by General Secretary Xi Jinping provides the direction and methodology for accelerating the development of new quality productive forces and building a modernized industrial system.
The history of world economic development tells us that in the development process of any economy, the importance of technological factors increases continuously. The process of moving from underdevelopment to a middle-income level is relatively simple. In the early stages of development, the costs of economic factors—including labor and land—are low, and people's requirements for environmental protection are not as high. Furthermore, there is vast room for economic growth, including large-scale infrastructure construction and manufacturing generated through the application of existing technologies. So long as capital is found to jumpstart development and effective policies are deployed, growth can be achieved. At this stage, for enterprises, profit can be made in almost any endeavor.
However, the process of moving from a middle-income level to a high-income level is much more difficult. First, the cost of production factors rises; second, space for new economic growth becomes scarce. Academic and policy research circles have thus proposed the concept of the "middle-income trap." In East Asia, the economies that successfully crossed the middle-income trap include Japan and the "Four Little Dragons" [7]. The primary reason was their realization of sustainable industrial upgrading based on technological progress. After reaching middle-income levels, these economies invested heavily in scientific-technological innovation, achieving a major industrial upgrade nearly every decade. Technological progress not only facilitated the elevation of traditional industries but, more importantly, added new economic activities. For society, these new activities expanded employment, increased worker income, and led to the continuous expansion of the middle-income group. For governments, they increased tax revenue, enabling greater investment in scientific research and the provision of more public services.
To develop new quality productive forces, we require a "troika" [8] to drive scientific-technological innovation: namely, basic research, the application and transformation of technology, and financial services. Summarizing the experience of economic history since modern industrialization, these three are indispensable.
Generally speaking, the subjects of basic research are universities and research institutes. The research activities of Nobel Prize winners are generally basic research. Most basic research occurs in universities or scientific research institutions. The state needs to provide a favorable environment for the research community to ensure they can pursue their research interests. The government plays an important role in the process of basic research; it must not only fund universities and research institutions but also create the laboratories and other facilities necessary for such research. It should also be noted that today, more and more large companies are undertaking basic research tasks. If the basic research in universities is mostly interest-oriented, then basic research in enterprises is mostly problem-oriented. The journey from basic research in universities to the application and transformation of technology is a long and complex process, whereas in enterprises, these two often interface seamlessly. It should be emphasized that this does not mean university basic research is no longer important; not all basic research can be undertaken by enterprises, and the importance of interest-oriented basic research will be eternal.
The subjects of the application and transformation of technology are enterprises. The market competition mechanism is the engine that drives enterprises to actively participate in and optimize the paths of transformation. Through mechanisms such as price signals and demand feedback, market competition pushes enterprises to dynamically adjust the direction of technological transformation. To gain an advantage in market competition for similar technological outputs, enterprises must continuously optimize transformation processes and control costs. This is reflected not only in competition between similar products but, more importantly, in the competition between technological paths where the superior survives and the inferior is eliminated. We must improve relevant competition mechanisms to drive enterprises to continuously invest in technological iteration and the optimization and upgrading of transformed technologies. Simultaneously, to enhance enthusiasm for transformation, the government needs to provide guidance through policy and set reasonable rules for the transformation of applied technologies, promptly rectifying "involutionary" [9] competition and other forms of disordered competition to regulate market order and ensure that transformation proceeds toward optimal efficiency.
The subjects providing financial services are generally financial institutions. Governments support basic research through the fiscal system; many countries worldwide do this. Of course, in developed countries, many private enterprises also engage in basic research or support university research in various ways. However, it is difficult for governments to support the transformation of applied technology because its risks are extremely high. Similarly, it is difficult for traditional banks to engage in such high-risk ventures. Based on this reality, venture capital emerged as a financial tool adapted to the high-risk characteristics of technological transformation. Practice shows that since World War II, many innovative achievements and industrial developments in the global manufacturing and real economy sectors have received key impetus from venture capital. Its role as a bridge connecting financial capital and technological transformation has been fully verified.
Since World War II, most original technologies have originated from basic research, which is then transformed into applied technology. Both basic research and technological transformation require sufficient and effective financial services. It should also be pointed out that in developed economies, finance is also the most powerful lever for facilitating the effective docking of basic research and technological transformation or realizing the integration of industry, academia, and research.
Therefore, the "troika" of basic research, application and transformation of technology, and financial services straightens out the overall logic of scientific-technological innovation through integrated advancement. This can also be termed the construction of a "Grand Research System."
IV. Boosting the Development of New Quality Productive Forces through the "Grand Research System"
How do we develop new quality productive forces? The theoretical level is already very clear, but transforming theory into reality still requires great effort, especially in the reform of systems and mechanisms.
