Developing the new productive forces by giving full play to advantages of supersize market: theoretical mechanism and practical path

Within the history of economic thought, economists across different schools have examined the relationship between market scale and technological innovation from diverse perspectives. A scholarly consensus acknowledges the existence of a mutually reinforcing and synergistically evolving relationship between them. This understanding has increasingly been integrated into systematic frameworks for analyzing macroeconomic development.

Adam Smith analyzed the relationship between market scale and technological innovation systematically within classical political economy. Allyn Young later developed this analysis into what is known as the Smith-Young Theorem. Smith first used “division of labor” as the central node to analyze the relationship between production, exchange and innovation: capitalist production is driven by the exchange value of commodities, and the division of labor is the inevitable choice to increase the productive forces to produce more exchange value, and in this process, technological innovation is born. According to Smith (1979), “the greatest improvement in the productive powers of labour, and the greater part of the skills, dexterity, and judgment with which it is anywhere directed or applied, seem to have been the effects of the division of labour.” The size of the market is an important constraint on the evolution of the division of labor and technological innovation. Also, Smith (1979) observed, “As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or in other words, by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour which is over and above his own consumption, for such parts of the produce of other men's labour as he has occasion for.” Young evolved Smith's account of the division of labor and the increase in the productivity of labor into a dynamic process of increasing returns: the division of labor first refines the chain of production and leads to the emergence of a mode of production by means of capital goods. He stated: “The important thing, of course, is that with the division of labour a group of complex processes is transformed into a succession of simpler processes, some of which at least, lend themselves to the use of machinery. In the use of machinery and the adoption of indirect processes, there is a further division of labour, the economies of which are again limited by the extent of the market.” (Young, 1928). Furthermore, increased productivity arising from the division of labor lowers costs and improves efficiency in commodity production. This expansion of supply, in turn, enlarges the scope for exchange and extends the market scale. As Young (1928) elucidates: “When the demand for each commodity is elastic, in the special sense that a small increase in its supply will be attended by an increase in the amounts of other commodities which can be had in exchange for it. Under such conditions, an increase in the supply of one commodity is an increase in the demand for other commodities. It must be supposed that every increase in demand will evoke an increase in supply.” Thus, a self-reinforcing, cumulative causal loop emerges, wherein “the deepening of the division of labour promotes the expansion of the market. The expansion of the market creates the conditions for the deepening of the division of labour” (Young, 1928). In essence, the division of labor depends on the division of labor in a self-sustaining cycle. Throughout this process of deepening production-related specialization, technological innovations continually arise, further propelled by the advancing division of labor.

From the late mercantilism, to the German Historical School pioneered by Friedrich List, and to the American School represented by Alexander Hamilton and Henry Charles Carey, the importance of expanding market space and developing high-quality economic activities with the nature of incremental remuneration is argued, from the perspective of technological innovation, as the core of national industrial development and national catch-up. The late mercantilism, after dispelling the erroneous view that “wealth is money,” realized that only knowledge and production-based economic activities could make a country rich and strong, i.e. industry was the economic tool for the rise of underdeveloped countries. Since then, mercantilists have advocated the “selective purchase of foreign products” trade proposition, arguing that the development of a country's manufacturing industry and even its economic prospects still depend on the world market. Whether or not trade was beneficial depended on the ultimate goal of providing space for industrial development through the protection of domestic markets. As Henry Cary noted, “Tis a certain rule that so far as any nation furnishes us with things already manufactured, or only to be spent among ourselves, so much less is our advantage by the trade … especially if those manufactures interfere with our own.” (Irwin, 1996). This idea of domestic market and industrial protection carried over into the German Historical School and the American School, and List (1856) explicitly advocated trade protectionism, especially against “infant industries” in The National System of Political Economy. According to List, the state should not only use policy instruments such as tariffs to protect them, but also adopt a series of policy measures, including financial subsidies; tax incentives; and support for research and development inputs, to promote their growth and development in an all-round way, and that “the great statesmen of modern times have almost without exception comprehended the vast influence of manufactures upon the wealth, civilization, and power of nations, and the necessity of protecting them; Edward III. and Elizabeth, Frederick the Great, and Joseph II., Washington and Napoleon” (List, 1856). At the inception of the United States, Alexander Hamilton prospectively argued that orthodox economic theory could not assist the nation in achieving economic independence and development under its unique circumstances. He advocated for a rapid transformation from an agricultural state and the cultivation of new, internationally competitive industries (i.e. “infant industries”). To this end, on December 5, 1791, Hamilton submitted the Report on the Subject of Manufactures to the Congress, wherein he contended that less-developed agricultural countries seeking to build manufacturing capacity inevitably required the protection of government policies (“infant industry protection”). As Hudson (2010, p. 300) summarized, “America's industrial takeoff required that British free-trade orthodoxy be rejected. The United States was still in the position of a less developed country, in a global economy whose ‘market forces’ at the time favored British industry. Industrialization required an alternative to British free-trade theory—an alternative developed by the Whigs before the Civil War, and Republicans after 1865.”

