The rise and coming fall of Chinese manufacturing

COMMENTARY / World

The rise and coming fall of Chinese manufacturing

China’s overcapacity issues are causing global concerns, similar to Japan’s past challenges

Beyond losing the American market, China is losing some of its own manufacturing companies, which are shifting parts of their production to countries such as Vietnam and Mexico to avoid U.S. tariffs. | Bloomberg

By Yi Fuxian
Project Syndicate

Sep 4, 2024

MADISON, WISCONSIN – Chinese overcapacity is raising concerns worldwide.

It is easy to see why: China accounts for nearly one-third of the world’s manufacturing value-added and one-fifth of global manufacturing exports. But there is good reason to believe that the decline of China’s manufacturing sector is imminent.

To understand what is happening now in China, it is worth recalling Japan’s recent history. After World War II, Japan’s manufacturing sector grew rapidly thanks largely to access to the massive U.S. market. But the 1985 Plaza Accord (which boosted the yen’s value and weakened Japanese exports), together with an aging population and a shrinking labor force, reversed this trend.