Chinese manufacturing and the U.S. market
As U.S.-China trade friction has intensified, Chinese enterprises have kept increasing investment in Southeast Asia and Mexico. China has been ASEAN's largest trading partner for 15 straight years, and China's investment in ASEAN grew 44.6% in 2023. Trade between China and Mexico reached about $100.225 billion, with vehicles and parts the fastest-growing category.
Chinese manufacturing has a cost advantage, but because it lacks market and rule-making power, it sits in a weak position in trade disputes. The reason Chinese manufacturing is so "juan" (cutthroat) is that its advantage is a manufacturing advantage alone — not a market advantage, not a rule-making advantage. By contrast, the U.S. has built a true scale advantage through retail brands, e-commerce platforms, and the rest of its market system.
New-quality productive forces need the market behind them
U.S. officials worry that China's new-quality productive forces will lead to overcapacity. The root cause, though, is an incomplete market mechanism. The case of tech supply from Israel shows that innovative technology has to find a new market to realize its value, and that a highly monopolized market stifles innovation.
The Chinese market lacks the ability to regulate itself. Textiles, coal, steel, cement, and glass have all been through overcapacity in the past, and each time, forced government intervention was required to clear it. That reflects a market mechanism that is not yet mature — there is no self-restraint mechanism, no mature market discipline.
China needs to adjust its macro policy toolkit
China's economy has relied for a long time on growth in foreign trade and on infrastructure investment — a supply-side path dependency. Infrastructure build-out does pull GDP, but the multiplier on consumption and employment keeps shrinking. Take Ganzhou and Chaozhou: high GDP does not equal more jobs. In practice, it is small and medium-sized private enterprises that absorb labor and raise household income.
High housing prices offset household income growth, so consumption doesn't rise in step. Without a genuine consumption market, China's growth will remain dependent on external trade and investment.
Let new-quality productive forces reach the market
I visited a company that makes diabetes diagnostics. The founder said, "Hospitals across the country are fighting corruption, approval processes are too slow — advanced productive forces can't reach the market." Medical devices, fire safety, yachts, auto customization — industry after industry is constrained by overmanagement.
Excessive social management shrinks the space for social development and squeezes vitality and creativity. We need to build unified baseline market rules, improve the market-access environment for new business forms, and raise the efficiency at which the market runs.
Social reform and the formation of a unified domestic market
Deepening reform is the only way to unlock the potential of new-quality productive forces. We need to complete the institutions governing factor markets, nurture a complete domestic demand system, and unlock the investment energy of private capital. At the same time, government should make use of policy hearings to take in social input, so new technology, new models, and new productive forces can become a force that moves society forward.
Co-built, co-governed, shared social governance is the direction reform should take. We need to draw on the strength of social organizations and deepen the reach of social services. Building a consumption-oriented society is the direction China should go — and doing it means solving employment, easing the burden of daily life, and developing new-quality productive forces.
When Chinese per capita consumption reaches one-sixth of the U.S. level, China will be the world's largest single-country market, earning market discourse power and rule-making power — and providing stability to the global economy.
Originally published: Economic Observer · Microscope · 2024-08-03 · Read original →
Originally published in the "Economic Observer · The Walker’s View" column. The author is Executive President of the Guangdong SME Development Promotion Association. For reprints or citations, please contact the author or the Association Secretariat.