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How China is Winning the Manufacturing War

Posted on Tuesday, April 23, 2024
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by Andrew Shirley
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AMAC EXCLUSIVE

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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.

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PaulE
PaulE
24 days ago

This article could have been written in less than half the paragraphs, if the author was either a businessman or financial expert with a background into the history of the 1990s. The bottom line why China is today the manufacturing hub of the world comes down to three factors:
1) Bill Clinton persuaded the other leaders of the G7 to give China most favored nation status, without any binding pre-conditions, in the hopes of getting China, without any agreed upon assurances, to eventually abandon communism in favor of capitalism. The G7 then proceeded to off-shore tens of millions of manufacturing jobs to both China and India starting in the 1990s.
2) China, then having access to literally several hundred billion dollars a year flowing into the country from all around the western world to fund the construction of mega factories and create state-of-the-art training centers to educate a captive Chinese workforce, that would work 16 hour shifts, 7 days a week for peanuts, quickly ramped up to not only produce what was needed, but also employed personnel to reverse engineer everything of value to allow China to leapfrog the gap technologically between the West and China in less than three decades.
3) Virtually every western company that set up operations in China was required, by Chinese law, to share all intellectual property with their Chinese counterparts. Given that the Chinese government has a majority stake in 99.99% of all Chinese companies, this was essentially handing decades of valuable R&D over to the CCP on a daily basis. Which the CCP then used to transform China from a third-world economic backwater into the second most powerful nation on the planet all in less than three decades. All of which was because some very stupid western politicians “hoped” that this one-sided economic trade agreement would eventually make the CCP realize that communism was bad, and they would summarily decide to relinquish power and control over their people to become some sort of western style government.
Today, China has not only reverse engineered some of the best of western technology to turn out carbon copies of things like iphones (that is why Apple sales are down in China), guided missile destroyers, F-35s, etc., but the CCP was also smart enough to buy up the global raw materials essential to their manufacture around the world. So they not only are the manufacturing hub of the world, but they also control the supply chain for areas like drugs, technology, the so-called green agenda favorites of solar panels and windmills, power transformers for our nation’s power grid, etc. etc.. The CCP has been very thorough in turning the tables on the nations of the West that China seeks to replace on the world stage.
That is exactly how, in broad strokes, China rose from being a third-world backwater with nuclear weapons that they couldn’t accurately target prior to Bill Clinton giving them the technology to the world’s manufacturing hub of today.

John Bass
John Bass
24 days ago

Duh, how are you expected to perform when you’ve been hamstrung by your own government? Covid, paying people to stay at home, and restrictions on everything. You can’t possibly be expected to win or come out on top when your hands have been tied behind you back.

Robert Zuccaro
Robert Zuccaro
24 days ago

(Before being booted off most media platforms) I posted about stores in Hong Kong that openly sold bootlegged movies and computer software. I posted about the mistake it was allowing China “favired trading” status and its membership in the G8. John Kerry once stated, “a prosperous China is good for America”. Didn’t anyone else see this coming? You don’t enrich your enemies! Its that simple.

Stephen Russell
Stephen Russell
24 days ago

ALL of our companies who moved to China aid them alone

Bacon Nivison
Bacon Nivison
24 days ago

Boiled down to its essence, vote for Donald Trump!

David Millikan
David Millikan
24 days ago

Remember when obama said that U.S. Manufacturing was gone for good and it would take a Magic Wand to bring it back. Well, President Trump is that MAGIC WAND, and he DID bring manufacturing back to the United States.
Then of course, Dictator Beijing biden bowed down to Communist China just like obama and has followed obama’s FAILED policies as well sending our manufacturing jobs right back to Communist China, his buddies since he is a Communist Chinese Agent. Dictator Beijing biden’s policies have proven that time and again.
Well, boys and girls, President Trump WILL bring Manufacturing Companies BACK along with Manufacturing Jobs for AMERICANS because he puts NATIONAL SECURITY and the United States of America FIRST.
And OUR PRODUCTS will say, MADE IN THE USA.
NO MORE of YOUR HARD EARNED MONEY going to building up Communist China’s military or economy.

anna hubert
anna hubert
24 days ago

China may be able to produce but it’s not able to think of it first It only can copy or steal the ideas Originality is not there If this country used the slave labor it too would produce things cheaply

JPop
JPop
24 days ago

China Products suck. Always have…always will.

Roland Giuntini
Roland Giuntini
24 days ago

For products that have short lives, the CCP is indeed focused in the manufacturing of this sector. Make lots of the stuff and sell it below cost.
For commercial machines, the extension of their lives through upgrades and aggressive maintenance conflicts with the CCP’s business model, and in turn such products are rarely successful in penetrating Western businesses because the uptime of their machines is often poor. Though prices are many times dirt cheap permitting machine operators to buy extra back-up machines to mitigate downtime events. Truly a dilemma for the West.

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