Karl Marx's analysis of the relationship between market scale and technological innovation remains profoundly insightful. Examining this interplay through the lens of movement laws of capital, he conceptualized the market as the spatial carrier for the “thrilling jumps” in the realization of commodity value. During the stage of simple commodity production, the constrained scale of national markets impeded the deepening division of labor, with technological innovations arising primarily from individual experiential insights within production. Following the establishment of capitalist production relations, the drive for surplus value propelled rises in labor productivity. As Marx and Engels observed (2010a), “this social form of the labor process presents itself as a method of capital to exploit labor more profitably by increasing its productivity”, and this enhancement in labor process productivity is substantially achieved through technological innovation. As individual firms boosted their labor productivity, the external pressures of market competition were transmuted into a compulsory impetus for technological innovation, compelling firms to refine production techniques to sustain profitability. This historical dynamic forged a powerful mechanism fueling technological progress, cementing it as a central element in the reproduction and expansion of the capitalist mode of production. Concurrently, the realization of exchange value necessitated ever-larger market spaces, endowing capital with an inherent drive to expand its scale. Marx and Engels (2010b) vividly captured this imperative: “The need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere.” This spatial expansion progressed from local to global scales. In this process, the enlargement of market space and the innovation of the capitalist mode of production exhibited synergistic co-evolution. The consolidation of national markets dismantled the technological monopolies of feudal guilds, creating developmental space for the workshop handicraft industry. Subsequently, the formation of the global market catalyzed revolutionary transformations in the machine-based industry (Marx and Engels, 2010c). Thus, the contradictory yet interdependent dynamics of market expansion and technological innovation jointly constituted the driving force of capitalist development.

Evolutionary economists regard technological innovation and development as a central driver of cyclical economic fluctuations. As Freeman and Louçã (2001) noted, the core question revolves around “how such new constellations emerge, spread, and ultimately come to dominate an industrial society for a few decades before giving way, after a period of several decades of great turbulence, to the next such combination”, and they suggested that these phenomena underlie the long waves of capitalist development that have been identified and studied by many economists. Historically, innovations have tended to emerge not evenly, but in concentrated bursts within specific temporal windows. Across industrial sectors, innovations generally occur not in isolation, but in clusters, often concentrated within particular industries and domains.

Consequently, evolutionary economists often analogize technological revolutions as “long waves” or “great surges”. Building on this tradition, Perez (2002) has developed a comprehensive conceptual framework of technological revolutions, drawing extensively on economic and technological history. She divides the technological evolution of capitalism up to the present into five major technological revolutions: the Industrial Revolution (1770s), the Age of Steam and Railways (1830s), the Age of Steel, Electricity, and Heavy Engineering (1870s), the Age of Oil, Automobiles, and Mass Production (1900s), and the Age of Information and Telecommunications (1970s). Perez further conceptualized each technological revolution as comprising two fundamentally distinct periods: the Installation Period, where new technologies are introduced and speculative finance drives rapid but unstable growth, and the Deployment Period, where the technologies are widely diffused and integrated, leading to more stable and inclusive growth.

