A recent Peterson Institute for International Economics paper advances what it calls the \u201cChina Squeeze.\u201d It argues that China, despite moving into more advanced industries, has not withdrawn from labor-intensive sectors. By continuing to compete in these markets, the paper claims, China is blocking poorer countries from following the traditional path to industrialization. It accuse China for climbing the development ladder and then pulling it up.<\/p>\n
This argument misreads how industrial development and production relocation actually work. It treats China as a single, economically homogeneous country and overlooks the infrastructure, supply chains and market access that industrialization requires.<\/p>\n
It assume that as Chinese wages rise, China should vacate traditional industries and make room for poorer economies. If it does not, it is supposedly trying to \u201cretain comparative advantage in everything.\u201d<\/p>\n
But China is not composed only of Shanghai, Shenzhen and other prosperous coastal cities. It also has a vast interior, a large population and enormous regional differences in wages, land costs, industrial structures and stages of development. When manufacturing moves from Guangdong, Zhejiang or Jiangsu to Anhui, Jiangxi, Hubei or Sichuan, the economic logic is not fundamentally different from a factory moving from China to Vietnam or Indonesia. Both represent the relocation of production in response to changing costs and capabilities.<\/p>\n
China\u2019s internal development gap means that the entire country cannot be expected to exit an industry simultaneously. Ignoring domestic industrial relocation while focusing exclusively on production crossing national borders makes China\u2019s continued presence in traditional manufacturing appear far more anomalous than it is.<\/p>\n
The \u201cChina Squeeze\u201d argument also understates the scale of China\u2019s outward industrial relocation. A growing number of developing economies import Chinese machinery and components, process or assemble them locally, and then export finished goods to the United States, Europe and other markets. Like what McKinsey describes in its report, China\u2019s changing role as a shift from the \u201cfactory of the world\u201d to a \u201cfactory to the factories.\u201d In 2025, China\u2019s exports of consumer goods declined by about 2 percent. Its exports of intermediate goods, however, rose by 9 percent, while capital-goods exports increased by 5 percent. The fastest-growing categories included semiconductors, memory chips, lithium-ion batteries, smartphone components and industrial machinery.<\/p>\n
In other words, China increasingly exports not only products for final consumption but also the equipment and inputs that allow manufacturing to expand elsewhere. In many emerging supply chains, China supplies machinery and components while developing economies take on assembly, processing and other stages of production.<\/p>\n
This does not mean that there\u2019s no competition. It means that the relationship cannot be reduced to the proposition that every additional product made in China is one fewer product made elsewhere. Developing economies can be both competitors with China and participants in production networks supported by Chinese inputs.<\/p>\n
The deeper problem with the \u201cChina Squeeze\u201d theory is that it ignored the fundamental elements for industrial transfer to happen. Export performance also depends on productivity, electricity supply, port efficiency, financing costs, supplier networks, industrial clusters, technology and local governance.<\/p>\n
A factory leaving China does not means it will reappear in Bangladesh or Tanzania. Production relocation requires reliable electricity, functioning roads and ports, a basically educated workforce, effective customs administration and a reasonably predictable investment environment, These were precisely the conditions that China possessed on the eve of reform and opening-up.<\/p>\n
Industrial clusters also generate powerful economies of scale. A garment factory needs nearby suppliers of fabric, dyes, buttons, zippers and packaging, as well as efficient logistics. An electronics plant depends on chips, screens, batteries, molds and precision components. Moving a factory to the country with the lowest wages does not necessarily produce the lowest overall costs. Wages are only one part of the equation; a functioning industrial ecosystem is often more important.<\/p>\n
Seen from this perspective, one of the Belt and Road Initiative\u2019s most important contributions has been to help developing economies build the conditions needed to receive industrial investment. Ports, roads, railways, power plants and communications networks are not incidental to industrialization. They are what make industrialization possible.<\/p>\n
Industrial capacity must also be connected to consumer markets. Here, too, China is moving in a direction that the \u201cChina Squeeze\u201d narrative overlooks. Since May 1, 2026, China has applied zero tariffs across all tariff lines to imports from all 53 African countries with which it maintains diplomatic relations.<\/p>\n
The significance goes beyond increasing African exports of commodities and agricultural products. Combined with Chinese infrastructure, investment and industrial parks, greater access to the Chinese market could encourage more goods to be processed and manufactured in Africa before export\u2014creating local employment, value added and productive capacity. China should now complement tariff removal with simpler customs, inspection and certification procedures so that African producers can make full use of this access.<\/p>\n
Competition is real, but industrialization is not a zero-sum game and China is not pulling up the industrialization ladder. The \u201cChina Squeeze\u201d thesis counts the competitive pressure created by Chinese exports while largely ignoring the opportunities created by Chinese investment, infrastructure, intermediate goods and market access.<\/p>\n
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A recent Peterson Institute for International Economics paper advances what it calls the \u201cChina Squeeze.\u201d It argues that China, despite moving into more advanced industries, has not withdrawn from labor-intensive sectors. By continuing to compete in these markets, the paper claims, China is blocking poorer countries from following the traditional path to industrialization. It accuse […]<\/p>\n","protected":false},"author":37,"featured_media":16044,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"ep_exclude_from_search":false,"footnotes":""},"categories":[7],"tags":[529,3466,8138,9415,21064],"class_list":["post-16043","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-opinion","tag-china","tag-chinese-market-impact","tag-factory","tag-industrial-capacity","tag-industrialization","post_format-post-format-gallery"],"yoast_head":"\n