At the beginning of 2022, as the industries such as photovoltaic and new energy, which were prosperous in the past, were hit hard, the capital market rapidly shifted its focus to the

traditional low-valuation sectors. When the US Federal tends to increase interest rates to further tighten its monetary policy, the capital market’s investments became steady gradually, and the manufacturing sector, especially the high-end manufacturing one,received great attention from the capital market.

On January 20, 2021, the State Council Information Office of China held a press conference on the development of industry and information technology in 2021, in which Tian Yulong, the chief engineer of the Ministry of Industry and Information Technology, said that the overall industrial economy maintained the recovering development and the digital transformation of the manufacturing industry was expedited. Thus, the green and low-carbon development in the industry made positive progress, and the industrial transformation was going full steam ahead. The equipment manufacturing industry contributed more than 40% to the growth of the overall industry. It demonstrated the increased significance of the equipment manufacturing industry to support and promote the development of the whole industry.

It is worth noting that the added value of the manufacturing industry accounted for 27.4% of GDP in 2021, up 1.1% year-on-year. Industry insiders said that this was the first rebound after a continuous decline in the share of the manufacturing industry in the past ten years. This indicated the resilience of the manufacturing industry in supporting economic stability. It also demonstrated that the manufacturing industry should further intensify the input in R&D of cutting-edge technologies so that the advanced manufacturing industry can play a leading role.

2022 is a crucial year for transformation and upgrading of China’s manufacturing industry. According to some analysis, investors should actively seize the opportunity from the transformation and upgrading of the manufacturing industry, pay attention to the development direction of the emerging advanced manufacturing industry, which has a high certainty of the future performance, a large room for development and a solid business environment. The investors were recommended to pick steady growth stock of the manufacturing enterprises which have technological innovation drivers and the advantages in self-developed core technology.

INDUSTRIAL ECONOMY CONTINUED TO RECOVER

Imminent Needs for the Logistics Industry to Transform and Upgrade

According to the data from the National Bureau of Statistics, the purchasing managers' index (PMI) for China's manufacturing sector was 50.3% in December 2021, up 0.2% from the last month. This is the second consecutive month that the business environment achieved a rebound, reflecting the continued and increased growth momentum of China’s manufacturing sector. In terms of industries, the PMI of high-tech manufacturing sector, the equipment manufacturing sector, and the consumer goods sector was 54.0%, 51.6% and 51.1%, respectively. All of these sectors maintained rapid growth and continued to be above critical points.

Looking back to 2021, thanks to its strong growth resilience, China’s manufacturing industry became an important driving force in global technological innovation and transformation and upgrading of the manufacturing industry. According to a report released by the Chinese Academy of I nter national Trade and Economic Cooperation of the Ministry of Commerce, Asia was the major destination of global foreign direct investment in 2021. The inflationary pressure on emerging market countries like China was significantly lower than that of European and American countries. In the emerging market countries, the inflation movement was relatively moderate; Better economic environment also allowed larger room for national monetary and fiscal policies.

In 2022, digitization and intelligence, dual[1]carbon objective and greening, and the construction of domestic circulation and the reconstruction of supply chain are currently three major significant trends i n t h e f u t u re. C h i n a’s m a n u f a c t u r i n g industry is transforming the development model based on the concept of green development while controlling the total volume and tapping internal resources, and therefore digitalization and intelligence will significantly improve efficiency. Coupled with the construction of the domestic circulation and the reconstruction of the supply chain, it can support China’s economy to seek new growth drivers effectively, so as to cope with the gap in external demand.

Take the logistics industry as an example. There are imminent needs for the logistics industry to Transform and Upgrade with regards to the complicated conditions arising from digitalization, intelligence and dual[1]carbon objective. Since the outbreak of the COVID-19 epidemic, the consumption habits of residents have been reshaped, online e-commerce retails have been booming, and e-commerce live-streaming has further promoted the penetration of e-commerce. Data show that the volume of China’s online retail sales reached RMB11.76 trillion in 2020, 10.5 times compared with that in 2013. The share of e-commerce sales volume in the total volume of retail sales of consumer goods increased from 5% in 2013 to 30% in 2020. The rise of e-commerce has directly driven the surge of China’s logistics industry. According to the data on operation of logistics as of November 2021, released by China Federation of Logistics & Purchasing, the total amount of social logistics in China in the first 11 months of 2021 was RMB288.8 trillion, up 9.7% year-on-year with the annual average growth rate of 6.3% in two years. China also became the first country in the world achieving over 100.00 billion express mails, demonstrating the huge market. As estimated by Tianfeng Securities, the total amount of logistics in China is expected to reach RMB380 trillion by 2025. In contrast to the huge market, there are still a number of problems in China’s logistics industry, such as technically backward and non-compliant vehicle models, information asymmetr y, low loading rate of truck, low utilization rate of transport capacity, scattered subject of highway freight, and the degree of digitization to be increased. There is still a large room for improvement of logistics efficiency.

According to data, the cost of China’s logistics was RMB14.9 trillion, accounting for 14.6% of GDP, compared with 8% over the same period in the United States. If the measures such as series specialization, digitalization, drop-and-pull + multiple-pull trailer mode in mature European and American markets are implemented to improve quality and efficiency in the logistics industry, the cost of logistics in China will be reduced by RMB1.00 trillion given that the share of the cost of China’s logistics in its GDP is 12%.