According to Perez's framework, a technological revolution constitutes a powerful and interconnected cluster of new technologies, encompassing the generation of innovations with potential for widespread diffusion, new low-cost inputs, and new products, processes, and infrastructure. This cluster is “capable of bringing about an upheaval in the whole fabric of the economy and propelling a long-term upsurge of development” (Perez, 2002). In terms of its evolutionary trajectory, each wave of technological revolution progresses through an extended lifecycle. During the early phases of a new techno-economic paradigm, nations that have accumulated significant advantages within the old technological system often face constraints imposed by entrenched experience and existing infrastructure, resulting in higher costs for paradigm shift. This creates a critical window of opportunity. Less-developed countries that can swiftly undertake this paradigm shift and cultivate capabilities within the new technological system may have the potential to catch up with or even leapfrog incumbent leaders. Conversely, if this window is missed, the leading nations, once they successfully navigate the transition, can reinforce and maintain their dominant position (Dosi et al., 1988).

Within this structural dynamic, the interaction between market scale and technological innovation plays a pivotal role. The onset of a technological revolution generates a series of novel products, inputs, and infrastructures. A larger domestic market can provide superior financial resources and factor conditions for the continuous innovation and refinement of these technological systems. Subsequently, higher-quality technological innovations, nurtured and scaled within a sizable home market, can be more effectively extended into global markets. Therefore, a nation's competitive advantage within a new technological system is accumulated through this virtuous cycle of bidirectional reinforcement between market scale and technological innovation. This process lends national competition during technological revolutions a “winner-takes-most” feature. To succeed, both developing and advanced economies must strategically nurture and protect their domestic markets in the early stages of a new technological system's development. Following the formation of a technological advantage, rapid expansion into overseas markets is essential to leverage the mutual reinforcement between market scale and innovation fully. Failure to do so risks ceding technological leadership and market share to other nations that successfully establish this synergistic dynamic early on.

During each technological revolution, a window of opportunity emerges through the rise of new technologies and industries, which late-comer countries may leverage. In the introductory phase of such a revolution, when nascent technologies remain underdeveloped and barriers to entry are relatively low, developing countries that proactively adopt the new techno-economic paradigm may achieve technological leapfrogging and narrow the developmental gap. For late-comer economies to successfully catch up, it is critical to transition toward higher value-added economic activities. This shift is exemplified by the emergence of entirely new industries powered by novel technologies, as well as the enhancement of efficiency in traditional sectors through technological transformation. However, this structural transformation does not occur spontaneously; it necessitates deliberate protective measures by the government (Reinert, 2024).

The core of such policies often lies in safeguarding the domestic market. This protection allows new technologies and industries to iterate, refine their competitive advantages, and build capabilities shielded from premature exposure to global competition. Once a certain level of maturity and competitiveness is attained, market controls can be gradually relaxed. This enables domestic industries to engage in international competition, expand their global market share, and drive further technological innovation. Through this process, a virtuous cycle of bidirectional and synergistic evolution between market scale and technological innovation can be realized. The expansion of the market creates demand and resources for innovation, while technological advancements enhance productivity and open up new market opportunities. This mutually reinforcing mechanism ultimately facilitates national catch-up growth and long-term economic development.

The mutually reinforcing relationship and synergistic co-evolution between market scale and technological innovation have been consistently observed throughout the economic development histories of various nations, primarily reflected in national economic policies and their subsequent outcomes. From the perspective of technological revolutions and national catch-up strategies, this paper investigates historical cases from representative countries across successive waves of technological change. It focuses on how these nations integrated market mechanisms with technological innovation to achieve technological leapfrogging.

There are three primary reasons for examining this relationship through the historical lenses of technological revolution and national catch-up: First, to identify a universal framework for analyzing historical cases despite their specificities, particularly how economic policies facilitate national technological catch-up through the integration of market forces and innovation systems; second, to elucidate the role played by the bidirectional facilitation and synergistic evolution between market scale and technological innovation in the profound productivity transformations triggered by technological revolutions; and third, to contextualize the interaction between market scale and technological innovation within the broader framework and dynamic process of technological revolution and catch-up development, thereby forming a more comprehensive and nuanced understanding.

From the pre-industrial era through the First Industrial Revolution, the United Kingdom underwent an extended process of technological development and policy evolution. It implemented a suite of protectionist policies designed to shield its domestic market while actively pursuing overseas market expansion to stimulate domestic technological innovation. This strategy enabled the UK to establish a decisive technological advantage in the pivotal textile industry and emerge as the epicenter of the First Industrial Revolution.

