In the era of planned economy, all industries tended to expand in quantity, but the tool industry stood out. By the late 1980s, more than 100 key and designated enterprises in the tool industry had formed an annual production capacity of 300 million high-speed steel cutting tools and over 10 million measuring instruments. China’s output of high-speed steel cutters ranked first globally.
At the same time, Japan, a neighboring country known for its tool manufacturing, reached a historical high of 120 million high-speed steel cutting tools annually. However, as the manufacturing sector upgraded, demand for standard cutting tools declined, leading to a drop in production to around 90 million units.
Despite having a smaller manufacturing base than Japan, China's tool output was three times that of Japan, indicating overexpansion. This excess led to price cuts in the tool market, with some companies reducing prices by as much as 40%–50%. Sales revenue barely reached 200 million, revealing the consequences of overproduction.
More seriously, during the mid- to late-1980s, due to overly optimistic market forecasts, key players in China’s tool industry not only expanded their own capacities but also established numerous joint ventures to boost production. Later, many of these joint ventures broke away from their parent companies, while some state-owned enterprise employees started their own factories, giving rise to the first wave of private and township enterprises in the tool industry.
These new enterprises were more flexible and free from the legacy burdens of state-owned enterprises. They had the potential to become a driving force in the reform and development of the industry. However, due to limitations in talent, technology, equipment, and management, many still followed the old path of quantity expansion. Within just 10 years, total production surged, with billions of low-end products like twist drills, construction bits, woodworking tools, and calipers flooding the market.
Although the numbers were impressive, sales accounted for only about 30% of the domestic market value. Due to brand and quality issues, these products failed to enter formal manufacturing tool systems at home or abroad, yet they significantly impacted China’s tool export market.
Another major flaw in the industry’s development strategy was its failure to keep up with technological innovation and global trends. China missed the chance to upgrade its tool products and services, leading to a structural weakness in the market. After 20 years of reform and opening up, the gap between China’s tool industry and foreign counterparts widened rather than narrowed.
During the 1960s and 1970s, Western developed countries transitioned into the post-industrial stage, and by the 1980s, they began investing heavily in high-tech sectors like information technology, biotechnology, and new materials. In this knowledge-based economy, advanced technologies transformed traditional industries, raising the standards for mechanical products and services.
This transformation demanded higher precision, efficiency, reliability, and specialization—commonly referred to as the "three highs and one special." These requirements clashed with the traditional model of standardized, generalized, and mass-produced tools.
By the early 1980s, the four-roller twisting process, once popular in the 1960s, was phased out in developed countries. Meanwhile, the foreign tool industry focused on the “three highs and one special,†redefining its development model. This shift required significant capital and intellectual investment, which China missed, causing many weaker firms to fall behind.
As a result, the gap between China’s stagnant tool industry and the rapidly advancing foreign sector became inevitable. Recently, industry insiders have often complained about weak markets and sluggish sales. However, the real issue lies in the mismatch between shifting market demands and outdated production structures.
According to data from 1998 to 2000, the import of cutting tools increased from over $40 million to more than $80 million annually, highlighting strong demand for high-tech products. This shows that despite challenges, the market for advanced tools remains robust.
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