Industrial upgrade is key for China to sharpen its edge amid global competition and more efforts are needed to support the growth of small and medium-sized enterprises, which have shown remarkable resilience through the China-US trade frictions, said a renowned expert.

"The competition between China and the US ultimately boils down to competition within the fourth industrial revolution, which manifests at the governmental level as a contest over industrial policies," said Zheng Yongnian, board director of The Guangzhou Institute of the Greater Bay Area and director of the School of the Public Policy at the Chinese University of Hong Kong (Shenzhen), in an interview with China Daily.

According to Zheng, with a complete industrial system, China's future competitiveness hinges on strategic industrial upgrading, which is in line with what cultivating new quality productive forces requires.

"Industrial upgrading can be broadly categorized into two types: one involves transitioning from producing textiles and footwear today to manufacturing electronics tomorrow; the other entails continuing to produce textiles and footwear while elevating their technological sophistication and added value. Historical experience demonstrates that both forms of upgrading are critically important," Zheng said.

His comments came as China has continued to be the world's largest manufacturing country in terms of output for 15 consecutive years, and it ranks first globally in the production of over 220 industrial products, according to the Ministry of Industry and Information Technology, China's top industry regulator.

Zheng warns against two common pitfalls in industrial policy: the "Leapfrog Trap", where regions abandon established sectors entirely to chase new industries, draining resources from core strengths, and the "Neglect Trap", where focus on new industries leads to ignoring the vital technological transformation of traditional sectors.

Data from the General Administration of Customs of China showed that China's exports to the United States in 2024 reached $524.656 billion in US dollar terms, marking a 4.9 percent year-on-year increase.

Zheng said: "The data underscore the profound structural interdependence between the US and Chinese economies, far exceeding initial expectations, despite almost eight years of Washington-initiated trade frictions."

Meanwhile, the figure highlights the failure of US efforts to reindustrialize and bring mid-to-low-end manufacturing back home, Zheng said, adding that the data also expose the limitations of Washington's "friend-shoring" policy — redirecting supply chains solely to allied nations.

According to him, this enduring trade flow between China and the US also reveals a critical, often underestimated reality — "the extraordinary resilience of China's small and medium-sized enterprises forms a key pillar of the nation's economic strength".

Zheng said China's vast network of private SMEs, which predominantly constitute the country's private sector and generated the bulk of China's exports to the US, demonstrated remarkable staying power.

"Their resilience stems from their specialized function within global supply chains, often producing specific, niche components that the US itself has largely ceased manufacturing and finds economically challenging to restart," Zheng said.

Highlighting the crucial importance of continuous, innovation-driven industrial upgrading, Zheng put forward strengthening the "new three drivers" of economic advancement, namely, foundational basic research, efficient application technology conversion or bridging the lab-to-factory gap, and robust financial services providing patient capital for innovation.

He sees the Guangdong-Hong Kong-Macao Greater Bay Area as a potential blueprint, leveraging Hong Kong's world-class financial services and advantages in research and development with Guangdong's strengths in technological application.