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China's manufacturing industry

The Political Bureau of the Communist Party of China Central Committee made a decision at a recent meeting to speed up industrial restructuring and to upgrade traditional industries. Restructuring refers specifically to manufacturing industry and the sector’s integration with services.

Industrialized nations had experienced similar development stages. Their manufacturing sectors shared certain traits:

First, as per capita GDP increased, the manufacturing sector saw its share of market gain and then wane, with industrialization, investment and economic growth rates peaking almost simultaneously.

Second, while the manufacturing sector underwent improvements, the order in which different industries reached their peak in terms of market share was directly related to each industry’s level of technology and funding.

Third, when the industrialization process was completed, manufacturing was integrated with producer services.

Fourth, the supply chain of the manufacturing became gradually globalized.

In China, manufacturing industry takes a similar road as typical industrialized nations. For example, the amount of time industries needed to reach the peak of their market share matched other nations. But, due to higher labor costs and underdeveloped producer services, China now faces challenges in the process of upgrading the industries.

Its industrialization rate is above average compared with typical industrialized nations.

The sector is dominated by chemical industry, as the industries such as iron and steel, nonferrous metals and construction materials are almost peaking, but the integration level with the service sector is still low.

Higher labor and land costs put more pressure on the restructuring effort.

In the future, in relation to international experiences and the current situation, China's industrial structure will continue to improve. The proportion of chemical industry that is labor- and resource-intensive will fall, while the proportion of capital- and technology-intensive industries will go up. The industrialization rate will also drop simultaneously.

Ren Zeping

Department of Macroeconomic Research