For nearly a century prior to its industrial takeoff, the UK was a typical catch-up economy. During this period, the textile industry dominated the global economy, with cotton textiles from the Indian subcontinent holding a dominant position in world markets due to their superior quality, low cost, and vibrant patterns. These goods became staples of international trade, while British woolen textiles proved uncompetitive. Although the cotton textile industry began to take root in the UK around 1,600 and saw localized development in Lancashire in northern England, its overall progress remained stagnant for a considerable time (Beckert, 2014).

To address this competitive disadvantage, the UK introduced a series of national policies to safeguard its domestic enterprises against Indian competition in the home market. Opposition to Indian textile imports became a persistent feature of British politics throughout the 17th and 18th centuries, leading to increasingly protective measures. Tariffs were raised from 7.5% to 10% in 1,685 and reached 20% by 1,690 (Parthasarathi, 2011). Despite these measures, Indian products continued to flood into England due to strong consumer demand. British wool and silk interests concluded that tariffs alone were insufficient and advocated for a complete ban on Indian textile imports.

In 1700, both Houses of Parliament passed an act prohibiting the importation of Indian textiles, with only a few specific cloth types exempted. In 1774, Parliament further decreed that only cotton cloth wholly manufactured in England could be sold domestically, while permitting the import of East Indian cotton solely for re-export purposes. The remaining categories of Indian cotton textiles were subjected to prohibitively high tariffs (Beckert, 2014). This ban on Indian dyed fabrics ensured the British textile industry's monopoly within the domestic market, significantly accelerating its development. As Hobsbawm (1968) noted, the primary advantage of the pre-industrial domestic market was its large and stable size, which not only contributed to national economic growth but also helped buffer against economic shocks caused by fluctuations in export markets. These protective measures crucially stimulated domestic textile production and catalyzed technological innovation within the United Kingdom, ultimately enabling its industrial transformation.

In addition, the UK government actively opened extensive overseas markets for its domestic textile industry. Overseas markets had long served as a critical outlet for British cotton manufacturers. According to Inikori (2002), the UK exported one-third of its total cotton cloth production in 1760, a share that increased to two-thirds by the end of the eighteenth century. As the British Empire expanded globally, manufacturers secured not only an abundant supply of raw materials but also access to a vast export market. Backed by government policy, British firms monopolized the textile trade across colonies in Asia, Africa, and the Americas. The Atlantic trade emerged as the most significant overseas market for British textiles, accounting for 95% of textile exports between 1752 and 1754 (Parthasarathi, 2011). Concurrently, North America grew into a major export destination due to rapid increases in European settlement, further extending the global reach of British textiles.

This dual strategy—protecting the domestic market while aggressively pursuing overseas expansion—stimulated a wave of revolutionary technological innovations in the British textile sector. Between 1764 and 1767, James Hargreaves invented the spinning jenny, which significantly reduced the cost of weft spinning. Shortly thereafter, Richard Arkwright developed the water-powered spinning frame, enabling large-scale warp production, and Samuel Crompton introduced the more efficient spinning mule (Parthasarathi, 2011). These advances drastically cut the cost of producing high-quality cotton yarn, propelling the cotton textile industry to become a cornerstone of the British economy. Its contribution to total economic value added rose from 2.6% in 1770 to 22.4% by 1831. Employment in spinning surged from 340,000 in 1795 to such an extent that by 1830, one in six UK workers were employed in cotton textiles (Crafts, 1985). Beginning in the 1780s, British innovations in spinning technology also fueled a boom in exports of cotton yarn and cloth to France, the Low Countries, Switzerland, and Germany. Supported by growing international demand, technological progress enabled British cotton textile exports to expand continuously throughout the eighteenth century, achieving a 200-fold increase, 94% of which occurred in the 2 decades after 1780 (Beckert, 2014).

In summary, by rigorously protecting its textile industry in domestic and colonial markets, the UK generated substantial demand and high profits. This environment created the necessary conditions for key technological breakthroughs, such as the steam engine and water-powered spinning machinery. These innovations radically transformed modes of production, dramatically elevating social productivity and manufacturing efficiency, and ultimately triggering the First Industrial Revolution, which established the UK as a technologically dominant nation.

Similar to the United Kingdom, the United States gradually developed a suite of protectionist economic policies through an extended process of policy evolution from its founding until the 1870s. These policies were designed to shield the domestic market while simultaneously promoting the large-scale diffusion of new technology clusters, thereby fostering the growth of domestic manufacturing, particularly in capital goods sectors such as steel and machinery manufacturing. Ultimately, the United States established a decisive technological advantage in these nascent industries and emerged as the core nation of the Second Industrial Revolution.

