Opinion: Why China Won’t Give Up on the Factory

1. Recent policy discussions in China are increasingly focusing on the significance of maintaining a “reasonable proportion” of manufacturing within the economy. The Third and Fourth Plenum sessions of the Communist Party emphasized this objective, describing it as essential for the nation’s high-quality economic growth and overall development. Through the 15th Five-Year Plan, China has formalized the strategy of maintaining manufacturing prominence, making it not just an economic goal but a core necessity for both current needs and future ambitions. [para. 1]

2. The strength of a nation’s manufacturing sector is fundamental to its material base, underpins other industries, and is crucial for its global competitiveness and comprehensive national power. In China, manufacturing is seen as foundational to its rise. The country currently faces a pivotal transition from being a vast manufacturing base to becoming a high-end industrial powerhouse. Achieving and sustaining a “reasonable proportion” of manufacturing requires upgrading traditional sectors, cultivating new industries, and strategically positioning itself in future industries. [para. 2]

3. The share of manufacturing within an economy is mainly influenced by a country’s development stage and resource distribution. Economic history shows that economies typically shift from manufacturing to services as they evolve, but rapid declines in manufacturing have historically led to challenges. Market forces largely determine these shifts, yet governmental policy and economic strategy also play a significant role in influencing industry structure.[para. 3]

4. The United States and the United Kingdom serve as cautionary examples: after decades of global manufacturing dominance, their manufacturing shares fell dramatically, leading to current calls for “re-industrialization.” In contrast, Germany and Japan have maintained a steady 20% share of manufacturing in their economies, helping preserve their competitiveness. The key takeaway is that while a declining manufacturing share is often inevitable, policy intervention can help stabilize and optimize the industrial structure. [para. 4]

5. The push to maintain a “reasonable” manufacturing share centers on two main questions: Why is it crucial, and what is considered “reasonable”? In 2024, China’s manufacturing value-added reached 33.6 trillion yuan ($4.67 trillion), representing 24.9% of GDP and ranking China as the world’s leader in manufacturing for the 15th consecutive year. China also produces nearly 30% of global manufacturing value-added. A modest reduction in this proportion does not threaten China’s economic foundation as long as it remains within a reasonable range. [para. 5]

6. A fall in manufacturing’s share does not automatically equate to “economic hollowing out.” If the country maintains leadership in high-value activities, such as R&D and design, alongside strong marketing and service sectors, this represents a healthy economic evolution. Conversely, the true risks of hollowing out arise when supply chains disintegrate and social challenges intensify. Studies show that while manufacturing jobs might decline, growing employment in high-skilled, high-productivity sectors can support economic vitality. [para. 6]

7. The 15th Five-Year Plan stipulates a dual strategy: upgrading and transforming traditional industries like textiles, machinery, and shipbuilding through technological and green innovation, while also accelerating the development of strategic emerging sectors—such as new energy, aerospace, and advanced materials—that are expected to generate new market opportunities. [para. 7]

8. In parallel, China aims to push into cutting-edge fields such as quantum technology, bio-manufacturing, hydrogen energy, brain-computer interfaces, and 6G communications, where it is increasingly a global leader. These sectors are seen as potential new engines of growth. [para. 8]

9. Accomplishing these ambitions requires not only technological progress but also robust institutional support, including financial incentives and targeted industrial policy. Emphasis is also placed on integrating advanced producer services and nurturing skilled talent to support an upgraded, competitive manufacturing base. Local governments are encouraged to tailor policies for both traditional and emerging industries. [para. 9]

10. With vast industrial diversity and a large reservoir of engineering talent, China is well-positioned to reinforce its global manufacturing leadership. The chosen path is to drive independent innovation while also deepening international engagement, thus building a modern and resilient industrial system. [para. 10]