AI, smart cities and Industry 4.0: Opportunities, trends and developments in china manufacturing
This article makes future predictions for the trends and developments in china manufacturing and opportunities based on current developments and China’s long-term policy goals. In the aftermath of the COVID era of 2020-2022, the world is experiencing rapid change. The same applies to China, where many things are changing in society and the production sector. The country faces many issues, such as economic problems and debts after the COVID crisis, demographics and other internal and external issues. On the other hand, technological developments are coming faster than ever and provide numerous opportunities for the country and the world.
This article describes which challenges and developments China faces and what trends and developments I expect in China’s manufacturing sector:
- Long-term goals and developments for the country
- Current challenges and developments in China
- Trends and developments in China’s manufacturing and export sectors
- Conclusion
Long-term goals and developments for the country
China’s long-term goal is to become a mighty economic power again. In China’s eyes, it is nothing more than recovering from the position the country had for most of its history. Until the industrial revolution started in Europe, China was one of the major economic powers in the world.
China’s main policy plans are always formulated for the long term. A central reaching point is 2049, which is 100 years after the Communist Party took control of China’s mainland. The aim is to make China a wealthy country for all its citizens in 2049. The government wants more respect from the world and a solid international reputation. The country wants to be an economic superpower and seeks a more assertive geopolitical position globally. It aims to restore the status and pride of the country, Chinese culture and its people worldwide. And to be a significant player in international trade, cultural influence and knowledge transfer worldwide1.
Current issues in China
To progress and become the prosperous and powerful country China wants to be, it will need to face the country’s current problems. Many of these issues had already spiralled before the Covid crisis started in 2020. However, they became more prominent due to the three years Covid crisis between 2020-2022.
Economic problems and debts
The Covid years had a substantial impact on China’s economy. Especially in 2022, the Chinese economy has had hard times. Lockdowns and other COVID measures prevented the economy from functioning normally. In addition, crackdowns in the tech sector and the private education sector have had a significant impact on these sectors. Local governments saw tax revenues decrease, and China’s consumers went out less and spent less. Companies needed to take on debt to survive the situation. At the same time, mass-Covid testing and control measures over citizens to prevent Covid spread brought massive public costs. Local governments play a vital role in economic stimulation with their investments. Now all of them are under high debt pressure. China must find solutions to cope with massive debts, increase domestic consumption, stabilise the economy and realise enduring economic growth.
Property bubbles and living affordability
Owning property is extremely meaningful in Chinese culture. Many people see owning property as a prerequisite for marriage and starting a family. Therefore, the pressure on people to buy property is immense. Families are willing to save all the money possible to buy houses for the younger generation. Competition and shortages of supply in cities lead to ever-rising housing prices. Rising property prices have led to many parties speculating on ever-increasing prices. Many property developers, like Evergrande, have speculated in very substantial ways and built business models that are only durable as long as housing prices keep increasing. The property sector now contributes about 30% of the Chinese economy and 70% of Chinese citizens’ wealth. It has become an enormous bubble that could tremendously impact the economy as soon as it bursts.
If housing prices go down and the bubble bursts, this may impact the economy seriously in many ways. Property developers get into trouble. Employment loss in these property development companies and among construction workers may be the result. In addition, many families who have saved their life savings to buy property will be heavily impacted. They will be left with nothing but debt. Finally, since land leasing is one of the most significant sources of income for local governments, a burst of the property bubble will increase local governments’ debt problems.
The property bubble is the most significant issue China has to deal with. The property market has already shown many cracks in the past two years. Solutions need to be found to prevent the property bubble from collapsing. On the other hand, ways must be found to make living affordable. The high pressure on households to spend all their savings on housing affects consumer spending in the country. This slows down the domestic economy. Solving these issues will be a tremendous challenge in the coming years.
Unemployment, poverty and intense internal competition
China’s economic issues affect employment. Every year more students graduate from universities, while companies are reluctant to invest in fresh graduates in the current financial situation. In addition, crackdowns in several private sectors, especially in private education and technology, have led to even fewer jobs available in these sectors. Manufacturing jobs have also decreased since 2022. Unemployment among youth has risen to 18%, and poverty threatens families. The older generation depends financially on these young people, which pressures them even more to find a job. Employers often only hire fresh graduates if they are willing to work lots of overtime while earning a basic salary. And many fresh graduates still can’t find a job. The young generation is under a lot of pressure, and many don’t have the willingness and possibility to start a family in the current situation. This factor contributes to China’s low birth rates.
Demographic challenges
China’s demographic story is unique. While under Mao Zedong in the 1960s and 1970s, having more babies was strongly encouraged. In 1979, a strict one-child policy was implemented. Within a short period of time, family sizes have changed from families with many children to families with very few. Population growth decreased at that time.
The generations born under Mao are ageing and on the edge of retirement. This generation has been the driving force behind the economic miracle after opening up to the world in 1978. However, when this generation retires, it will lead to a fast-shrinking workforce in China in the near future. The shrinking workforce will affect China’s production sector. China used to be a country with abundant, cheap labour as its primary resource. Labour availability will decrease and labour costs will likely increase. It will be one of the incentives for China’s production sector to improve productivity through advanced technologies. Labour-intensive sectors may shrink.