In the early years of the federal government, a vigorous debate unfolded over whether to adopt liberal or protectionist economic policies. With the formal establishment of the new federal government in 1789, Adam Smith's principles of free trade were supported by many influential leaders (Irwin, 2017). However, an opposing faction, represented by Alexander Hamilton, argued that free trade was incompatible with industrial development. Hamilton contended that the United States should employ trade protection to cultivate its own manufacturing and commerce, thereby driving balanced economic development, including in agriculture. As British trade sanctions against the United States intensified, the US government increasingly shifted toward protectionist economic policies. Republicans, led by Thomas Jefferson, maintained that political independence could not be fully secured without economic independence, necessitating a decoupling from British trade dominance (Irwin, 2017). This shift in policy culminated in the US Congress enacting the Embargo Act of 1807 and the Non-Intercourse Act of 1809. These measures sought to suspend US imports and exports, thereby depriving the UK of a critical source of raw materials and a market for its manufactured goods. These economic conflicts ultimately contributed to the outbreak of the War of 1812 between the United States and the United Kingdom (Nester, 1998).

The United States faced significant technological and trade restrictions from Britain, particularly during the War of 1812. These constraints, however, acted as a catalyst for the rapid expansion of domestic manufacturing, as the young nation was compelled to meet its own consumer and industrial demands internally. Following the war's conclusion, the US witnessed a surge in the development of locally produced goods, which progressively replaced British imports. This is a clear case of import substitution driven by necessity and policy. In 1816, the US government enacted its first major protective tariff, marking a decisive turn toward a high-tariff regime designed to shield nascent industries from foreign competition and foster indigenous technological innovation. This policy shift was part of a broader strategy that included developing the national market and expanding into overseas trade. Subsequent measures included vigorous investment in infrastructure, promotion of shipping and shipbuilding industries, implementation of high-wage policies to boost industrial employment, and stimulation of domestic consumption to strengthen internal demand. These efforts collectively contributed to the formation of a large domestic market. This supportive environment further accelerated technological innovation in the United States. Key sectors such as iron and steel production and equipment manufacturing experienced substantial growth. The period saw a transition from small processing workshops to large-scale factories utilizing power-driven machinery, enhancing both productive capacity and the export competitiveness of American goods (Jia, 2017). By the early twentieth century, this industrial transformation had borne significant fruit: comparative analysis of the 1907 UK Census of Production and the US manufacturing census revealed that labor productivity in the US manufacturing sector was approximately double that of the UK (Broadberry, 1997).

Relying on its substantial domestic market, the United States witnessed continuous improvement in its technological innovation capacity, which facilitated the formation of a new production mode characterized by scale, standardization, and mechanization. These features, coupled with advancements in electric power technology, jointly triggered the Second Industrial Revolution. Through the mutual reinforcement of market scale and technological innovation, the US established technological superiority in emerging leading industries such as steel and electricity, ultimately becoming one of the core nations driving the Second Industrial Revolution.

On the whole, historical experience suggests three key conclusions: First, the mutually reinforcing and synergistic evolution between market scale and technological innovation represents an objectively existing logic in national development history. Second, to achieve technological catch-up, less developed countries must employ protectionist policies to ensure that their own markets serve domestic production and innovation efforts, while progressively expanding into overseas markets as they accumulate technological advantages. Third, under market economic conditions, breakthrough technological innovations are more likely to emerge in countries with extensive markets, which consequently tend to dominate technological revolutions.

A digital technology revolution, centered on breakthroughs in cutting-edge fields such as big data and artificial intelligence, is currently underway. Similar to historical technological revolutions, this digital revolution is characterized by the emergence of new technologies, inputs, active products, and infrastructures. However, a distinctive feature of the digital technology revolution is the rise of digital materials, which enable new technology clusters to exhibit novel attributes such as scenario-driven development, high-speed evolution, and virtualization. These properties are reshaping market concepts and technological innovation paradigms in the digital era, further amplifying the reliance of technological innovation on market scale.

