Abstract: China’s diverse industrial sector is the driving force of the nation’s post-1978 economic “miracle.” While conditions will change in the coming decades as nations in South and Southeast Asia and Africa with lower cost labor and land make inroads, China remains a vibrant manufacturing sector that must be credited with both the nation’s new-found prosperity and growing role on the world stage.

Citation: Brown (2022). Berkshire Encyclopedia of China. Great Barrington, MA: Berkshire Publishing.

DOI: 10.47462/228148377

Keywords:

Any figures or illustrations or illustrations included here are not finalized for publication. Advance publication date as per post date. Copyright Berkshire Publishing Group.

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Industry in China

Gregory Veeck, Western Michigan University

China’s drive to become the “factory to the world” is a remarkable story. In 1980, 48.2 percent of China’s very small annual gross domestic product (GDP) of 364.5 billion yuan (US$58.8 billion) was derived from the secondary sector (industry and construction). As of 2016, this share dropped by less than ten percentage points to 39.8 percent despite the fact that overall economic output, as measured by GDP adjusted for inflation to constant prices, expanded an astounding 204 times to 74.4 trillion yuan ($11.61 trillion) (National Bureau of Statistics 2017, 4) (see Figure 1). By way of comparison, in 2016, the share of the United States’ GDP credited to manufacturing was 20.7 percent (Statistics Times 2018).

Far and away, China has the largest share of GPD derived from manufacturing of any nation on earth. Over the same time period, the share of GDP derived from China’s primary sector (agriculture and mining) declined from 30.2 percent in 1980 to just 8.6 percent in 2016 (the US primary sector accounts for 1.6 percent of GDP) as the tertiary sector including retail, banking, government, medical, and real estate grows as China transitions to a post-industrial economy. The nation’s economic boom, however, averaging above 8 percent annual growth in GDP over the past four decades, must be credited largely to expansion and innovation within the manufacturing sector. It is the nation’s dramatic rise in both manufacturing productivity and exports that made possible both higher wages and new aspirations of the growing urban middle class. The benefits of a rapidly expanded manufacturing sector, then, extend far beyond the factory gate. China’s society, culture, and economy have all been transformed, with the transformation funded by industrial revenues and wages.

HERE < Figure 1> China’s gross national product and share from industry, 1978–2017 National Bureau of Statistics 2017, table 3-1, 56)

Virtually all of China’s growth in manufacturing occurred within the past four decades, with an overwhelming share of production still concentrated in the most prosperous coastal provinces. Of course, as might be expected given this rapid pace of growth, the industrial sector faces many significant challenges including glaring needs for more effective environmental controls, systematic anti-corruption ordinances—especially in state-owned manufacturing firms, fair-labor regulations and pension assurances, standards addressing uneven product quality and safety, and regulations and enforcements related to the protection of intellectual property.

As the manufacturing sector has expanded both in absolute terms and geographically, typical opinions of citizens have shifted significantly from what might be summarized as “growth at all costs” attitudes of the early 1980s when higher wages seemingly trumped all other concerns, to a more conflicted view of manufacturing that incorporates concerns related to environmental quality, consumer rights, product safety, “quality of life” for factory workers, and even social equity. Leadership in China’s manufacturing sector—once challenged only to raise output and revenues year after year—now face more complex conditions where diverse economic, environmental, and social goals must be met even as firms must successfully compete in an increasingly competitive global marketplace.

A Brief History of Manufacturing in China

China’s industrial history is, in relative terms, surprisingly complicated given its relative brevity. Manufacturing in China concentrated largely on the same products produced for millennia—salt, soy, wines and spirits, sugar, tea, cotton cloth, wool, silk, and porcelain. The technical transformations that revolutionized Europe’s social, economic, military, and political relations in the 1700s did not occur in China until the twentieth century. The reasons for this are complex. There was no shortage of technical or “scientific” understanding and competence, but inventions with potential mercantile applications were not adapted for such in China as they were in Europe and later in North America and Japan. Fundamental understanding of chemistry, physics, and metallurgy in classical China rivaled or exceeded that of Europe in the early 1700s (Needham 1981). This knowledge led to many industrial and commercial applications in Europe (invention to innovation), but for China, a similar “industrial revolution” simply did not occur (Elvin 1973, 297). Shortages of capital and strong central government monopolistic control over the most profitable manufactured goods such as salt, silk, tea, ceramics, and metal goods may partly explain these different trajectories.

During the late dynastic era, most existing industries in China, such as silk and porcelain manufacture, salt and tea production, and food processing (rice mills or vegetable oil-pressing plants), were owned by local elites but closely monitored and taxed by departments within the imperial court bureaucracy. Exports of the most lucrative products, such as silk, tea, and porcelain, were also taxed but sales were further controlled by quotas established by the court and transacted by a limited number of licensed firms that paid for the right to participate in the trade. This system of strict if sporadic control promoted smuggling and limited local initiative for innovation (Braudel 1986, 586).