Global tensions and a decline in exports to the West
China’s position in the world is changing along with China and the West’s business. China is trying to loosen its dependence on the Western world, and the West is doing the same towards China. The world is becoming more multipolar. Geopolitical power is shifting from the West to emerging countries, like the BRICS countries. Many Western companies diversify or localise their supply chains as they don’t want to depend entirely on China for their entire supply chain. Trade policies also impact trade between China and the West. Increasing import taxes and trade barriers for certain goods, especially microchips to China, affect trade relationships. This will influence how the West and China trade in the future. It will undoubtedly influence production sector developments in the future. Selling low-value goods to the West will become more challenging and less profitable. China will look for new products and markets to trade.
Conclusion
China has many issues to solve. The country will work on the current problems and in my opinion very likely will find solutions, just as they found solutions for many past issues, such as corruption and pollution, have all been improved. The current problems are all related to each other. The government will try to find long-term structural solutions to address the issues. Creative forces in the workforce, new trade partnerships and advanced technology can all help the country overcome its current challenges.
Trends and developments in China’s manufacturing and export
The world is changing fast and China is changing even faster. China’s main economic driver has long been the manufacturing and export of goods, mainly to the West. At the moment, many shifts are taking place. In the future, China’s economy will likely become less dependent on exports to the West. So what developments can be expected in China?
In 2023, China opened up for visitors again, and potential buyers can visit trade fairs and factories, opening up new opportunities for growth in trade volume. However, demand for China-manufactured products is expected to not recover to the volumes from before the Covid era. One of the reasons for this is the economic problems of inflation and possible recessions in the West. Another reason is global political tensions and companies’ choice to localise or diversify their production. This causes decreasing demand for China-manufactured goods from the West. At the same time, China also strives for less dependency on (export to) the West.
Developments in China’s position in international trade
The following three trends and developments in China’s focus on manufacturing and international trade are happening now:
Focus on advanced production and high quality for export to the West.
In 2015, China launched the “Made in China 2025” plan, aiming for industries to grow from labour-intensive workshops into technology-intensive factories. It’s aimed at becoming a leading high-tech manufacturing country. More and more companies will focus on high-value-added products such as electric vehicles, information technology and telecommunications, advanced robotics and artificial intelligence. Regarding exports to Western countries, Chinese companies will focus more on high-quality and customised goods than low-value, mass-produced goods. In addition, China is likely to increase its focus on green manufacturing, reducing emissions and increasing energy efficiency. This complies with Western markets’ demands.
Focus on trade with developing countries
Developing countries, especially middle-income countries, are becoming more relevant for China’s trade. The middle class in these countries is growing and the share of emerging economies in the world’s economy is increasing. China has recently engaged in more intense cooperation with many developing countries in Asia, Africa and Latin America. When trading with developing countries, China can trade under its own conditions. When dealing with the West, the US trade system leads, which is less to China’s benefit.
China has established an efficient infrastructure to facilitate trade with many developing countries through its Belt Road Initiative. In addition, China’s production scale advantages in producing manufactured goods like electronics make it possible to sell goods at a cost that makes the goods interesting for the growing numbers of middle-class consumers in emerging economies.
Focus on production for the domestic market
China will focus more on the domestic market and produce for domestic needs. Many investments are made in producing goods related to transport, agriculture and green energy. In addition, new consumer markets are arising in China, and many manufacturers are focusing on reaching these groups of consumers.
New opportunities in China’s domestic market
The opportunities in the upcoming consumer markets can attract new Chinese and foreign investors. A development that is taking place is the rising middle class in smaller 3rd and 4th tier cities. While in the past, it was the biggest city in the east of China, where the economy grew most substantially. In the recent decade or so, these smaller cities and cities in the western part of the country developed most rapidly. Chinese standards consider these cities small, but many of these cities actually have several million people. China counts a few hundred of these cities, so the potential scale of these consumer markets is enormous. These cities still need to gain more experience with foreign brands and products, but there is a vast market potential for many brands in these developing cities.
Consumption trends
Another development is that the next generation of people (GenZ) is entering the workforce and the middle-class consumer market. This young generation differs in many ways from previous generations. Compared to previous generations, individualism is more common and these people have more creative skills. They have grown up without poverty and with freer minds than previous generations. Many of this younger generation seek purpose and want to create things. They are much less reluctant than previous generations to spend on consumer products, innovative software, gadgets and technology. This generation grew up with electronics, the internet and smartphones. Most of this generation spend much time online and are willing to spend money online.
Another consumer group that brings new opportunities are the upcoming retirees. People in this generation usually have more money to spend than older people in previous generations. They have fewer children to look after and more free time to spend their money. This generation is also more used to electronic apps to buy.
