By every metric, China dominates global manufacturing. But how did this country, which was backward and impoverished, with a GDP per capita under $1,000 as late as 1999, transform itself into an industrial powerhouse? And what can other nations, particularly the United States, learn from China’s manufacturing success story?
This is JP Hampstead, co-host with Craig Fuller of the Bring It Home podcast. Welcome to the 21st edition of our newsletter, where we ask how China did it and what the U.S. can and can’t take from the Chinese example.
To understand the rise of Chinese manufacturing, we need to go back. In the late 1970s, China began opening up its economy under Deng Xiaoping’s leadership. This marked a significant shift from the country’s previously closed, centrally planned system to a more market-oriented approach. The timing was perfect: It was the high-water mark of union membership in the U.S., Western companies were seeking ways to reduce production costs, and China offered an abundance of low-cost labor.
Initially, China’s role in global manufacturing was primarily as a low-cost producer of simple, labor-intensive goods. However, over the decades, the country has transformed its manufacturing capabilities, moving up the value chain to produce increasingly sophisticated products. Today, China is not just a hub for textiles and toys but also for high-tech electronics, automotive parts and advanced machinery.
Several aspects of Chinese culture, institutions and public policies have contributed to this manufacturing success. First, there’s the cultural emphasis on hard work and collective achievement. The Chinese workforce is known for its diligence and willingness to put in long hours; alternatively, one could speak of the Chinese people’s pain tolerance and low expectations for quality of life.
Top-down industrial policies from Beijing have been instrumental in China’s manufacturing rise. The Chinese government has consistently prioritized industrial development, offering various incentives to attract foreign investment and technology transfer. These include tax breaks, subsidies and the establishment of special economic zones. The government has also invested heavily in infrastructure – including $153 billion for domestic ports between 2012 and 2019 alone – creating an environment conducive to large-scale manufacturing operations.
Another key factor is China’s vast and well-developed supply chain ecosystem. The concentration of suppliers, assemblers and logistics providers in manufacturing clusters allows for rapid prototyping, efficient production and quick turnaround times. This ecosystem is particularly evident in regions like Shenzhen, which has become a global hub for electronics manufacturing.
However, it’s important to note that China’s manufacturing success hasn’t come without high costs. Issues such as intellectual property infringement, labor rights concerns and environmental degradation have been persistent problems. Beijing is still choked with vast slums.
So, what can the United States learn from China? While some aspects of China’s approach may not be replicable or desirable in the U.S. context, there are certainly lessons to be drawn.
First, the importance of a coherent, long-term industrial policy cannot be overstated. The U.S. could benefit from a more strategic approach to supporting its manufacturing sector, including targeted investments in key industries and technologies.
Second, the U.S. could take cues from China’s emphasis on vocational education and training. Strengthening partnerships between educational institutions and industry could help create a workforce better aligned with the needs of modern manufacturing.
Third, the development of manufacturing ecosystems or clusters, similar to those in China, could enhance efficiency and innovation in U.S. manufacturing. This might involve incentives for co-location of suppliers and manufacturers in specific regions, or even the creation of special economic zones. Balaji Srinivasan recently tweeted in support of a “special Elon zone” without taxes or regulations around SpaceX’s Starbase in Texas.
But the U.S. can’t simply replicate China’s formula for success. Our federal government is divided and often at cross-purposes with itself, making ambitious policies difficult to achieve; our hard-tech sector often bears the cost of R&D that benefits the entire world; American workers have high expectations for their quality of life. So the U.S. must forge its own path to manufacturing competitiveness.
While China’s manufacturing success story offers valuable insights, the key for the U.S. lies in adapting relevant lessons to its own unique context and perhaps a strategy that leans into innovation rather than sheer scale, automation rather than cheap labor, critical machines rather than retail goods, and sustainable partnerships between labor and management.
Quotable
“China’s door of opening up will not be closed but will only open wider, and our business environment will only get better.”
– China Vice Premier Ding Xuexiang at Davos 2025
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