The advent of digital materials has fundamentally differentiated the technology clusters of the digital revolution from those of previous industrial revolutions. Lyytinen (2021) summarizes the core characteristics of digital materials as follows: First, digital materials are inherently symbolic. Any object can be digitized into a sequence of zeros and ones based on specific expression schemes, allowing diverse digital materials to interconnect through arbitrary rules and conventions. They can also exist and interact within abstract, virtual environments. Second, digital materials require universal processing and computation under the von Neumann architecture, meaning they can be edited, executed, and interpreted within computational systems. These properties profoundly influence the key features of digital technology clusters.

The technology clusters emerging from the digital revolution are marked by virtualization and platformization, enabling markets to transcend physical spatial constraints. Digital technologies expand and redefine the boundaries of market activities in virtual spaces. Digital services, delivered through online applications, have emerged as dominant industries, facilitating cross-geographical market activities and further dissolving traditional trade barriers based on location and geography.

The rise of digital platforms has transformed the market competition between countries into competition between digital platforms (Zhao and Zhao, 2024). Large platforms, backed by monopoly capital from technologically leading countries, can establish significant entry barriers by controlling platform access rules, applying algorithms, and providing digital services, which makes it challenging for local platforms in less-developed countries to compete, often forcing them to accept technological dependence on core technologies from leading nations (Jin, 2024).

Digital technology clusters are also characterized by their scenario-driven nature and rapid evolution, which significantly amplifies the dependence of technological innovation on market scale and accentuates the disadvantages for technologically lagging regions. From the perspective of scene-driven innovation, digital technologies create value by connecting application functions to specific needs in real-world economic activities. The core of digital innovation lies in providing precise, scenario-specific solutions. Consequently, technological advancement is often distributed across isolated trajectories tailored to distinct application scenarios. The adaptability and maturity of a given technology can vary dramatically across different sectors. Only a supersized market can generate sufficient diversity and volume of application scenarios to support the iterative testing, refinement, and eventual commercialization necessary for sustained innovation. Regarding their high-speed evolutionary attributes, digital technologies exhibit traits of self-reinforcement and rapid proliferation. Powerful computing capabilities (compute power) give rise to more efficient algorithms, while breakthroughs in algorithms, in turn, drive increased demand for even more advanced computing systems. This positive feedback loop dramatically shortens the lifecycle of individual technologies. A leading algorithmic architecture may face iterative version updates shortly after its release. This accelerated pace makes it exceedingly difficult for late-comer countries to pursue a strategy of “incremental innovation through late accumulation,” as the technological frontier moves too rapidly for traditional catch-up mechanisms to be effective.

The data factor, generated through the application of digital technology, exhibits non-excludability and increasing marginal returns. As a new type of production factor emerging from digital-era economic activities, it transcends the temporal and spatial constraints of traditional factors, allows infinite replication and reuse without loss of value, and demonstrates exponential growth in both its value and its marginal contribution to production activities once accumulated beyond a certain threshold. A larger market scale implies richer economic activities, which in turn generate larger-scale data inputs for production and technological innovation. This process further reinforces the mutually reinforcing relationship between market scale and technological innovation.

In summary, the digital era brings about systematic shifts in market scale, technological innovation, and their interrelationship. Specifically, protectionism is increasingly dismantled in the context of digital technology; the “winner-take-all” tendency in innovation competition becomes more pronounced amid the technological revolution, and the mutual reinforcement between market scale and technological innovation is further deepened.

Since the initiation of reform and opening-up, China has achieved sustained and rapid economic growth and established a robust socialist market economy. Rising incomes and continuous accumulation of social wealth have collectively shaped a vast domestic market of 1.4 billion people. This market encompasses a large number of innovation entities, diverse industrial application scenarios, and abundant production factors, all of which are crucial for driving technological innovation amid the digital revolution. Technological innovation stems from the activities of these entities, and China's large base of innovators provides a profound structural foundation for digital technological advancement. As of 2024, the number of registered market entities in China reached 189 million, including 463,000 high-tech enterprises, among which 169,000 are industrial high-tech firms above the scale. Furthermore, more than 570 industrial enterprises ranked among the global top 2,500 in R&D investment, accounting for nearly one-fourth of the total, making China the world's largest cluster of innovation entities (SCIO, 2025).