The political scientist Lucian Pye (1972, 82) argues that capitalism was further limited by arbitrary taxation and excessive regional tariffs (liken) levied as goods moved from one region to the next, discouraging regional trade. The sociologist Immanuel Wallerstein (1976) also notes problems associated with strict court regulation and a largely agrarian economy, but emphasizes a highly stratified social system that limited the rise of a merchant class (in contrast to the mobility initially enabled by European guildhalls and private lenders).

Before 1949, manufacturing efforts in most areas of China often concentrated on small-scale local agro-processing of the consumer products noted above. A major turning point came after the first Opium War (1839–1842) with the advent of the “unequal treaties” period. As foreign governments and businesses occupied coastal areas beginning in the 1840s, output of manufactures such as textiles, tea, glass, and porcelain increased dramatically as the imperial monopolies were broken and foreign firms established larger factories beyond the control of the Qing imperial court and local elites operating as agents of the often-dysfunctional court. Profits from manufacture of these traditional products were siphoned off by foreign speculators rather than reinvested to improve product quality, production efficiency, or diversification into new consumer goods as was occurring in the West at the same time. As a consequence of these conditions, the quality of manufactures and the way they were produced in China remained largely unchanged for much of the hundred plus years from 1840 to 1949.

The dominant role of the foreign powers in controlling China’s early industrial history is quite surprising to most non-Chinese, but also helps explain Chinese antipathy for this era when China was not, in reality, a genuinely independent nation. In 1910, more than 80 percent of Chinese shipping, 30 percent of cotton-yarn spinning, 90 percent of the rail network, and 100 percent of iron production was under foreign control. Under foreign influence, concentration of Chinese industries, including textiles, developed in the Yangzi (Chang) River valley and coastal “Jiangnan” (southern Jiangsu and northern Zhejiang provinces). These regions, together with Shanghai, accounted for more than half of China’s industrial output as late as 1937. Even at the present time, Jiangnan, a triangle of land with Shanghai, Nanjing, and Hangzhou at its points, remains among the most prosperous regions in all of China. In geographic and historical terms, the present is always heavily influenced by the past.

This eastern concentration of capital, technology, and low-cost transport formed during the unequal treaty period represents an important legacy to the present. In the 1930s, the coastal “treaty port” cities of Shanghai, Tianjin, Qingdao, Hangzhou, Suzhou, Beijing, Nanjing, and Wuxi accounted for around 94 percent of the total industrial output of China exclusive of the areas the Japanese controlled in northeastern China. This second industrial base is a legacy of Japanese occupation from 1905 to the end of World War II. Resource-poor Japan controlled the puppet state of Manchukuo (modern day Northeast China or Manchuria), and invested heavily in ore and fuel extraction and ferrous metal production to support the rapid military expansion of the Japanese army and Empire.

New China and Industrial Development: 1949

Immediately after independence in 1949, following the Soviet collective model and encouraged by Soviet advisers before relations with the Soviet Union soured in the mid-1950s, the Chinese central government took the lead role in determining the priorities of China’s industrial sector. New state-owned factories were opened or expanded with priority going to the construction of heavy industry including iron and steel mills, machine tool and die plants, construction material plants, and mining- or metallurgy-related processing plants. In part this was dictated by the perceived needs of the military. Over 80 percent of the nation’s total value of government investment in manufacturing during this period was dedicated to heavy industry. Further, in an effort to counter pre-1949 “unequal treaties”-era investment patterns, approximately 55 percent of total investment and approximately 75 percent of all monies invested in plant construction were allocated to inland areas—in an effort to improve economic conditions in these areas vis-à-vis the wealthier coastal provinces, but also to counter potential losses of production due to an anticipated coastal invasion by joint US/Republic of China (ROC) forces. Many new interior industrial centers that remain prominent to the present grew quickly during this time, including Baotou, Wuhan, Lanzhou, Taiyuan, Xi’an, and Liuzhou.

Few goals of the Eighth Congress of the Communist Party of China, convened in September 1956, were as touted or radical as the introduction of a national plan for super-accelerated industrialization that became known as “the Great Leap Forward.” China’s leadership estimated that three five-year plans would be needed to fully industrialize the nation to the Western standard. As a consequence of these plans, the disastrous Great Leap Forward was introduced in 1958 with the slogan “Twenty years in a day.” In addition to the introduction of the commune system borrowed from agriculture, industrial growth was theoretically to be ensured through local production such as the use of “backyard” furnaces for the small-scale production of pig iron, which then could be further processed in centralized mills or cold worked into farm implements and construction steel.

