Before we knew it, traditional industries had become the “black sheep” of the family…

Due to a variety of factors, the government has used measures such as environmental regulations, taxation, and relocation to phase out “backward production capacity,” leaving traditional industries struggling to survive.

Gradually, “traditional industries” have come to be defined as “low-end industries.”

When it comes to attracting investment, most regions either target “high-tech, precision, and cutting-edge” sectors or at least require some connection to “smart technology.”

But aren’t high-end industries built brick by brick? In other words, traditional industries are the cornerstone of high-end industries.

In the process of attracting investment, strategies like “emptying the cage to welcome new birds,” industrial relocation, and transformation and upgrading are certainly valid. However, in a sustainable economic system, Fortune 500 companies, unicorns, industry leaders, specialized, refined, distinctive, and innovative enterprises, as well as small, medium, and micro-enterprises across various niche sectors, coexist.

It is like a forest ecosystem: it needs not only large trees but also shrubs, and it certainly cannot do without moss, lichen, and other elements.

Traditional industries are our foundation

Not long ago, the Central Financial and Economic Affairs Commission emphasized that “we must persist in promoting the transformation and upgrading of traditional industries; they should not be simply phased out as ‘low-end industries.’”

This marks the first time senior leadership has mentioned “low-end industries,” and it also charts a course for their development.

What exactly does this sudden mention “imply”?

Traditional industries may be regarded as “low-end industries,” but they must not be allowed to simply exit the market, much less relocate overseas; instead, we must promote their transformation and upgrading.

Why is this the case?

Due to their low added value, limited technological content, and position at the lower end of the industrial chain, these industries have gradually become targets for local governments to “phase out.”

For these "traditional industries," it may come as a surprise that, even though they have not yet been "phased out" by the market, they are being ordered by cities to "step aside" first.

This reflects a misunderstanding.

First, there is a disconnect between high-end industries and traditional industries, overlooking the fact that traditional industries are a vital source for fostering new growth drivers.

Second, there is a failure to fully clarify the relationship between government and the market, leading to the use of administrative measures to clear out traditional industries in an attempt to achieve transformation and upgrading.

Consequently, local governments “tout” high-end industries in their investment promotion efforts; everyone wants to be seen as advanced, and once industries become high-end, the desired outcomes naturally follow.

Consequently, there is a relentless focus on attracting large enterprises and major projects, with full support directed toward strategic emerging industries, while the cultivation of traditional industries is neglected—or even squeezed out of their development space, forcing them to yield and relocate.

It is fundamentally wrong to view “traditional industries” and “high-end industries” as mutually exclusive and opposed.

To put it bluntly, this is precisely how “industrial hollowing-out” arises.

Consider this: once traditional industries have disappeared, it is unrealistic for high-end industries to thrive in isolation. After all, “high-tech, precision, and cutting-edge” projects require an industrial foundation, a market environment, and upstream and downstream support systems.

Only by integrating with mid-to-low-end industries can we form a comprehensive and well-rounded industrial and supply chain ecosystem.

Transformation and upgrading present an opportunity

Some argue that upgrading traditional industries is the best shortcut.

Conversely, abandoning traditional industries to start from scratch in developing new ones is generally difficult for most cities to achieve.

Traditional industries remain the backbone of “Made in China,” accounting for 80% of industrial added value from enterprises above a certain scale. For instance, traditional industries such as textiles, apparel, home appliances, and food are vital to the national economy and people’s livelihoods; they generate significant employment and account for a high proportion of exports, making them crucial sectors for stabilizing employment and foreign trade.

At the same time, traditional industries are also a vital source for fostering new growth drivers; strategic emerging industries such as new energy and new materials all stem from the transformation and upgrading of traditional industries.

Therefore, traditional industries remain the primary “suppliers” to high-tech industries; even intermediate stages of high-end industries still rely on support from traditional industries.

Take the production of a single garment as an example:

Cotton is produced in Xinjiang—spun into yarn in Shandong—processed into fabric in Jiangsu and Zhejiang—shipped to Guangdong for garment manufacturing—sold in first- and second-tier cities—and as companies grow, they list on stock exchanges in these cities

In recent years, one term has been mentioned most frequently: industrial upgrading.

It was previously believed that industrial upgrading meant replacing the old with the new, with traditional industries becoming "old growth drivers" and emerging industries becoming "new growth drivers."

However, this is not the case.

Industrial upgrading involves a shift toward economic activities with higher productivity and greater value-added, and technological progress is the fundamental driving force behind this shift.

As markets and times have changed, enterprises have realized that the old, extensive, and high-cost manufacturing model is no longer viable and must be transformed. They have invested heavily in purchasing more advanced, intelligent equipment, attempting to improve quality and efficiency through “replacing humans with machines” to revitalize their operations.

From this perspective, industrial upgrading is “endogenous,” with its primary driving force arising from the industrial development process itself—that is, from corporate innovation.

As local governments, their role in industrial development should be to promote enterprise growth and guide industrial transformation and upgrading, rather than directly stepping in to act as “referees.”

During industrial transformation and upgrading, on the one hand, we must avoid a piecemeal approach that merely treats symptoms without addressing root causes; on the other hand, we must reject unrealistic, impractical “castles in the air” and instead listen more closely to the practical ideas of entrepreneurs.

Change in Government-Enterprise Relations Is the Trend

As “investment transformation” and “investment promotion transformation” evolve, reforming investment promotion methods becomes imperative.

Through experience and accumulation, many regions now host enterprises in the same industries. Once a clear industrial positioning is established, investment promotion efforts naturally gain direction.

Over time, as enterprises operate within the same industrial chain, their interdependence grows, generating external economies within the region that reduce costs and foster technological innovation.

Whoever establishes an industrial ecosystem first will gain a competitive edge in attracting investment. Simply put, once an industrial ecosystem is formed, competitiveness follows. Whether developing high-tech industries or strategic industries, the conventional mindset of “transplanting” industries is unwise; establishing industrial parks and building new cities are the most common approaches.

What matters is analyzing the specific stage of the leading industry: is it an existing stage or a missing one? In industrial development, should the focus be on increasing industrial concentration and fostering large enterprises, or on addressing the lack of supporting infrastructure by clustering small and medium-sized enterprises?

Under equal conditions, the higher the degree of industrial agglomeration in a region, the lower the average industry costs within that region compared to other areas. This attracts more capital to the region’s leading industries, thereby further reinforcing industrial agglomeration.

In this context, corporate investment decisions are no longer solely driven by “cost-effectiveness”; while seeking maximum returns, companies also prioritize greater security and safeguards.

For investment promotion, the era of simply setting aside a plot of land and waiting for companies to come running is long gone. Competition for investment is now fierce; it is not uncommon for a company to receive multiple invitations to visit within a single day, and they directly “grade” and evaluate these options after their visits.

Consequently, local governments are racking their brains to devise strategies to keep projects within their own “territory.” Faced with the “offensive” from investment promotion agencies across the country, enterprises are becoming increasingly “level-headed.”

As companies invest in upgrading their production, investment promotion strategies must inevitably evolve.

"China’s manufacturing sector is large but not strong," which inevitably requires transformation and upgrading, as well as the cultivation of scientific and technological innovation, building on existing foundations. If "traditional industries" are dismissed as "low-end industries" and eliminated, while blindly pursuing "high-end industries," isn’t that building a "castle in the air"? Without a foundation in basic industries, how can we even speak of "high-end industries"?