The manufacturing sector has long grappled with the issue of low profitability, a phenomenon that extends globally but is particularly pronounced in ChinaAt a surface level, the low profits in manufacturing can be attributed to fierce market competition and high production costsHowever, a deeper examination reveals a complex interplay of industry structures, capital operations, and system designs that contribute to this situationThis article will explore several key aspects that elucidate the underlying causes of low manufacturing profits, uncovering the industrial logic, capital dynamics, and policy orientations at play.

Firstly, many manufacturing companies are shifting their core objectives from merely seeking high profits to focusing on rapid scale expansion as a means to capture greater market shareThis strategy is driven by two main factors: increasing market share enhances bargaining power and expanding scale boosts a company's capital valuation, enabling profitability in capital markets.

In the current landscape, competition among manufacturing firms transcends traditional metrics, becoming less about low-cost versus high-quality offerings and more about capital competitionBy capturing larger segments of the market, companies can achieve higher capacity utilization and leverage the financing advantages offered by capital marketsFor instance, some firms may adopt strategies of low profit margins or even incur losses initially to secure market shareOnce they establish a sufficient presence, they can then attract investments through capital markets, allowing them to generate substantial inflows of funds and achieve profitability through efficient capital operationsThis often diverges from the conventional profit margin model, leaning more heavily on financial and capital market activities.

Secondly, the role of capital markets and institutional irreplacability emerges as critical components in understanding profitability

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In this context, manufacturing firms augment their profits not merely through product sales but also via capital maneuvers and fundraising strategiesThus, the profitability of a manufacturing enterprise is often not directly tied to the profit margins on products but rather is realized through mechanisms such as low-interest loans, financing activities, and stock market engagement.

Taking the Chinese market as an illustrative example, some manufacturing sectors obtain funds through low-interest loans, subsequently investing these resources into market expansionThis 'financial leverage' allows enterprises to maintain low profits in the short term while compensating for profit shortfalls through financing activities and capital market gainsFor instance, leveraging the advantages of the capital market, a firm can secure funding at favorable rates and expand its production scale, paving the path for ongoing profit growth.

Moreover, the design of capital markets inherently creates opportunities for profitable operations through a notion referred to as 'institutional irreplacability.' Notably, large firms within capital markets, especially those under government auspices, can secure favorable positions through policy support and financial backingThis institutional monopoly enables these corporations to gather more resources and funding, achieving economies of scale which further hampers the survival chances of smaller competitors.

Thirdly, competition within industrial supply chains necessitates cost-cutting as a primary strategy for survival and competitivenessHowever, this drive to reduce costs often compresses profit marginsFaced with intense market pressures, companies frequently resort to considerable cost reductions across labor, raw materials, and technology domainsThis might involve slashing wages, minimizing R&D investments, or compromising on quality control efforts, which results in diminished profits.

In China, the trend of scaling up manufacturing operations frequently coincides with persistent low profitability

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In such scenarios, a company's earnings do not necessarily emanate from the products alone but are derived from market share battles and capital market leveragingFor instance, a manufacturing corporation generating tens of billions in annual revenue might calculate a traditional profit margin of 30%, yielding profits in the billionsHowever, through scaling, that same company could crank revenues up to the hundred billion markDespite reduced margins, they can still enjoy profits far exceeding conventional manufacturing levels through financing, loans, and strategic market maneuvers.

As the manufacturing sector strives for an upgrade, it is also confronted with significant costs and risks associated with technological innovationWhile innovation is widely regarded as essential for enhancing competitiveness and product value, practical implementation reveals it to be a complex process laden with challengesR&D initiatives necessitate massive financial investments, and the timeline for technological breakthroughs can be prolongedConsequently, companies might shy away from high-risk innovations and instead opt for aggressive expansion tactics to garner market share.

In select domains, technological monopolies can yield high profits; however, the underlying high R&D expenditures and associated risks deter many firms from venturing into these watersThus, a considerable number of manufacturing enterprises find themselves leaning towards low-profit strategies aimed at rapid market expansion, securing essential funding, and steering clear of the precarious terrain of costly technological advancements.

Lastly, the intensification of competition has ushered many industries into a state of 'involution,' where enterprises feel compelled to engage in price wars and internal competitive strife to maintain market presenceAs marketplace rivalries intensify, manufacturing enterprises find their profit margins increasingly squeezedIn this context, even as companies optimize their operations and streamline their supply chains to cut costs, abysmally low market prices ensure that profit margins remain a challenge.

Moreover, within this involuted competitive environment, the prevalence of product homogeneity means that companies must often slash profit margins to differentiate themselves

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