Anxiety easer

The 'China squeeze' narrative is merely a comforter as it is not supported by evidence

China's manufacturing sector benefits from economies of scale, efficient production systems, well-developed infrastructure, sophisticated industrial organization, complete supply chains, and a large pool of skilled and industrious workers. These advantages create genuine competition in global markets. Yet competition alone does not validate the broader "China squeeze" narrative. More difficult market entry does not prove that China has displaced specific orders, investment, or jobs that would otherwise have gone to other developing countries. Nor does China's strength in labor-intensive manufacturing mean that those countries have lost their path to industrialization. By equating competition with displacement, the "China squeeze" narrative, popularized by a recent study from the Peterson Institute for International Economics, oversimplifies global production and overstates the evidence.

A widely discussed element of the PIIE analysis is its estimate of China's "excess" exports. Using indicators such as income, productivity, wages and labor endowments, the study estimates China's expected share in selected labor-intensive industries. These estimates should be treated as indicators of competitive pressure, not direct evidence of economic loss or a broad closure of other countries' industrialization prospects.

Estimates ranging from tens to hundreds of billions of dollars should therefore be understood as estimates of potential export space under specific assumptions, not as verified export losses. If an order went to China, it does not follow that it would otherwise have been placed with any particular developing economy. It might instead have been directed to India, Vietnam, Mexico, or Bangladesh, among others, or failed to generate equivalent production because of automation, changing demand, inventory adjustments, or price dynamics. Even when a country's export share declines, the causes require examination. Chinese competition may matter, but inadequate infrastructure, skills mismatches, financing constraints, weak business conditions and shifts in global demand may matter as much or more. Such estimates are useful analytical tools, but they should not be presented as established causal facts.

Nor is global manufacturing necessarily a fixed-size market whose output can only be redistributed among countries. Chinese exports may displace production in particular industries, but they may also lower the cost of intermediate goods, improve supply-chain efficiency, and expand access to manufactured products, thereby stimulating demand elsewhere. A country's footwear exports, for example, depend not only on final assembly but also on access to leather, synthetic materials, textiles, rubber, adhesives, logistics and other inputs. China's strength in these areas can create competition while lowering barriers to manufacturing entry. Analyses ignoring intermediate-goods imports, productivity gains, company entry and supplier networks, reduce complex global value chains — through which participating economies can benefit from specialization and exchange — to a zero-sum contest.

Evidence does not support the claim that developing countries are broadly pushed out of manufacturing as China's exports increase. According to World Bank World Development Indicators, manufacturing value added grew at an average annual rate of approximately 4.5 percent in China between 2016 and 2025, compared with 5.3 percent in India, 9.7 percent in Vietnam, 4.8 percent in Mexico, and 13.3 percent in Bangladesh. These figures demonstrate that competition can coexist with continued manufacturing expansion and industrial upgrading elsewhere. Companies may enter global production networks through labor-intensive activities, increase local sourcing, strengthen technological capabilities, and move into more complex, higher-value-added products and services. Chinese enterprises and supply chains may compete with them, but they may also provide inputs, investment, equipment and access to markets.

Participation in global production networks does not require developing economies to build every component themselves. China's role should not be viewed simply as replacing local production; its suppliers, logistics networks, and equipment manufacturers may also facilitate entry for later participants. Whether this opportunity produces lasting domestic capabilities depends on infrastructure, skills, finance, industrial policy and institutional quality.

The effects of Chinese exports should therefore not be assessed solely through trade balances or global shares in a product category. Analysts should also examine production costs, capacity utilization, labor productivity, export sophistication and domestic value added. Chinese goods can pressure small, low-technology companies lacking finance and scale, and these adjustment costs should not be ignored. Yet other enterprises may expand by obtaining cheaper equipment and inputs, while consumers benefit from lower prices and exporters gain orders through more complete supply networks. Assessing the net impact requires considering both losers and beneficiaries, as well as the mechanisms transmitting effects through industrial chains. Pressure in specific sectors cannot by itself demonstrate that a country's industrialization prospects as a whole have been undermined.

The more constructive question is how developing countries can create durable and replicable opportunities for industrialization. Economies reliant on low wages and narrow export bases remain vulnerable to demand shifts, automation and intensified competition. The solution is neither to withdraw from industries according to a predetermined development path nor to portray ordinary trade competition as depriving another country of its right to develop. Priorities include upgrading infrastructure and skills, expanding access to finance, and improving trade facilitation and regional market integration.

Importantly, the same framework applies to China. China has not treated trade surpluses as a goal. Rather than export expansion alone, a more sustainable model should emphasize domestic consumption, higher household incomes, balanced trade, broader imports, and mutually beneficial international relations. Nor does China's export strength prove renminbi manipulation. At present, the renminbi is trading near a nine-month high against the US dollar, complicating claims of persistent undervaluation. Similarly, supportive industrial policies do not by themselves show that exports artificially displace foreign production; they may support productivity and technological upgrading, with effects varying across sectors.

Expanding opportunities for developing economies requires diversified imports, technology cooperation and local capacity building. By importing products and services in which these economies have or can develop comparative advantages, China can widen their access to its market. Beyond trade, investment and joint ventures can strengthen local companies' technological, managerial and supply-chain capabilities, while transparent, sustainable cooperation can reduce reliance on resource extraction and low-value processing. Cooperation cannot eliminate competition, but it can make competitive pressure a stimulus for domestic upgrading.

The "China squeeze" narrative has appeal because the anxieties behind it are real. Yet these anxieties do not establish China as their sole or primary cause nor prove that global manufacturing is a fixed pie. Countries with similar exposure to Chinese trade have experienced sharply different outcomes, weakening the narrative's explanatory power. Policymakers should focus on how openness, upgrading and stronger institutions can turn competition into broader development opportunities, rather than relying on the "squeeze" to delay tough decisions.

The author is a researcher at the Institute of Economics at the Chinese Academy of Social Sciences.

The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.