Opinion: Why China Won’t Give Up on the Factory
By Caixin
Recent discussions in China about maintaining a “reasonable proportion” of manufacturing in the economy are intensifying. The Third Plenum of the 20th Communist Party Central Committee proposed establishing an “investment mechanism to maintain a reasonable proportion of manufacturing.” The subsequent Fourth Plenum approved the 15th Five-Year Plan, which explicitly calls for “maintaining a reasonable proportion of manufacturing and building a modern industrial system with advanced manufacturing as its backbone.” For Beijing, this isn’t merely an economic target; it’s a foundational support for sustained and healthy national development, essential for both the immediate demands and long-term potential of high-quality growth.
The level of a country’s manufacturing development not only determines its material economic base and provides a solid foundation for other industries, but also largely defines its comprehensive national power and international competitiveness. In China, manufacturing is regarded as the bedrock of the nation and the basis of its strength. The country’s industrial sector is at a crucial turning point in its transition from a manufacturing behemoth to a high-end powerhouse. Given its vast and diverse industrial categories, the task of maintaining this reasonable proportion is both urgent and filled with potential. A modern industrial system must be built by upgrading traditional sectors, nurturing emerging industries, and strategically positioning oneself to take advantage of the industries of the future.
Manufacturing’s share of an economy is primarily determined by its stage of development and resource endowments, following an internal logic that can’t be easily altered by political will. In market economies, the relative weight of major industries is fundamentally the result of market-based resource allocation. Global economic history shows that as an economy enters a post-industrial stage, a declining manufacturing share and a rising services share is the dominant trend. However, a decline that is too precipitous can have consequences.
The United States long maintained global manufacturing superiority, but its share later fell sharply, prompting recent calls for “re-industrialization” and the return of manufacturing. The share in the United Kingdom, another old industrial power, is even lower. By contrast, countries like Germany and Japan have long kept their manufacturing sectors at a relatively stable 20% of their economies, thereby sustaining their global competitiveness. The lesson is clear: while a declining manufacturing share may be an objective economic phenomenon, it doesn’t mean governments should adopt a laissez-faire attitude. A nation’s economic strategy and policy guidance can play a decisive role.
This mandate to “maintain a reasonable proportion” prompts two questions: Why is it necessary, and what constitutes “reasonable”? In 2024, China’s manufacturing value-added reached 33.6 trillion yuan ($4.67 trillion), accounting for 24.9% of its gross domestic product and ranking first globally for the 15th consecutive year. China’s share of global manufacturing value-added stands at nearly 30%. There is no need for alarm over a modest decline in this proportion; as long as the share remains reasonable, the Chinese economy will not lose its foundation.
At the same time, one must avoid simplistically equating a falling manufacturing share with “economic hollowing out.” If a decline in manufacturing’s overall share is accompanied by leadership in advanced manufacturing and a firm grip on both ends of the “smiling curve” — R&D and design on one side, marketing and services on the other — it signifies a healthy economic upgrade. “Hollowing out,” by contrast, is often associated with supply-chain crises and social problems. Indeed, some empirical studies have found that while manufacturing employment may fall in certain regions, a rise in the proportion of highly skilled professionals can foster a virtuous economic cycle by boosting human capital and employment in high-productivity sectors.
Maintaining this balance means not favoring one area at the expense of another. According to the 15th Five-Year Plan, the strategy is twofold. On one hand, the priority is upgrading traditional industries — consolidating the global competitiveness of sectors like mining, metallurgy, chemicals, textiles, machinery and shipbuilding. This involves promoting technological transformation, advancing digital and intelligent manufacturing, and developing green and service-oriented manufacturing.
On the other hand, the plan calls for accelerating the development of strategic emerging industry clusters, including new energy, new materials, aerospace and the “low-altitude economy.” These clusters could spawn markets worth trillions of yuan. Meanwhile, fields like quantum technology, bio-manufacturing, hydrogen and nuclear fusion energy, brain-computer interfaces, embodied artificial intelligence, and 6G mobile communications are poised to become new drivers of growth. In many of these sectors, China is already keeping pace with or even leading the world, offering vast imaginative space for the future of its manufacturing.
Advanced manufacturing, however, cannot exist without an advanced institutional ecosystem. The role of government departments in providing fiscal, tax and financial incentives cannot be overlooked. For years, insightful observers have called for greater emphasis on producer services, viewing them as the “golden key” to integrating manufacturing with services and boosting industrial value-added. Advanced manufacturing especially requires advanced talent, necessitating an integrated approach to developing education, technology and human resources to gain an edge in fierce international competition. Local governments must tailor their policies to local conditions, creating a favorable environment for both upgrading traditional industries and fostering advanced ones, while steering clear of a one-size-fits-all approach.
With its comprehensive range of industrial sectors and deep reservoir of engineering talent, China is well-positioned to maintain a robust manufacturing base. Facing a treacherous global environment, its ambition to build a modern industrial system with advanced manufacturing as its backbone — transforming its industry from big to strong — leaves only one path forward: strengthening independent innovation while simultaneously expanding high-level opening to the world.
caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Global Neighbours is authorized to reprint this article.
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