The Third Plenary Session of the 20th CPC Central Committee proposed that education, science and technology, and talent are the foundational and strategic pillars of Chinese-path modernization, making important arrangements for the coordinated and integrated reform of systems and mechanisms in these three areas. The Fourth Plenary Session of the 20th CPC Central Committee [10] further proposed accelerating high-level self-reliance and strength in science and technology to lead the development of new quality productive forces. We must seize the historical opportunities of the new round of technological revolution and industrial transformation, coordinate the construction of a nation strong in education, science and technology, and talent, enhance the overall efficiency of the national innovation system, comprehensively strengthen autonomous innovation capabilities, and seize the commanding heights of technological development to continuously give rise to new quality productive forces. This indicates the high level of importance attached to the construction of the "Grand Research System."
Starting from the requirements of the "Grand Research System," there are still shortcomings in many institutions and factors, or certain relationships have not yet been straightened out, and there are problems in the management of scientific research. On one hand, this affects the allocation of research funds; on the other hand, it affects the definition of "scientific research." In academic and industrial circles, many people have a mistaken perception of the relationship between research and publishing papers, equating the two. Consequently, although the number of papers we publish has increased significantly, the rate of transformation remains low. Regarding research tools, some science and technology laboratories are disconnected and closed off from one another. Although there are more and more national laboratories, some are underutilized, resulting in waste. Turning laboratories from "many but not strong" to "both many and strong" requires systemic reform of systems and mechanisms. Problems also exist at the technological transformation end. For example, there is a lack of scientific understanding of the "industry-academia-research" process, and excessive demands are placed on those doing basic research to also perform technology transformation, which is detrimental to the development of basic research itself. The mechanism for training talent in applied technology also needs improvement. Theoretically, the cultivation and training of professional skilled talent has received enough attention, but this attention still lacks a transformation mechanism. Vocational schools, therefore, find it difficult to produce craftsmen, and even harder to foster the "spirit of the craftsman" [11].
In the field of innovation, some relationships have not yet been straightened out, and the system of cooperation based on the division of labor needs to be perfected. This includes both the relationship between state-owned enterprises and private enterprises, and between the central and local governments. Financial support for innovation remains to be developed. Strictly speaking, we still lack a financial system capable of supporting scientific-technological innovation. Some new technologies are acquired by foreign capital or forced to go overseas because of a lack of sufficient financial support. Generally speaking, whether at the enterprise or city level, any investment in technological innovation may eventually incubate new technologies and new economic activities based on them. How to develop a financial industry capable of providing sufficient financial services for future technologies remains a task we face. What connects industry, academia, and research should be a whole set of systems and mechanisms; reform in this area urgently needs to be accelerated. In China today, a large number of original technologies are emerging in various fields, especially in biomedicine, the internet, and artificial intelligence, but because regulation is not sufficiently scientific, some technologies find it difficult to take root.
How can such problems be solved? The following key points need to be considered:
First, top-down reform of systems and mechanisms is required. Many major reforms require top-level design and systemic promotion, such as the construction of an integrated industry-academia-research system, the creation of systems and mechanisms to support patient capital, the opening and coordinated use of national laboratories, and the national layout of the scientific-technological innovation system.
Second, the relationship between development and security must be handled well. Moderate regulation should be applied to the implementation of enterprise technology; in terms of environmental protection and labor rights, regulation must draw bottom lines and "red lines." Meanwhile, in the era of economic globalization, we must strengthen cross-border scientific research collaboration and risk prevention.
Third, pilot reforms must be conducted in experimental zones. Within the system of "rank and file" management [12], it is difficult to achieve effective reform through the vertical "ranks" (functional departments). Because reform involves too many departments, many efforts easily lead to fragmentation and compartmentalization. Therefore, effective reform can be carried out through the "files" (geographic blocks/localities), giving these blocks full and complete authorization. Because such authorization often comes as a "policy package," the reform can achieve systematicity and effectiveness. On this basis, after summarizing replicable experiences, they can be spread and promoted to other places. It should be noted that a "block" can be either a specific geographical area or a functional field. In many cities like Beijing, Shanghai, Guangzhou, Shenzhen, and Hangzhou, one can find similar "blocks" where "Scientific-Technological Innovation Special Zones" can be established. In these blocks, various policies can be granted to truly realize the integration of industry, academia, and research based on the "troika" of basic research, applied technology transformation, and financial services, with the aim of achieving breakthrough innovation results that lead future industrial development while empowering existing industries.