Editor's note: Ma Xiaobai is director of the Research Office of Multinational Enterprises, the Research Institute of Enterprises under the Development Research Center of the State Council; Dr. Chen Gong works at the  Education and Training Center for Officials and Entrepreneurs under the State-owned Assets Supervision and Administration Commission of the State Council. The article reflects the authors' opinions and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity.

As the new round of technological revolution and industrial transformation advances in depth, China faces profound changes in both domestic and international environments. The Chinese economy has shifted from a stage of high-speed growth to one of high-quality development. At the Central Economic Work Conference, it was further stressed that China should promote industrial innovation through technological innovation, especially by using ground-breaking and cutting-edge technologies to foster new industries, new models and growth drivers, and develop new quality productive forces.

In recent years, China's technological innovation capacity has grown markedly, providing robust momentum for economic development. In 2024, China climbed to 11th in the Global Innovation Index, with its total R&D expenditure ranking second in the world. China was home to 463,000 high-tech enterprises, including 169,000 industrial high-tech enterprises above the designated size. Meanwhile, the country also led the world with 26 science and technology clusters in the global top 100. Data from this year indicates that the effectiveness of technological innovation in driving economic and social development is steadily strengthening:

Firstly, qualitative improvements have been consolidated. Technological innovation and green, low-carbon development have become defining features of China's high-quality industrial growth. Since the first half of this year, the integration of technological innovation and industrial innovation has advanced further, with new quality productive forces, represented by high-tech manufacturing and green products, steadily expanding, while the trend toward higher-end and more sustainable production continues. In July, value added in high-tech manufacturers above the designated size rose 9.3 percent year-on-year, with industries such as integrated circuits and specialty electronic materials manufacturing increasing by 26.9 percent and 21.7 percent, respectively. Output of green and low-carbon products has also witnessed rapid growth, with output of new energy vehicles, lithium-ion batteries, and wind turbines up 17.1 percent, 29.4 percent, and 19.3 percent in July, respectively.

Secondly, new drivers are steadily emerging. Fueled by intelligent transformation, digital product manufacturing and smart product production have maintained strong momentum, while the digital-intelligence transition is advancing steadily. In July, value added in digital product manufacturers above the designated size grew 8.4 percent year-on-year, consistently outpacing the overall growth of industrial enterprises above the designated size. Specifically, intelligent equipment manufacturing grew 13.4 percent, and electronic components and equipment manufacturing rose 11 percent. Artificial intelligence applications are advancing rapidly, giving a strong boost to related industries. In July, value added in the manufacturing of smart unmanned aerial vehicles and smart in-vehicle devices soared 80.8 percent and 21 percent, respectively, while production of industrial robots and service robots expanded by 24 percent and 12.8 percent, respectively.

However, we must also recognize that China's capacity for scientific and technological innovation still lags behind the world's most advanced levels: The supply of high-quality, original, and game-changing technological innovations remains insufficient, and heavier technological investment is still needed. In 2024, basic research expenditure accounted for 6.91 percent of the total social R&D spending in China, which yet fell far behind the 16-18 percent typically seen in the US in recent years. The conversion rate of scientific and technological achievements into practical applications was relatively low, standing at around 30 percent, well under the 50 percent or higher levels common in developed countries. In addition, there are still bottlenecks and challenges in transforming technological innovation into actual productive forces. The external environment remains complex and severe, with heightened instability and uncertainty. In the domestic market, supply remains stronger than demand, with salient problems such as significant supply-demand mismatches in some sectors and industrial enterprises facing profitability pressures. In July, the purchasing managers' index stood at 49.3 percent, remaining below the expansion/contraction line for four consecutive months. The nationwide producer price index declined 0.2 percent month-on-month, while in the first half of the year, profits of industrial enterprises above the designated size fell by 1.8 percent. Meanwhile, the consumer price index stayed at a low level, still falling short of the annual target of approximately 2 percent.

In order to better respond to internal and external risks and challenges, enhance China's technological innovation capacity, and expedite the conversion of technological innovation into new quality productive forces, efforts must focus on three key areas:

Firstly, we must resolutely promote industrial upgrading and quality improvement through technological innovation. The primary task for sustaining China's economic growth in the future is to shift from the old investment-driven, scale-oriented development model to a new model powered by technological innovation and focused on quality. Its ultimate goal is to build a modern industrial system and foster new quality productive forces. 

During the 15th Five-Year Plan period (2026-2030), China's economic development priorities will center on advancing high-end, intelligent, and green transformation of its industrial system while expanding strategic emerging industries and cultivating future industries. These strategic emerging industries and future industries will be driven by technological innovation and distinguished by features such as high technological sophistication, high value-added, and low pollution. In today's uncertain global landscape, China must remain committed to strengthening the supply of high-quality technological outputs, enhancing basic research and original innovation capacity, and preserving the international competitiveness of its industries. In this way, it can address the external uncertainties with the certainty of industrial upgrading driven by technological innovation.

Secondly, "involution-style" competition must be vigorously curbed. Currently, some Chinese enterprises have fallen into a vicious cycle in which the harder they work to increase production, the cheaper their products are sold, and the thinner their profit margins become. They face the dilemma of "more output without more revenue" and "more quantity without greater profit". To comprehensively address the "involution-style" practice in manufacturing, it is recommended to improve mechanisms for technological innovation to steer corporate behavior toward value creation; optimize collaborative innovation mechanisms for industrial chains to foster mutually beneficial ecosystems; improve market supervision systems to prevent platforms from developing monopolistic power; expand domestic demand across the board to alleviate overcapacity in certain sectors; advance the development of a unified national market to improve factor mobility and supply-demand matching efficiency; and strengthen industry self-discipline mechanisms to encourage enterprises to undertake corporate social responsibility.

Thirdly, continuous efforts should be made to optimize the business environment and unleash the endogenous momentum of technological innovation. Enterprises engaged in technological innovation are typically characterized by high technological sophistication, heavy investment, light assets, and long development cycles. To achieve more original technological breakthroughs, it is essential to carefully refine targeted measures that optimize the business environment suitable for technological innovation. The principal role of enterprises in technological innovation should be reinforced, with enterprises of all ownership types encouraged to participate jointly in major science and technology projects. Long-term support must be ensured for enterprises engaged in technological innovation, including the expansion of patient capital and greater support for facilitating credit access for technology start-ups. At the same time, policy support for attracting core talents in technological innovation should be strengthened, with more institutional frameworks established for recruiting high-end professionals. Greater efforts should also be made to bring in overseas talent and to provide various support services that make it easier for global scientific and technological talent to conduct research and development in China.