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Factories across China at the low-end of manufacturing are facing the same dilemma — either they invest in automation that shrinks the number of jobs, or they slowly wither away.
The result, in the view of researchers and economists, is a painful shift away from low-cost, labour-intensive production that could leave millions of older, lower skilled workers in the lurch.
Analysis of 12 labour-intensive manufacturing industries between 2011 and 2019 by academics at Changzhou University, Yancheng Teachers University and Henan University found that average employment shrank by roughly 14 per cent, or nearly 4mn roles, between 2011 and 2019. Roles in the textile industry shrank 40 per cent over the period.
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“China exploited its comparative advantage over recent decades in terms of having an abundant labour force . . . and it really became the dominant manufacturer globally of labour intensive goods,” says Frederic Neumann, chief Asia economist at HSBC. “That game is now up.”
In many ways, Beijing risks experiencing the same “China shock” that it imposed on advanced manufacturing nations after its entry to the World Trade Organization in the early 2000s, when orders migrated en masse from more expensive hubs to the cheap and efficient factories of Guangdong and other provinces. Now, the cheaper factories are in countries like Vietnam and Indonesia where exports have surged.
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Analysts say production in high-tech export industries will be less labour-intensive, and will not provide enough new opportunities to soak up the excess labour on its own. “You’re not going to employ as many people by definition,” Neumann says.
They also doubt that manufacturing alone can deliver China’s growth targets, which political leaders set at “around 5 per cent” for the third year running in 2025.
A rise in localised unemployment risks further denting economic prospects and creating social strains that policymakers, used to decades of breakneck growth, are unfamiliar with.
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China shares of the export of 10 labour-intensive products — including home fixtures, furniture, luggage, toys and others — peaked at nearly 40 per cent in 2013, according to figures compiled by Hanson at Harvard Kennedy School.
Hanson’s figures show that China’s share of the combined 10 goods had fallen to less than 32 per cent by 2018. Tariffs put in place by the US that year have since accelerated the process, he says.
Even items requiring more advanced processes are not immune. Amid tensions with the US, global and local companies have accelerated their efforts to “de-risk” their supply chains and decrease Chinese production of everything from iPhones to car parts in recent years.
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“This eventually leads to serious social problems, such as higher rates of unemployment and increased crime and social unrest. Nations with socially polarised work forces also suffer from political instability," [Dorien Emmers and Scott Rozelle, academics at KU Leuven and Stanford wrote in a paper].
It is an open question how these trends apply to a one-party state like China.
Despite tight social controls, small-scale labour protests — generally confined to disputes and collective action between workers and their employers — are fairly regular across China.
And while the country’s tight control over information related to such events makes them hard to track, the China Labour Bulletin, a Hong Kong-based NGO, has noticed a marked increase in recent years.
The CLB recorded 452 protests in the manufacturing sector in last year, the highest in almost a decade, driven by factory closures, relocations and wage arrears. That followed a tenfold increase in manufacturing strikes and protest actions the year before.
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During the journalist’s visit [of a Chinese factory], it was less than 20 per cent full, with small groups of workers idling in the nearby bleachers, or chatting among themselves by the entrance.
“It’s no good,” says one older prospective labourer, before being hastily spirited away from a foreign reporter by a wary security guard. “[Nowadays] you can’t even earn Rmb100 in a day.”