The emergence of technological innovation is grounded in real-world industrial applications, and diverse application scenarios provide a conducive environment for digital technological innovation. China possesses the most comprehensive industrial categories and a complete industrial system in the world, enabling a wide array of technological innovations to be applied across sectors to facilitate transformation. As of 2024, China's manufacturing sector had established over 2,400 pilot platforms, and more than 150,000 industrial enterprises above the scale had accelerated technological iteration through pilot activities. New industrial applications such as AI-powered quality inspection, smart culture and tourism, and intelligent greenhouses are continuously emerging (SCIO, 2025).

Technological innovation also relies on the effective supply of various production factors. The abundance of these factors provides ample resource endowments for digital technological innovation. In terms of capital, the turnover of technology contracts in China reached 6.8 trillion yuan in 2024, covering emerging digital technology fields like AI (SCIO, 2025). As for data, China accounted for 24.7% of the global data market in 2024. According to the International Data Corporation (IDC), China is projected to occupy approximately 27.8% of the global data market by 2025, ranking first in the world (EE Times China, 2023).

In summary, China's supersized market encompasses a vast number of innovation entities, diverse industrial application scenarios, and abundant production factors, providing essential structural foundations, developmental conditions, and resource endowments for digital technological innovation in the country. To accelerate the pace of digital technological innovation and build competitive technological advantages in the global arena, it is imperative to leverage the critical role of this supersized market fully.

High-quality development constitutes the primary task in building a modern socialist country in all respects. The systemic changes in market scale, technological innovation, and their interrelationship in the digital era have imposed new requirements for high-quality development in China. It is essential to establish a practical pathway based on China's supersized market that adapts to these new digital-age dynamics and effectively promotes high-quality development. Since Xi (2024) emphasized during the 21st collective study session of the 20th Central Committee Politburo, “Developing new quality productive forces is both an inherent requirement and a key focus for advancing high-quality development,” this clarification underscores the relationship between high-quality development and new quality productive forces, articulating the core connotation of NQPFs and highlighting the necessity of leveraging the supersized market to accelerate their development. In light of the systemic shifts in market scale, technological innovation, and their mutual reinforcement in the digital context, giving full play to the advantages of the supersized market for accelerating NQPFs requires targeted and comprehensive governance across three critical dimensions: technological breakthroughs, industrial transformation, and factor governance.

Firstly, to enhance the pace of local technological innovation and application transformation, a tightly coordinated “technology-market” feedback mechanism should be established. This mechanism would improve the iterative capability of technology application and help safeguard the national market by leveraging the effectiveness of innovation. The mutually reinforcing relationship and synergistic evolution between market scale and technological innovation indicates that a supersized market can create ideal conditions for technological advancement, while high-performance innovations can, in turn, capture significant market share in competitive environments. Given that protectionist policies in national markets often prove ineffective, it is essential to emphasize the critical role of market demand in guiding the direction of scientific and technological innovation, while accelerating the iteration of technological innovation, and building efficiency advantages in local technologies. These are keys to realizing the mutually reinforcing relationship between market scale and technological progress. Specific measures include integrating market demand into national scientific research planning by establishing platforms for collecting industrial technology demands and transforming corporate technology pain points into criteria for selecting major R&D projects; reforming the scientific research evaluation system to increase the weight of industrialization of results and promoting demand-driven collaboration mechanisms between research institutions and enterprises; and establishing an application prospect evaluation mechanism in basic research to better anticipate and layout underlying technologies that may lead to industrial transformation. Additionally, strengthening dynamic monitoring of technological maturity at the applied research level can facilitate the transfer of laboratory achievements to market applications.

Secondly, efforts should focus on driving the transformation and upgrading of traditional industries and fostering the sound development of the digital sector, thereby activating endogenous momentum for industrial innovation and leveraging industrial advancement to propel local innovation. Accelerating the modernization of traditional industries and supporting the healthy growth of digital economies are central to China's current industrial policy. Therefore, it is essential to closely align market expectations with industrial development strategies to harness the supersized market's potential for stimulating innovation and to plan industrial chains around the development of NQPFs strategically. Specific measures include: accurately translating market demand into directions for industrial innovation by leveraging consumer big data to conduct comprehensive analysis, identify gaps in strategic emerging fields, and detect latent needs; integrating market-driven technical requirements into industrial technology roadmaps to direct innovation resources toward key areas; and establishing collaborative innovation platforms across the industrial chain to encourage joint research among upstream and downstream enterprises in alignment with technical standards. Throughout this process, it is crucial to improve the mechanism for updating technical standards, effectively transform market demand into a driving force for industrial innovation, and establish a virtuous cycle of “demand-driven innovation–technological breakthrough–industrial upgrading”.