Unfortunately, despite noble goals, the Great Leap Forward was an unprecedented disaster. All Chinese, urban and rural, grew angry and disenchanted in the face of extreme hardship and mass starvation in many areas. The output from most of the new factories turned out to be of such poor quality as to be useless, but so great was the fear of local officials of punishment that they did not report their reservations or findings until it was too late. Trying to improve efficiency might get a factory manager accused of being a member of one of the “Five Black Categories” (landlords, rich peasants, counter-revolutionaries, bad elements, and rightists), or even worse a “capitalist-roader” (i.e., a communist party member with corrupt capitalist ideals or goals). The program, conspiring with two years of drought, and subsequent famine, resulted in an estimated 20 to 30 million deaths. Industry fell even further behind Western standards for product quality and best practice as all resources were devoted to mitigating the disaster this degree of central planning had wrought.

In response to the myriad tragedies of the Great Leap, the Communist Party of China (CPC) identified and implemented some fundamental policy changes, giving manufacturing a new focus. Agriculture, was once again described as “the foundation of the national economy” in government documents and assigned top priority for development, as the need for reliable food supplies for all, urban and rural, was clearly understood after the nation-wide catastrophe. New investments in industry were based on pragmatic and cautious planning (“Learn Truth from Facts” was a popular slogan), with a greater emphasis given to those sectors that could support agricultural development and food production. As a consequence, industrial investment shifted from heavy industry production to light manufactures and food—policies that largely remained in place until the 1980s, excepting the transport and energy sectors.

China’s economic development has always been closely linked to domestic political events, an association that, in hindsight, has particularly caused problems with the nation’s industrial development. Economic decisions always have political contexts, but the rapid-fire shifts in government policies and investment from 1949 to 1976 certainly helps explain the nation’s mercurial path to successful industrialization. After the death of Mao Zedong, and the arrest and imprisonment of the Gang of Four, the Cultural Revolution ended and the Four Modernizations program championed earlier by Deng Xiaoping was finally implemented by way of the many policies rolled out beginning in December 1978, with almost continuous experimentation and adjustment to the present. These reforms, broadly referred to as “Socialism with Chinese Characteristics” have brought China to the center of the world stage in a mere four decades, with the greatest growth after China joined the WTO in 2001 (Figure 1).

The Industrial Sector in Contemporary China

In 2018, dozens of high-quality, low-cost Chinese products are found in every American home, and in many other nations throughout the world. Conventionally, industrial production is divided into two categories (heavy and light). Heavy industry is what the name implies: heavy products (in terms of weight) that require high capital inputs and have high start-up costs for their manufacture—iron, steel, concrete, glass, chemicals. Light industry represents “white goods” (household linens but also standard household appliances, such as stoves and refrigerators which traditionally were sold only in the color white), clothing, food, and small electronics including cellular telephones.

The different history for the two types effectively illustrates China’s hybrid public-private state-led economy that often inadvertently draws criticism from companies from capitalist nations seeking a “level playing field” in global trade arrangements. State investment and involvement is greatest in China’s heavy industries and the energy sector—and critics argue this involvement of the state, by way of subsidies, distorts production costs and represents an unfair advantage to Chinese firms when they sell these goods abroad. Heavy industrial products are sort of like a canary in a coal mine in that greater production and sales of these products reflect growth in other parts of the economy. Steady growth in the production of steel and cement reflect massive investments in housing, public space, military, and transportation infrastructure—investments often funded by the government—but increasingly part of non-government sectors of the economy as well. So, typically, when concrete and steel production increases, so do sales of cellular telephones (see Figure 2).

On the other hand, there is typically greater value added associated with light-manufacture products so multi-national firms find them more attractive for investment through private firms, “joint ventures” (co-ownership) or foreign funded firms (FDI). Light manufactures tend to be funded privately—and are far more exposed to market forces vis-a-vis heavy industries often heavily subsidized by the government. Global brands such as Boeing, Nike, Adidas, Duracell, Samsung, Ford, General Motors, Tabasco, Apple, and countless others have flocked to the China market, not only for lower land and labor costs, but also to assure successful penetration of the large domestic consumer markets. Aside from national and international brands that have their own factories or are supplied by the massive network of subsidiary or supplier firms in the supply chain, many new manufacturing firms start up every year. As the saying for light manufactures goes, “the big firms make the news, but the small firms make the products.” For example, in 2011, it was estimated that there were over 400,000 food processing firms in China, 90 percent of which were small operations (Shao 2013, 129). It has also been estimated that small-scale food enterprises with ten or fewer employees account for 70–77 percent of produced and processed food production in China (Chung and Wong 2013, 476).

