China is undergoing economic turmoil
Zhou Yousheng’s Guangdong shoe factory employed over 100 people a decade ago during China’s economic boom. China led low-end manufacturing at the time because to its cheap workforce and tightly linked supply networks. The World Footwear Yearbook reports that the nation’s footwear exports exceeded 70% ten years ago. Zhou has seen his business lose competitiveness over the past decade due to severe overseas competition, a growing US-China trade war, and weak domestic demand.
Southern China’s manufacturing centers, which have driven economic growth, have seen regular wage rises, while Southeast Asian competition has increased. According to the Yearbook, China leads shoe production, but its share of worldwide exports has dropped by 10% over the past decade, with a large chunk of that market share going to Vietnam and Indonesia. Zhou’s facility employs fewer than 20 people. “The outlook appears grim and devoid of optimism if current trends persist,” Zhou says from his shop in a mostly empty wholesale market in a Guangzhou suburb focused on international trade. “Reverting to the previous state presents significant challenges.”
Chinese manufacturing facilities, especially low-end ones, must decide whether to automate, which cuts jobs, or to lose competitiveness and viability. Analysts and economists expect a tough shift from low-cost, labor-intensive manufacturing that may leave millions of older, less qualified workers. Changzhou University, Yancheng Teachers University, and Henan University researchers found that average employment in 12 labor-intensive manufacturing sectors fell by 14% from 2011 to 2019, resulting in nearly 4 million job losses. Employment in the textile industry fell 40% during this time.
“It truly emerged as the preeminent global manufacturer of labor-intensive goods,” says HSBC head Asia economist Frederic Neumann. The game is over.” Beijing may be about to experience a similar economic upheaval to that it caused advanced manufacturing countries after joining the WTO in the early 2000s, when orders shifted from higher-cost regions to Guangdong and other provinces with lower production costs. Vietnam and Indonesia, where exports are rising, have lower-cost manufacturing facilities.
China has used its huge worker force to its advantage in recent decades. This game is live. Western nations handled the China shock by promoting consumption-driven economies and dynamic services industries. Xi Jinping has emphasized that “new quality productive forces”—advanced manufacturing—will remain key to China’s growth paradigm. Experts predict that high-tech export output will have reduced labor intensity and not create enough new jobs to absorb surplus workers. “By definition, you will not employ as many individuals,” Neumann says.
Chinese political officials have set growth goals at “approximately 5 percent” for the third year in 2025, but manufacturing may not meet them. Localised unemployment threatens economic prospects and may cause societal conflicts that officials used to dealing with during fast expansion may struggle to manage. Gordon Hanson, a Harvard Kennedy School professor who studies manufacturing decline’s labor effects, says China’s low-skilled migrant workers are vulnerable. His example is Martinsville, Virginia, the “sweatshirt capital of the world,” where 45% of working-age individuals were manufacturing in 1990. He claims that most of those jobs “simply vanished” since the municipality was unable to change its economic structure, resulting in a poverty rate double the national average. “I anticipate that the primary distinction in China will be a significantly more coordinated governmental initiative to mitigate that disruption,” Hanson says.
However, China may face comparable issues if it believes it can dominate in green technology and artificial intelligence while managing disruption. Traditional manufacturing is being supported by government programs. Wang, in his 40s, spent February at a barely constructed industrial complex in southern China, some 2,000km from home. He went to northern Guangdong to work in the garment industry. He says, “Should I be unable to acquire any, I shall proceed to other options.” Staying home during the holidays was impossible. “I will not permit myself to incur financial losses this year,” he says. “Given my life stage, financial resources are essential.”
Wang is part of the workforce struggling with this transformation. He applied for a job at Zhongda Fashion and Technology City, a “smart manufacturing base” for rapid fashion created by Qingyuan and Guangzhou officials. Officials expect small businesses from across the province to create newer, more technologically advanced operations at the location, boosting the region’s garments sector’s competitiveness. These initiatives across China are the government’s response to manufacturing sector decline.
Hanson at Harvard Kennedy School found that China’s share in the export market for eleven labor-intensive products—home fixtures, furniture, luggage, toys, and others—was about 40% in 2013. By 2018, China’s share in the top 10 items dropped below 32%, according to Hanson. His analysis shows that US tariffs that year accelerated the process.
Products requiring more advanced techniques are included. Global and local companies have increased supply chain risk mitigation efforts in response to rising US tensions, reducing Chinese manufacturing of iPhones and automotive components in recent years. South-east Asia has the most advantage as Chinese companies and their overseas clientele make more purchases from rival centers. From 2019 to 2023, Vietnam and Indonesia saw 8.2% and 12.3% compound annual increase in exports, according to McKinsey. Official statistics show that the two nations have added 10 million industrial jobs since 2011.
“It is to be expected that a nation such as China, experiencing increasing wealth and rising wages, would permit certain labor-intensive, export-driven sectors to relocate to other nations,” says Asian Development Bank head economist Albert Park. Structural change unavoidably challenges some workers, and the quantity of protection they receive is a government and society decision. China’s manufacturing industry is resilient and relevant. In Panyu, near Guangzhou, humans and machines work together to make one electric vehicle every 53 seconds.
