How China is Winning the Manufacturing War

A report out from The New York Times this month has shed new light on how China’s manufacturing sector is propelling the country back into prosperity. Despite “a severe real estate crisis and sluggish spending at home,” the communist economy grew faster than expected, and is now predicted to hit 6.6 percent growth for the year.

The manufacturing boom is the latest sign that China’s big bet on high-end manufacturing is paying significant dividends. In May 2015, the Chinese Communist Party (CCP) announced “Made in China 2025,” an initiative to shift the country from making cheap, low-tech goods to more advanced, expensive technologies and products.

In many ways, that strategy appears to have been successful. Last year, for instance, China’s BYD overtook U.S.-based Tesla as the world’s largest producer of electric vehicles.

Of primary concern for the United States, the growing reality is that when Americans go online or to retail stores to purchase everything from TVs to computers and drones, the products they buy are increasingly coming from China.

According to the Brookings Institution, “Manufacturing constitutes 27 percent of China’s overall national output, which accounts for 20 percent of the world’s manufacturing output.” The United States was second with 18 percent of global manufacturing despite manufacturing representing only 12 percent of the U.S. national output.

The reason for the discrepancy in the share of national output vs the share of global output is the skill, nature, and quality of the manufacturing involved. For decades, China has been known as the “world’s factory,” yet its products had long been regarded as cheap and low quality, requiring less skill to produce.

This made China the ideal location for the production of cheap goods. Iowa State University Professor Gang Han has noted that before industrialization, “People really enjoyed products from China. They viewed products, such as tea, furniture, or dishware, as unique” and with “cultural value.” Once the nation “became a world factory,” however, and produced more cheap and generic goods, “people changed their views.”

Naming the 2015 initiative “Made in China 2025” was as much about changing the manufacturing output of China as it was about the perception of manufacturing in China. To that end, the Chinese government made large investments in key industries, including “aerospace, robotics, and high-tech medical equipment.”

While there is no publicly available data on just how much China has spent on this modernization effort, experts believe it to be in the “hundreds of billions” of dollars. While much of this came from direct capital injections by the state, China also used many strategies usually seen in more free-market economies, including tax incentives and low-interest loans to large corporations.

But shifting from low-end to high-end manufacturing still carries significant economic risk. If the gamble fails, the entire country could be plunged into a deep economic recession.

Officially, Made in China 2025 is one part of the “13th Five-Year Plan for Economic and Social Development of the People’s Republic of China.” Since 1952, in the aftermath of the communist revolution and the takeover of China, the CCP has attempted to organize and manage the development and allocation of resources, via these “Five-Year Plans.”

Made in China 2025 was renewed and expanded as part of China’s 14th five-year plan in 2020. China’s manufacturing has since boomed to the point where the CCP is now warning the West of a “survival of the fittest” economic challenge.

While the United States still has by far the world’s largest economy – $28 trillion to China’s $18 trillion – the CCP has for decades leveraged its ability to absorb heavy short-term economic losses in order to gobble up huge shares of the market in certain industries. This strategy is now paying dividends.

In an interview with the Financial Times, Robin Xing, the lead expert on the Chinese economy at Morgan Stanley, stated, “Chinese exporters are providing huge price discounts on their exports because of domestic overcapacity.” In other words, Chinese manufacturing is brimming with so many exports that they can effectively flood the market for advanced goods at deep discounts and potentially kill other competitors.

U.S. Treasury Secretary Janet Yellen recently accused China of “unfair economic practices,” but the CCP has unsurprisingly brushed that accusation aside.

Yet, for all the success, one critical area where China falls behind is innovation. As noted by CBS, no matter how efficient China may be at building and distributing technology, many of their products come not from innovation but espionage.

In October 2023, intelligence leaders from the U.S., Canada, the United Kingdom, Australia, and New Zealand all warned that “the scale of China’s theft is unprecedented.” FBI Director Christopher Wray has also said Chinese technology theft of U.S. intellectual property is the “defining threat of this generation.” According to some estimates, Chinese corporate espionage costs American companies upwards of $600 billion per year.

A perfect example of how industrial espionage, generous subsidies, and cheap labor all coalesce to provide China with an economic edge is the international drone market. The Chinese Drone manufacturer DJI currently owns 77 percent of the unmanned quadcopter market. DJI has received more than $55.3 billion from the Chinese government.

In 2023, the U.S. aerospace company Tectron won a $279 million verdict against DJI after a jury found it “willfully infringed its patents.” This is not the first time the company has been accused of stealing trade secrets.

In other words, the Chinese government is heavily subsidizing a drone company that steals trade secrets from American companies. That drone company has used this advantage to sell products at deep discounts and put American companies out of business. The same pattern has played out in dozens of other industries.

China is acutely aware that its lack of innovation is a liability. In addition to the heavy industrial spending, the CCP has pledged to increase research and development spending by seven percent every year.

There increasingly appears to be only one option left to hold China in check: embargos, tariffs, and an aggressive crackdown on intellectual property theft.

When former President Donald Trump enacted tariffs against China, he received intense public pushback from the mainstream media. Nevertheless, the Biden administration kept those tariffs in place and recently announced its intent to increase some tariffs on China. Yet, if more is not done to counter China’s espionage and economy, the United States may soon fall permanently behind in the battle for manufacturing supremacy.

Andrew Shirley is a veteran speechwriter and AMAC Newsline columnist. His commentary can be found on X at @AA_Shirley.