Manufacturers must move up the value chain

The manufacturing industry’s share in China’s gross domestic product has dropped from about 30 percent in 2016 to 27 percent now, according to Cai Fang, a researcher of economics with the Chinese Academy of Social Sciences. There are a number of reasons for this.

The manufacturing industry faces challenges from the downward pressure on exports and the rising cost of labor costs, both of which have remained largely unchanged since the global financial crisis of 2008. The relocation of labor-intensive enterprises to foreign countries, and the rise of trade protectionism in the United States, which has forced some enterprises in the supply chains to leave China, have increased the pressure on domestic manufacturing industries.

The fast development of the service sector has also led to the decrease of the manufacturing industry’s proportion in the economy. Many workers are leaving factories to look for jobs in the service sector. Particularly, the rise of e-commerce industry has not only attracted large numbers of workers in manufacturing to change jobs, but also capital. Which further squeezes the development space of the manufacturing industry.

So the pressure is not only from the decline of the working population, as it is also from the fast development of other industries that have restricted the development potential of the manufacturing industry. However, it should be noted the production efficiency of the manufacturing industry is higher than the service industry. So if the backbone of the economy shrinks, the overall efficiency of the economy will be lowered, posing challenges to the sustainability of development in the long run.

Before China realizes technological and brand strengths, the manufacturing industry’s declining contribution to GDP deserves the vigilance of the policymakers. Since many manufacturing enterprises are only original equipment manufacturers, the scale of the industry might further downsize after the foreign corporations switch to new OEMs in other countries.

That said, the country should divert more attention from building a complete industrial chain to moving up the value chain by mastering core technologies, designs and brands. The competitiveness of the Chinese manufacturing industry should not be based on the country’s low labor and resource prices, or the pure size of its industries either, but its possession of core know-how.