5 Reasons Why Chinese Manufacturing Will Decline Rapidly

An employee works on an assembly line producing speakers at a factory in Fuyang city, in China's eastern Anhui Province on Nov. 30, 2022. STR/AFP via Getty Images

Commentary

China has always been considered a major manufacturing country, playing a pivotal role in the global industrial division of labor. However, I believe we will see a rapid decline in Chinese manufacturing, and China will lose its status as “the world’s factory.”

Here’s why.

Population Crisis

On Jan. 17, China’s National Bureau of Statistics released the latest population data, which show that 9.56 million people were born and 10.41 million died in 2022, a decline of about 850,000 in one year. The last time China’s population declined was 60 years ago, when the “Great Famine” caused the population to drop by 5.4 million in 1961. Unlike the previous population decline, this one is irreversible, meaning China’s population will continue to decline.

China was able to attract manufacturing in the first place because of low labor costs. But the scarcity of human resources means that labor costs have become more expensive.

A nurse cares for a newborn at the Women and Children's Hospital in Fuyang City, Anhui Province, China, on Aug. 8, 2022. The growth rate of China's total population has slowed markedly. CFOTO/Future Publishing via Getty Images

China’s Theft of Trade Secrets Under Scrutiny

The Chinese Communist Party’s (CCP) industrial policy seeks to improve China’s global competitiveness. And in doing so, the Chinese regime has resorted to intellectual property theft, which has caused alarm in various countries.

In 2014, a draft was submitted to the State Council for approval, led by the Ministry of Industry and Information Technology, in conjunction with several ministries and academics from both national academies. The “Made in China 2025” initiative involves research and development in high technology, such as CNC machine tools, robotics, new energy vehicles, nuclear energy, and nanomaterials.

This plan attracted foreign talent with lucrative pay, paving the way for the “Thousand Talents Program.” However, the program has led to many legal disputes, and some of its members have been arrested and convicted for intellectual property theft or concealing their income. One of the most famous cases is that of Charles Lieber, chair of the Department of Chemistry and Chemical Biology at Harvard University. In December 2021, he was convicted of concealing his participation in China’s Thousand Talents recruitment program from the federal government.

Not only has the program attracted scrutiny from the FBI, but the issue of intellectual property theft was one of the major factors that caused the trade war between the Trump administration and the CCP. Since 2017, the CCP has tried to avoid talking publicly about its “Thousand Talents Program” and “Made in China 2025.”

Charles Lieber leaves federal court after he and two Chinese nationals were charged with lying about their alleged links to the Chinese regime, in Boston on Jan. 30, 2020. Katherine Taylor/Reuters

Totalitarian Regime

In June 2022, after the G-7 summit, the Biden administration released a statement that I believe is aimed at China’s totalitarian regime: “The G-7 Leaders—along with the leaders of Argentina, India, Indonesia, Senegal, and South Africa—released a statement on Democratic Resilience, affirming the importance of strengthening resilience to authoritarian threats within our democracies and around the world.”

The United States and its allies will unite against the CCP.

Especially with the outbreak of the Russia–Ukraine war, the democratic countries are more worried that if the CCP launched an attack on Taiwan, it would disrupt the global industrial chain.

Energy, Land, and Transportation Costs

At one point during the Trump era, the United States was the world’s largest energy producer because of its abundant fossil fuel resources. On the other hand, China is the world’s largest oil importer, importing 540 million tons of oil in 2020 alone. Thus, China’s energy costs are much higher than the United States.

China has scarce land resources, and the expensive real estate is due to the cost of land. It’s noteworthy that in recent years, Chinese investors have been buying up farmland in the United States, making them the largest foreign buyer of U.S. real estate by dollar amount between March 2021 and March 2022, with $6 billion spent over the period, according to the National Association of Realtors.

China’s transportation costs are much higher than products made in the United States because of its distance from European and U.S. markets. The increased transportation time causes the United States to stockpile goods, thus increasing storage costs.

Shale Crescent USA, a nonprofit organization, released a research report on Jan. 16 comparing the profitability of three products made in China and Ohio. It showed that the only advantage of “Made in China” products is the labor cost, while materials, transportation, and other costs are much higher.

The Hidden Costs

Since the totalitarian society of the CCP isn’t based on the rule of law, authorities can take extreme measures, such as abruptly ending the zero-COVID policy, forcing factories to stop production, and causing contracts to be unenforceable. Even local officials can impose indiscriminate fines on enterprises through health inspections, fire inspections, tax inspections, etc. These costs are entirely unplanned and uncontrollable.

With the development of artificial intelligence and robotics in the United States, many industries have been able to replace manual labor with machines gradually and, therefore, will cut labor costs significantly. That’s becoming less and less of an advantage to China, which relies solely on cheap human resources to compete.

In short, Chinese manufacturing is losing its competitive advantage in all aspects, so the industry may be decaying much faster than we predicted.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.