The first-quarter economic data has been released.

GDP grew by 4.5% year-on-year, returning to normal operations.

However, the string of red figures in the charts circulating online in recent days is truly alarming.

▲ Although local authorities have not separately released profit figures for large-scale industrial enterprises, media verification confirms that at least some of the data is accurate.

Regardless of the data’s authenticity, provinces with strong private sectors are indeed facing tough times.

Traditional industries, in particular, are approaching the “ceiling” of rapid growth and urgently need a blade to pierce through that ceiling.

Industrial upgrading is the cutting edge.

Toray Industries of Japan started out simply producing fabric for clothing.

But in 1959, Toray began researching carbon fiber technology and has since become a global giant in fiber materials. It supplies fabric to Uniqlo and manufactures wings for fighter jets.

With 48,000 employees worldwide and annual revenue exceeding 2 trillion yen—equivalent to over 100 billion yuan—the company has achieved remarkable success.

However, in China, among the apparel companies we’ve encountered in the Jiangsu and Zhejiang regions, few with 4,000 to 5,000 employees can achieve annual revenue of 1 billion yuan—and even those that do are typically top-tier contract manufacturers for foreign brands.

If they only engage in downstream contract manufacturing, no matter how successful they are, they can only earn one-tenth of what others do, and their profit margins are also just one-tenth.

Now let’s look at the other end of the “smile curve”—the sales side.

Ruyi Group is a titan in the textile and apparel industry in Shandong and across China.

Over the past decade, Ruyi Group leveraged government-guided funds to spend 40 billion yuan acquiring brands such as France’s SMCP, Japan’s RENOWN, the U.S.’s INVISTA, and Hong Kong’s Libang, in an attempt to build a Chinese version of the LVMH Group.

However, in 2020, hit by the pandemic, the group struggled to service its tens of billions in debt and nearly went bankrupt.

In fact, there is room for industrial upgrading at both ends of the smile curve. While new technologies and materials are certainly important, more refined and efficient operational and sales management are equally crucial.

Zara and H&M achieve sustained growth through seamless integration of pattern libraries, supply chain optimization, rapid-response production, and store inventory systems.

Yet many Chinese apparel companies, despite their scale of tens or even hundreds of billions, rely on TikTok for pattern design, pressure factories with payment terms for production, and manage costs by calling store managers.

At first glance, it seems legitimate; upon closer inspection, it resembles fortune-telling.

With such crude practices, they haven’t even reached the threshold of companies like Zara, and it won’t be long before they’re run over by firms like Shein.

If China can upgrade both the upstream and downstream sectors of the industry—

securing control over raw materials, core equipment, and production models upstream, while maintaining stable operational efficiency downstream—then we will certainly break through the ceiling and carve out a significant slice of the pie.

First, this slice of the pie will inevitably be distributed within the industry, primarily through corporate investment.

Smart entrepreneurs don’t mistake temporary success for permanence. It’s not hard to see that industry giants like Huawei, BYD, and CATL are all continuously increasing their industrial investments.

New technologies, new materials, and new equipment: hard investments.

New brands, new designs, new channels: soft investments.

This will directly lead to a shortage of talent in mid-to-high-level positions, so the "Kong Yiji" types need not rush to hang up their long robes.

Science majors should focus on lab work, while humanities majors should work hard to build their influence.

Second, this growth will inevitably spread to related industries.

Take a fabric manufacturer (Company A): they’ve developed a new fabric, but to determine if it’s practical in a production setting, they’ll need to consult a sewing machine manufacturer (Company B).

Company B will then need to hire a few mechanical engineering experts to work on the production line and perform debugging.

Once the data is in, how do you analyze it?

Then we’ll reach out to our partner company C and have their advanced manufacturing department send someone over.

Industrial upgrading is often a matrix-style process—for example, smart manufacturing that integrates automation, chemical engineering, electronics, and communications. It’s like a meal where several groups of people can enjoy it together.

Finally, there are the spillover effects.

New factories, office buildings, and retail stores mean steel and concrete are sold, and construction workers and sales associates get back to work.

This also brings new orders for home renovation, furniture, and logistics.

When thousands of local employees with purchasing power gather, demand for infrastructure and tourism emerges, and small businesses begin to thrive.

A small breakthrough in a niche sector can lead to prosperity for hundreds of thousands of people. This is why regions across the country are vigorously attracting investment and promoting industrial upgrading.

However, the rosy picture painted above hides many unspoken implications.

First, how can we convince companies to invest time and money in pursuit of a remote possibility?

This implies that companies must believe they can survive for a decade or two—or at least that they need only focus on operational risks, without the threat of sudden changes to the business environment.

This isn’t something that can be resolved simply by making a few slogans about “optimizing the business environment” or offering tax breaks like “three years of exemption and two years of half-rate.”

Above all, institutional safeguards for intellectual property rights must be established, and confidence must be fostered through consistent enforcement.

If promises become obsolete within two or three years, entrepreneurs will always be ready to pack up and leave.

Second, do company employees actually have the purchasing power?

If industrial upgrading is achieved but ordinary employees’ wages remain low, then only the boss gets rich.

How many yachts would he have to buy to prop up consumption?

However, relying solely on corporate goodwill is insufficient to genuinely raise the wages of ordinary employees. This requires relevant laws and regulations to provide a safety net and exert pressure on companies.

Furthermore, transforming higher wages into higher consumption requires adequate social safety nets.

If people are still forced to save excessively to prepare for risks, they will lack the desire and confidence to consume that the domestic economic cycle requires.

Third, can small and medium-sized enterprises (SMEs) keep up?

Industrial upgrading inevitably leads to increased efficiency—for example, smart manufacturing plants, ChatGPT, and GPT-4—which will inevitably result in reduced staffing and unemployment in specific sectors.

However, as long as there is net job growth, unemployment in the industrial sector can be readily converted into employment in the service sector.

For example, working as a delivery driver or a Didi driver.

Or running small shops that grow into small and medium-sized enterprises capable of employing dozens of people.

But if the local business environment is monopolized by large enterprises, if the local service industry is closed to outsiders, and if local financial services only support large enterprises...

...then they will lose the opportunity to participate in this growth.

In short, industrial upgrading is our only way forward.

But industrial upgrading is merely the tip of the blade.

We also need the handle of reform—encompassing multiple departments such as taxation, social security, industry and commerce, industry and information technology, and economic and information technology—to firmly grasp this knife, to slice into the pie, and to transform it into employment and prosperity for the majority.

Without the blade, we cannot pierce through; without the handle, we cannot hold it.

To put it more bluntly, without this handle, there wouldn’t even be a blade.