China's economic growth has long been driven by two key forces: manufacturing and urbanization. These sectors have been the backbone of China's development, with manufacturing relying on transformation and urbanization depending on reform. Experts predict that 50 to 60% of traditional manufacturing industries may not survive in the coming years. The previous advantages—labor, cost, capacity, and policy—have now become constraints. In response, Hubei introduced the policy of "competing and upgrading, improving efficiency through innovation." This strategy encourages industries to transfer, digest, integrate, eliminate, and upgrade, adapting to market demands. For enterprises, the only way forward is reform. Reform means loosening state control, but for companies, it fundamentally means innovation. Innovation is essential for development and for capturing new value. We believe there is no alternative but to follow this path.
Today, I will share some insights on Yuli’s transformation and upgrading with all leaders, experts, and colleagues, hoping to inspire and contribute meaningfully. If anything is inaccurate, I welcome your corrections.
Li Guilin, General Manager of Hubei Yuli Company
**From Low-Value to High-Value Products**
In the first two decades, Yuli mainly produced low-value abrasive products like sandpaper and sand cloth. Profits were minimal, often just a few cents per unit. By the late 1990s, Yuli realized that relying solely on basic sandpaper would limit its growth. To break through, Yuli took a bold step by introducing the first domestic base fabric processing line and belt manufacturing line. This shift significantly increased product value and set the stage for future success. Today, Yuli’s reputation stems from this successful product upgrade.
However, as the market became saturated with ordinary abrasive belts, their added value dropped, and competition intensified. Many foreign brands still dominate the high-end market. In 2002, Yuli introduced European equipment and technology, allowing it to produce mid-range belts that met market demand. Product value rose again, and revenue per car shipment increased from tens of thousands to hundreds of thousands of yuan.
Now, Yuli is focusing on high-grade abrasive products such as superabrasive belts and advanced abrasive belts. It is also redesigning an ultra-wide, AI-driven, energy-efficient production line to meet evolving market needs. Although the risks are high and there is no precedent, Yuli is determined to move forward.
**From Labor-Intensive to Technology-Intensive**
Yuli has always been a pillar of Tongcheng, providing employment for thousands of local workers. However, as the labor dividend faded, Yuli recognized the need for technological upgrades. The company invested heavily in automation, replacing manual tasks with machinery wherever possible. For example, an automatic packaging line costing over 4 million yuan saved nearly 20 jobs, while another project aimed at automating quality control could save 200 positions if successful.
After a decade of effort, Yuli managed to increase output while reducing its workforce from over 3,000 to less than 1,000. Workdays were cut from 365 to over 200, showing a significant shift toward more efficient operations.
**From High-Energy Consumption to Low-Energy Consumption**
Previously, Yuli used steam for drying, consuming over 10,000 tons of coal annually. This was inefficient, as much of the heat was wasted. To address this, Yuli switched to natural gas, achieving over 94% utilization. The investment of nearly 20 million yuan in this transition not only reduced energy costs but also improved the surrounding environment, earning praise from local authorities and residents.
Additionally, Yuli invested 6 million yuan in a gasoline recovery system for water-resistant sandpaper, recovering over 800 tons of gasoline annually, worth around 5 million yuan. Another 1.8 million yuan was spent on formaldehyde purification systems, ensuring emissions met national standards and greatly improving workshop conditions.
**From OEM to OBM**
While many Chinese companies rely on OEM (Original Equipment Manufacturing), Yuli chose to build its own brand early on. With the slogan “Sharp Sand Belt Grinds the World,†Yuli developed the renowned “Sharp Card†brand. Today, over 95% of Yuli’s products are sold under its own brand, with only a small portion exported as OEM.
**From Low-Cost to Differentiated Strategy**
In the past, China’s coated abrasives industry was dominated by low-cost strategies, leading to fierce competition and declining profits. Yuli opted for a differentiated approach, focusing on product innovation rather than price wars. When one product faced saturation, Yuli introduced a new one—blended fabric belts, then full polyester belts, and now stacked abrasive belts. When the sandpaper market became crowded, Yuli turned to diamond sandpaper, and when domestic competitors caught up, Yuli expanded into international markets.
This strategy helped Yuli maintain profitability, protect employee incomes, and avoid harmful competition. Looking ahead, Yuli plans to combine bonded and superhard abrasives with coated abrasives to create innovative tools that meet emerging market needs.
**Diversified Development Beyond Core Products**
For over 30 years, Yuli has focused on core products but has also explored other industries like aquaculture, hotels, clothing, and wine. While these ventures did not yield major financial returns, they contributed to the local economy and provided valuable experience.
Moving forward, Yuli plans to expand into real estate and natural gas, investing 120 million yuan in a real estate company and 49% in a local gas company. These diversifications aim to strengthen enterprise viability and fund future growth.
Yuli also plans to build a fully equipped lab in Fan Brand New City and a research base in Wuhan or Xianning. These facilities will serve as industrial incubators, supporting R&D and preparing for future transformations.
In conclusion, Yuli is committed to continuous innovation, adaptation, and sustainable growth. This journey is challenging, but we believe it is the right path forward. Thank you for your attention.
CEPAI Group Co., Ltd. , https://www.jscepai.com