These trends offer many opportunities in the Chinese consumer market. Manufacturers can sell directly to consumers via Chinese e-commerce apps like Taobao and Xiaohongshu and video marketing on Douyin (the Chinese version of Tiktok). There are many opportunities for tech companies, SMEs and startups to invest in online markets. Young consumers spend money on online apps, digital games and in the Metaverse. This generation may help the country change from one that mostly copies and reproduces cheap goods for export to a creative and innovative country that serves its own consumer markets.
Trends and developments in China’s technology and manufacturing
Technological and scientific advancement will likely be the driving factors for China’s economic progress in the near future. China’s manufacturing sector is likely to change significantly. Advances in 5G/6G, artificial intelligence and big data will cause these shifts. Due to the ageing population, China’s labour force will shrink and labour costs will increase. Automation, robotics, and artificial intelligence are becoming more affordable and implemented on an increasing scale, making them increasingly cost-efficient. This trend will continue, making Chinese factories more efficient, productive, and cost-effective. Production processes will require less labour. Manufacturing will also comply with stricter environmental regulations. Companies will likely invest more in research and development to create new products and processes for the global market.
Industry 4.0
Some of the main trends and developments in china manufacturing sector are a focus on food, agriculture and green energy production. These fields primarily serve the domestic market but will also be developed for export. There will be more emphasis on high-end manufacturing and increased automation. China wants to be a frontrunner in current industrial developments, sometimes called the 4th Industrial Revolution or industry 4.0. They want to create new products for the market, for example, IoT products (Internet of Things), advanced robotics and electronics that combine virtual reality with the real world. Newly developed materials with new characteristics are developed and used. Automated vehicles and machines are created using AI, blockchain and 5/6G technology. The Chinese don’t only want to develop these products by themselves; they also want to be the country that can produce these innovative products on the largest scale anywhere possible.
Smart cities
The latest technologies can be tried and implemented in its domestic smart cities, of which Shenzhen is the most prominent example. These cities are laboratories where upcoming technologies, models and standards are launched. Smart cities see the adoption of data-sharing innovative technologies, including the Internet of Things (IoT), to improve energy efficiency, minimise greenhouse gas emissions, and improve citizens’ quality of life. The central government plays a vital role in their development and implementation. Policymakers divert significant resources towards technological innovation, including 5G, AI, driverless vehicles and cloud computing. They seek cooperation with big tech companies, such as Huawei and Tencent.
Microchips
Another development is that China started developing and producing high-tech chips for its industry since imports have become more difficult because of US trade policies. China now has a disadvantage because it cannot make the same quality microchips as the US, the Netherlands, Taiwan and Japan. But they will invest to catch up. China will also invest more in its technology; a rise in registered IPs is expected in the coming years. Applications will be implemented in both the real and the virtual world. They can be applied to various purposes, such as entertainment and education.
China’s advantage in producing these high-tech products lies in the possibilities for real-life trial and error in China’s smart cities. After testing, the potential is to deliver on a large scale, lowering product costs. If manufacturers can produce cost-effectively, they have a huge market to sell to. Especially if they focus on the substantial middle class in China and the emerging markets worldwide. For many consumers, a lower-priced product is more relevant than a product with the latest chips and technology.
Changes in the global financial system
Finally, the global financial system is changing, and de-dollarisation is a trend. De-dollarisation refers to reducing the US Dollar’s dominance in international business. More competition and diversity in payment currencies in international trade in a more multipolar world can be expected.
Since China opened up in 1978, international trade with China has primarily occurred in US dollars. Now, China is trying to make new trade agreements allowing it to trade with several countries using the Chinese Yuan, gold, or other (digital) currencies or commodities instead of the US Dollar. The government is trying to reduce its dependence on the US dollar. This dependency is not in China’s or many developing countries’ interests. The process of de-dollarisation is gradual and complex, but they happen in many parts of the developing world.
Following the Ukraine war, China and Russia agreed to expand their local currencies in trade. They decided to develop alternative payment and settlement systems. Many other developing countries are also exploring de-dollarisation routes at the moment. Brazil and Argentina discuss business in their own currencies. Multiple Southeast Asian countries are making de-dollarisation efforts in some form. Oil-rich nations like the UAE, Iran and even Saudi Arabia are discussing the possibility of trading commodities in the Yuan and rupees with China and India. Despite these movements, few expect the end of the US Dollar’s powerful global status anytime soon. However, gradual changes in currency usage and commodity trade can be expected.
Conclusion
There are many trends and developments in China manufacturing and in the society. China’s manufacturing and export sectors are evolving. China aims to become an economic superpower and plans to focus more on high-tech and green manufacturing, producing customised goods for the West and trading with developing countries. China will also increase its focus on production for its domestic market.
Technological advancements like advanced robotics, AI and blockchain are likely to be the drivers of economic progress, with a focus on products like IoT, new energy and materials. China’s smart cities allow for large-scale real-life testing, giving it an advantage. While China faces many challenges, it has the potential to overcome them with creative solutions and technology.
China might no longer be the world’s factory for all products and markets. However, it will likely still offer many new opportunities for buyers of manufactured goods in the near future.
