Yi Fuxian
Chinese overcapacity is raising concerns worldwide. It is easy to see why: China accounts for nearly one-third of the world’s manufacturing value-added, and one-fifth of global manufacturing exports. But there is good reason to believe that the decline of China’s manufacturing sector is imminent.
To understand what is happening now in China, it is worth recalling Japan’s recent history. After World War II, Japan’s manufacturing sector grew rapidly, thanks largely to access to the massive US market. But the 1985 Plaza Accord (which boosted the yen’s value and weakened Japanese exports), together with an aging population and a shrinking labor force, reversed this trend.
From 1985 to 2022, the share of Japanese goods in US imports dropped from 22% to 5%, and Japan’s share of global manufacturing exports declined from 16% to 4%. Moreover, Japan’s share of global manufacturing value-added fell sharply, from 22% in 1992 to 5% in 2022. And the number of Japanese companies on the Fortune Global 500 list dropped from 149 in 1995 to just 40 today.
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