Light manufacturing also links the nation’s factories, factory workers, retailers and wholesalers to the global economy. Few global-scale MNCs lack manufacturing and/or distribution ties with China. Production of consumer white goods, electronics, cloths, printed materials such as books and product instruction sheets, furniture and the like also increased very rapidly after 2000, and the domestic market of such a populous nation keep the factories humming even in the face of global economic downturns such as that from 2008 to 2012. The National Bureau of Statistics conducts an ownership survey of white goods each year. In 2016, there were 89.8 washing machines for every 100 households, 93.5 refrigerators/100, 120.8 televisions/100, 90.9 air conditioners/100, and 235.4/100 cell phones (National Bureau of Statistics 2017, 165). In 1980, for all of these products, equivalent values were all below 10 per 100 families. In China as in all other nations, domestic consumers play a central role in the economy. Higher wages in factories and greater productivity allow for the expansion of retail and service sectors, resulting in more jobs, more sales, and the growth of the tax base which allows expanded services and better schools for more people in more places.

Looking to the Future

China’s industrial products and exports constitute far more than household goods, shoes, clothing, toys, furniture, and consumer electronics. The country’s entry into high-end manufacturing was surprisingly swift and effective. The production of more sophisticated products, particularly advanced communications electronics, military equipment, high-speed computers, and computer components, has brought Chinese firms into fierce competition with leading manufacturers of these products throughout the world—and much earlier than expected. In 2016, China manufactured 314.2 million personal computers (90.6 percent of global annual total), an additional 174 million notebook PCs, and 173.65 million stand-alone monitors (National Bureau of Statistics 2017, 445). Many of China’s factories, especially those producing high-tech goods where the production process requires a sterile environment, state-of-the-art lighting, ventilation, and robotics as well as a highly educated workforce, are exact duplicates of equivalent factories in North America, the EU, Japan, or Korea. Most readers know that Apple iPhones are made in China by Foxconn and its 1.2 million employees, but they might be surprised to find that more of the estimated 150 million iPhones were purchased by consumers in China in 2016 than in the United States, and that much the work was completed by industrial robots so as to assure the highest production standards (Dowd 2014).

As production costs rise due to inflation, higher land rents, and higher costs of living, other developing nations will be able to undercut China’s factories producing light industrial goods. In anticipation of this, twenty years ago, Chinese industrial planners again pinpointed four main high-technology targets (for manufacture): computers, information technology, pharmaceuticals, and new materials (think carbon fiber materials, photovoltaic films). Firms in these areas are among the world’s leaders and state-funded laboratories working in these areas have proven indispensable for the subsequent manufacturing push (DIGITALEUROPE 2015). The coming decades will see more and more of China’s factories move from labor-intensive goods, such as shoes, clothing, furniture, housewares, and cell-phones, into these four areas with higher value added, profitability, and greater patent potential with longer patent duration.

Further Reading 

  • Braudel, Fernand. (1986). The wheels of commerce: Vol. 2 of civilization and capitalism, 15th–18th century. New York: Harper and Row.
  • Chung, Shan Shan, & Wong, Chris K. C. (2013). Regulatory and policy control on food safety in China. Journal of Epidemiology and Community Health, 67(6), 476-477.
  • Dowd, Reilly. (2014, July 14). Introducing the iPhone 6, made in China by a robot. The Week. Retrieved from http://theweek.com/articles/445394/introducing-iphone-6-made-china-by-robot
  • Digital Europe. (2015, June). DIGITALEUROPE’s position on China market access issues, June. Retrieved May 30, 2018 from http://www.digitaleurope.org/DesktopModules/Bring2mind/DMX/Download.aspx?Command=Core_Download&EntryId=988&PortalId=0&TabId=353
  • Elvin, Mark. (1973). The pattern of the Chinese past. Stanford, CA: Stanford University Press.
  • National Bureau of Statistics. (2017). Zhongguo tongji nianjian 2017 [China statistical yearbook 2017]. Beijing: China Statistics Press.
  • Needham, Joseph, (1981). Science in traditional China. Cambridge, MA: Harvard University Press.
  • Pye, Lucian W. (1972). China: An introduction. Boston, MA: Little, Brown.
  • Shao, Y. (2013). Rethinking food safety problems in China. Acta Alimentaria, 42(1), 124–132.
  • Statistics Times. (2018). List of countries by GDP sector composition. CIA Factbook. Retrieved from http://statisticstimes.com/economy/countries-by-gdp-sector-composition.php
  • Wallerstein, Emmanuel. 1976. The modern world capitalist system: Capitalist agriculture and the origins of the European world-economy in the sixteenth century. New York: Academic Press.