This section of the plant assembles GAC’s Aion automobiles with 1,400 workers. These advanced facilities demonstrate Beijing’s aim for “new productive forces”—sophisticated machinery run by intelligent systems that produce high-value products. President Xi visited the factory in Guangzhou in 2023. In some parts of the production line, such when seven robots lift, rotate, and fit windscreens onto chassis moving down a conveyor belt, humans are marginalized. Some tasks, such dangerous welding and coating car doors, are totally automated, while the final assembly process is just 40% mechanized.
This is purposeful, according to engineer Li Xiaoyu; the plant wants to cut its employment by 10% annually. Unlike low-end manufacturing, Li says the business is having trouble finding fit workers with an average age of 22. “The current situation in China mirrors that of Europe: there is a significant challenge in sourcing young talent for employment,” he says, pointing to the manufacturing line. “In an optimal scenario, we would prefer them to engage primarily in tasks of significant importance, such as quality assessment.” These posts may be eliminated. Major manufacturing firms share Li’s concerns: China’s demographic downturn and a more educated younger generation’s reluctance to work on production lines indicate that many new factories are having trouble hiring.
The Brookings Institution predicts that China’s working-age population, which peaked at over 900 million in 2011, will fall by 25% to 700 million by the middle of the century. Youthful workers are wary of hard, dirty, and labor-intensive jobs. Automation and robotics are vital for long-term productivity, according to policymakers. The current argument is that China risks losing its competitive edge in higher-end production if it doesn’t automate.
Proponents argue that high-tech employment will create a varied range of new jobs and consumers, increasing employment levels. Automation will help mitigate labor shortages in certain sectors, but it may also replace workers who cannot adapt to new manufacturing methods. According to a source familiar with officials’ perspectives, the current technology sector may lead to more unemployment in traditional sectors.
However, through the progress of productive forces and their adaptation to regional circumstances, we want to create new employment prospects to offset and accommodate labor market repercussions from conventional sector transitions. Automation and robotics in high-end industries will help China’s rapidly aging and shrinking workforce while freeing up future workers from less attractive activities. “The emerging workforce, particularly those younger than ourselves, exhibits a notable reluctance to partake in labor that is considered dirty, arduous, and exhausting,” says Chen Guishun, president of robotics at Shenzhen Inovance, a major industrial automation company in China. As a result, automation and robotics will become more important.
Chen believes that even agile, smaller-scale clothing manufacturers with fluctuating demand will eventually integrate more robots into their labor force, despite their complaints about insufficient capital or demand. “Numerous small enterprises of this nature are likely to be supplanted by larger-scale counterparts due to insufficient technology or innovation…Alternatively, if they consolidate, their automation will likely accelerate,” he says. “This may represent an unavoidable trajectory.” Automation may relieve labor market limitations in some sectors, but economists warn that it may also make lower-skilled jobs obsolete.
In a paper published last year, KU Leuven and Stanford scholars Dorien Emmers and Scott Rozelle argued that the rapid advancement of Chinese industry and a significant drive toward automation were reducing the demand for laborers and lowering their wages. They stated that China’s labor force has more uneducated people than many higher middle-income nations, increasing disruption risk.
According to Emmers and Rozelle, rural residents are susceptible due to their lower educational attainment, although they are only partially represented in the nation’s unemployment statistics. “When an excess of unskilled labor is displaced from modernized sectors, wage stagnation or decline restricts demand and impedes economic growth,” they said. Political instability increases in countries with socially polarized labor forces.
These patterns’ relevance to a one-party state like China is unclear. Localized labor protests, usually limited to negotiations and concerted efforts between employees and bosses, are common in China due to strict social rules. Tracking these events is difficult due to strict supervision, but the Hong Kong-based China Labour Bulletin has seen a major increase in recent years. The CLB recorded 452 manufacturing demonstrations last year, the most in nearly a decade, driven by factory closures, relocations, and wage arrears. The year before, factory strikes and protests increased tenfold.
China’s shift from low-tech to high-tech industries has caused “technological unemployment” among displaced workers, the CLB reported last year. Over the previous two years, worker collective activities have increased. It observed that intense rivalry in high-tech sectors, especially electric vehicles, has caused a pricing war and several company and factory closures. Over the past two years, Han Dongfang, founder and executive director, has observed a significant surge in worker collective actions, particularly in the electronics and textile sectors.
Kanglu, a garment manufacturing area with many small companies and workshops, some of which fit one worker and a sewing machine in a nook beneath a stairwell, seems far from a high-tech future. In a regional labor market, laminated pink signs divide a repurposed sports arena into five sectors: “semi-finished goods,” “jackets,” “coats,” “trousers,” and “knitwear.” Their notice boards used to post extensive local job listings. They are mostly unfilled. The FT found the arena underutilized, with occupancy below 20%. Small groups of workers spoke near the entrance or idled in the bleachers. “It’s no good,” an older prospective worker says before a diligent security guard quickly removes him from a foreign journalist. “Currently, earning Rmb100 per day is difficult.”
