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China has long been regarded as the factory of the world. The nation accounts for over 30 per cent of the world's value-added manufacturing. But that may be changing, especially in low-tech and mid-end factories, which make up the bulk of manufacturing in China. China's factory activity contracted for a fourth straight month in August with a variety of factors putting pressure on output.
Firstly, manufacturers are increasingly struggling with anaemic orders from western buyers. Competition from rival hubs is also growing, particularly from South and Southeast Asian countries such as Indonesia, India, and Vietnam, where manufacturing wages are noticeably lower than in China. Trade restrictions in foreign markets, especially from the US, are also having an impact. Thanks largely to tariffs initially imposed by Donald Trump in 2018, the share of Chinese goods in US imports has fallen sharply, from a high of 22 per cent in 2017 to less than 15 per cent in 2024.
Demographics are also a factor. The nation's workforce is both ageing and shrinking. Migrant workers, those who leave their rural hometowns to work in urban centres, make up about 80 per cent of China's manufacturing workforce. But their median age has risen from 34 in 2008 to 43 last year. These workers are also shunning production jobs for positions in the service economy even though salaries are lower. In 2013, service sector jobs accounted for 43 per cent of migrant workers. By 2023, that figure had climbed to 54 per cent. These factors are pushing labour costs up.
Average wages in private sector manufacturing have more than doubled in the decade to the end of 2022. The Chinese economy continues to rely on manufacturing and exports to keep its growth target in sight, although the IMF has projected that growth will fall to less than 4 per cent in the coming years. Part of Beijing's list of policy solutions to China's manufacturing problems is to prepare the industry for a future of fewer workers, using more automation and investing heavily in advanced manufacturing. But investing in the technological upgrades is expensive and beyond the capacity of factories working on razor-thin margins. For some in China, a high-tech factory future may be more of a theoretical answer than a practical reality.