In specific, in order to reduce the cost of logistics, the massive utilization of semi[1]trailers and specialt y vehicles at the hardware level is an important means of improving quality and efficiency beside the breakthrough made at the software level.

It is reported that the semi-trailer can be connected to tractors produced by any tractor manufacturer; the part of the truck body is placed on the tractor, and most parts of weight and loading of the semi[1]trailer is driven by the tractor, both of which shall complete the cargo transportation in coordination. The semi-trailer can be connected arbitrarily and stop and go whenever needed, so it is possible to improve the efficiency of cargo transportation. At present, the proportion of semi-trailer tractor to semi-trailer in China is, however, still low. In developed countries including Europe and the United States, the proportion of semi-trailer tractor to semi-trailer is 1:2.5-1:3, compared with only 1:1.07 in China. Hence, there is a large room for growth in China.

In addition, the carbon emissions from the Chinese transportation sector account for about 11% of the total social emissions. In terms of transportation mode, the total carbon emissions from highways account for 87%. In developed countries including Europe and the United States, upon the completion of industrialization, the carbon emissions from the transportation sector generally accounts for 20-30% of the total social emissions, forming a situation of “three sectors” together with industry and construction sectors. It implies that the total demand for transportation and the total quantity of transportation equipment will still increase, and the total amount of carbon emissions will continue to increase before “China’s Objectives of 2030 Carbon Peaking and 2060 Carbon Neutrality” are achieved. It is imminent for the need to reduce the carbon emissions from highway transportation by means of transportation standardization, in particular the drop-and-pull + multiple-pull trailer mode. Compared with single-trailer transportation, the multiple-pull trailer mode can reduce carbon emissions by 27%, which is strategically important for China’s carbon emission objectives.

SOPHISTICATED MANUFACTURING EMPOWERS GREEN LOGISTICS AND TRANSPORTATION

The Leader in Global Semi-trailer are Expected to Fully Benefit

In the overall semi-trailer market, only CIMC Vehicles and a few semi-trailer manufacturers around the world have achieved standardized, large-scale, and intelligent manufacturing. According to the data on ranking of global semi-trailer manufacturers in terms of production volume according to Global Trailer in 2021, CIMC Vehicles have been the world’s No.1 semi[1]trailer manufacturer for nine consecutive years. CIMC Vehicles also became the world’s largest semi-trailer manufacturer in terms of sales volume, and a leading manufacturer of truck bodies for specialty vehicles and light van truck bodies in China.

In recent years, by comprehensive establishment of the Sophisticated Manufacturing System, CIMC Vehicles has made arrangements of “Light Tower” Plants in the world and become the global leader in the semi-trailer industry with the leading manufacturing capacity. It is noted that the manufacturing process has been upgraded and transformed to shift from labor-intensive production to the modularized, standardized, and environmental-friendly production with higher degree of automation. Through the “Light Tower” Plants, CIMC Vehicles have achieved the goals of good product quality, high material utilization rate, high production efficiency, and up-to-standard environmental protection. With the economies of scale of the “Light Tower” Plants, CIMC Vehicles’ semi[1]trailer business in China increased by 66.3% in the first half of 2021.

Moreover, in order to help improve the efficiency of logistics in China, CIMC Vehicles has deepened cooperation with Shaanxi Automobile and other vehicle OEMs to study the integrated tractor-trailer solution. Significant progress has been made in wind resistance and noise reduction of fully[1]assembled vehicles, and other stability issues of vehicle, optimization of cargo loading space, and communication between tractor and trailer.

Witnessing the trend of digitalization and green intelligence, CIMC Vehicles actively develops and promotes green products f e a t u r i n g n e w e n e r g y, i n t e l l i g e n c e , digitalization and lightweight. At present, the Company is establishing a business cooperation relationship with trac tor manufacturers of new energy automobile engines in the truck bodies for specialty vehicles business. Furthermore, the Company launched the “TB” brand in 2021 in a looking forward manner to engage in the production and sales of refrigerated and dry van truck bodies, and actively seize the development opportunities in the cold chain market.

On January 12, 2022, the Ministry of Industry and Information Technology and the Ministry of Public Security jointly issued the Notice on Further Strengthening the Production and Registration Management of Light Trucks and Small-to-mini-sized Passenger Vehicles. The law enforcement authorities strictly implemented the Safety Technical Specifications for Light Trucks and Small Mini Passenger Vehicles from 1 March 2022 onwards. It is expected that the requirement will unleash the vast market demand for the truck bodies for compliant light trucks and benefit CIMC Vehicles, a leading enterprise with R&D technology moat and economies of scale.

There is no doubt that manufacturer of quality will be the focus of China’s economic development for a long time ahead. As reiterated in the National 14th Five-Year Plan and the Outline of Visions for 2035, it is necessary to consolidate and strengthen the foundation of China’s real economy and further implement the strategy of manufacturer of quality. With nearly 20 years of experience, CIMC Vehicles have established the Sophisticated Manufacturing System, adhered to the “Intercontinental Operation, and Local Manufacturing” model in response to the reverse globalization and the pandemic so as to resist the pressure of global geopolitics on the performance, and achieve the leadership in the semi-trailer industry.

In the future, under the guidance of the manufacturer of quality, these leading manufacturing capabilities will be solid for the Company to seize the development opportunities in the logistics and other industries.