China is currently facing the issue of losing labor-intensive manufacturing industries as trade conflicts intensify and wages rise. Many factories producing shoes, clothing, home goods, bags, toys, and more have shifted to countries like Vietnam and Indonesia. Older workers with lower skill levels are at risk of widespread unemployment.
According to a report from the British Financial Times, since the early 2000s when China joined the World Trade Organization (WTO), advanced manufacturing countries have successively faced the “China impact.” China’s abundant cheap labor and highly concentrated supply chains have led to the relocation of manufacturing industries from advanced countries to China, making the mainland the world’s factory.
Now that the “game is over,” China itself is facing significant losses in low-tech manufacturing industries. Scholars from Changzhou University, Yancheng Normal University, and Henan University analyzed 12 labor-intensive manufacturing industries from 2011 to 2019, finding that over these nine years, the average employment has decreased by about 14%, resulting in nearly 4 million lost jobs. In particular, the textile industry saw a 40% decline in jobs.
The Financial Times further analyzed the situation of the above industries from 2019 to 2023, revealing that over the next five years, job opportunities decreased by another 3.4 million.
According to research by Gordon Hanson, professor at Harvard Kennedy School, in 2013, China had a peak global export market share of 39.3% in 10 labor-intensive products (including home goods, furniture, bags, toys, etc.). By 2018, due to the impact of U.S. tariffs, this figure had dropped to 31.6%.
Even industries requiring advanced technology are beginning to leave China. Influenced by the tense U.S.-China relations, many Chinese and foreign companies are reducing their reliance on China’s supply chain and relocating the production of items such as iPhones, semiconductor chips, and auto parts to Southeast Asian or Indian countries.
The experience of Western countries shows the transition from focusing on manufacturing to developing the service industry, transforming into a consumption-driven economy. However, due to the extreme nature of the regime, the Chinese authorities aim to control everything, including economically insisting on “upholding the leadership of the Communist Party” and pursuing a development path known as “with Chinese (Communist) characteristics,” disregarding the market laws of economic structural transformation.
The leader of the Chinese Communist Party has clearly stated the intention to develop “new quality production forces,” investing resources in advanced manufacturing such as electric vehicles and semiconductors, rather than fostering a consumption-driven economy and refusing to share the benefits of economic growth with the people. However, the demand for advanced manufacturing industries from the private sector is limited, leading to oversupply, economic downturn, an outcome that is gradually becoming apparent.
The 2014 Nobel Prize in Economic Sciences winners Daron Acemoglu, Simon Johnson, and James A. Robinson have put forward important concepts explaining the prosperity and poverty of nations. According to their research, the stark difference between wealthy and poor countries globally lies in the variations of political and economic institutions.
They classify national systems as “inclusive institutions” and “extractive institutions.” Inclusive institutions refer to a system where the majority of the population can participate in economic activities, fostering fair competition and shared benefits. Extractive institutions concentrate power and wealth in the hands of a few elites, lacking checks and balances and the rule of law, where the majority serves a tiny minority.
Acemoglu and others’ research points out that inclusive political and economic systems are crucial for achieving long-term economic growth. In all countries and regions that have opted for inclusive institutions, economic development has been sustained, and living standards continuously improved. Although extractive political and economic systems may achieve economic growth for a period, it is unsustainable and ultimately leads to stagnation or decline.
A decade ago in 2014, Acemoglu mentioned in a speech that present-day (Communist) China is a typical case of “growth under an extractive system,” emphasizing that this model of political and economic institutions cannot sustain long-term economic growth. In 2014, he directly predicted the economic decline currently seen in China.
China’s present development model of “politically left, economically right” has reached its limit.