Thirdly, the focus should be on the innovative allocation of production factors and the scientific governance of digital factors, advancing factor market governance through digital technology, and accelerating the mutual reinforcement between market scale and technological innovation by leveraging China's accumulated advantages in key production factors. China's supersized market provides abundant and high-quality production factors for developing NQPFs, where the circulation efficiency and synergistic combination of factors have become critical variables driving technological and industrial innovation. Therefore, promoting reforms in factor market governance is essential. Specific measures include the following three aspects: First, establish a data-driven circulation mechanism for factor markets. This can be achieved by utilizing blockchain technology to create a transparent and trustworthy trading system and constructing a unified national platform for asset registration and transactions. These steps help break down geographical barriers and industry monopolies, enabling efficient cross-domain matching of traditional factors (such as land, labor, and capital) with data factors. Second, optimize the digital-enabled factor allocation mode. Deploy artificial intelligence and algorithmic models to analyze the supply and demand relationships of factors dynamically. This facilitates the construction of a real-time feedback mechanism for factor pricing, guiding the precise flow of resources such as capital and talent toward key nodes in innovation activities. Third, strengthen the institutional safeguards for digital factor governance. Develop a standardized system covering data property rights, cross-border flow rules, and risk management assessment. Furthermore, explore innovative solutions for data rights, profit distribution, and risk prevention through pilot initiatives such as the regulatory sandbox.

Currently, China is in a strategic period of opportunity, characterized by the rapid advancement of a new technological revolution and industrial transformation centered on digital technology. It is essential to address the new challenges facing China's high-quality development, leverage the advantages of its supersized market to accelerate the development of NQPFs, and formulate a practical pathway to promote high-quality development in the digital era.

Drawing on theoretical, historical, and practical perspectives, this paper demonstrates the following:

The relationship between market scale and technological innovation is one of mutual reinforcement and synergistic evolution, a dynamic observed throughout the developmental histories of various nations. Historically, countries that have achieved successful technological catch-up have actively protected their domestic markets through protectionist policies to safeguard and stimulate local technological innovation. By leveraging the competitiveness derived from technological advancements, these nations further expanded into overseas markets, gradually accumulating advantages in both market presence and technological capability. This accumulated strength allowed them to seize the window of opportunity presented by technological revolutions, emerging as leaders in subsequent waves of innovation and completing the process of technological catch-up. To lead in the new wave of technological revolution, China must therefore attach great importance to this dynamic relationship and fully leverage the advantage of its supersized market, seizing the window of opportunity in the new technological revolution.

Digital technology clusters have developed new characteristics, such as being scenario-driven, evolving at high speed, and exhibiting virtualization, which are reshaping market concepts and paradigms of technological innovation in the digital era. Consequently, protectionist policies have become less effective in national markets, while the “winner-takes-all” dynamic in innovation competition continues to intensify throughout technological revolutions. Furthermore, the mutually reinforcing relationship between market size and technological innovation is deepening significantly. To advance high-quality development in China during the digital age, it is essential to fully leverage the advantages of the supersized market in accelerating the development of NQPFs. This entails systematic reforms across three interconnected dimensions: technological breakthroughs, industrial transformation, and factor governance. Specifically, efforts should emphasize the critical role of market demand in guiding the direction of scientific and technological innovation, accelerate the iteration of technological upgrades, and build local efficiency advantages in innovation. It is also crucial to closely align market expectations with industrial development strategies, stimulate the supersized market's potential to drive industrial innovation, and strategically plan industrial chains around the development of NQPFs to form robust industrial dynamic advantages. Moreover, ensuring a sufficient supply of all types of production factors, improving the efficiency of factor circulation and combination, and leveraging China's accumulated advantages in key production factors are fundamental. Ultimately, a comprehensive governance approach should be established—protecting the local market through enhanced innovation efficiency, driving local innovation with industrial momentum, and accelerating the mutual reinforcement between the market and innovation through factor energy storage advantages—collectively fostering the development of NQPFs.