Industrialization: 'China makes it difficult for emerging markets to keep up'

China presents itself as an advocate of the countries of the Global South and a driver of development. However, Chinese overcapacity is hampering industrial development in these very countries. How does this fit together?

It is complex. On the one hand, countries in the Global South benefit from being able to purchase inexpensive products from China; on the other hand, China represents a structural barrier, preventing emerging countries from technologically advancing and displacing China in certain areas. Not only are they increasingly taking on a leading role in the high-tech sector, but they are also maintaining a strong production presence in the lower technology segment.

As part of the 14th Five-Year Plan (2021-2025), the Chinese government has decided to maintain production in the low- and medium-tech segments within the country. Although China is facing a labor shortage in this area due to demographic trends, production is expected to be ensured through innovation in automation and technological adaptation. This makes it difficult for developing and emerging countries to keep up. In the short term, they benefit from inexpensive Chinese consumer goods, but in the long term this means that they cannot build up their own industries – or have to dismantle their own industries.

Why does the Chinese leadership believe that the production of goods such as ballpoint pens, T-shirts, and washing machines must stay in China?

Firstly, China wants to use its expertise in this area to further develop technologization, robotics and automation processes. Secondly, it must be assumed that they want to preserve their structural autonomy, particularly given the geopolitical and geo-economic conflict with the United States.

Many countries, especially in Africa and Latin America, experienced deindustrialization. The West African textile sector largely fell victim to it, and the fabrics now come mainly from China. To what extent is there a connection between the rise of China and deindustrialization in other countries?

It is difficult to prove this correlation using global trade data alone. To truly understand the effects, qualitative studies in these countries and talks with manufacturers, trade unions, and industry associations are necessary. What can be clearly discerned from the trade data, however, is a distinct structural change: China mainly imports raw materials and agricultural products, but in return exports an ever-increasing amount of manufactured industrial goods. This suggests that local industries are increasingly affected by Chinese products.

A further indication of the burden of competition with China is that countries in the Global South take far more defensive trade measures against China than industrialized nations. Between 2016 and 2024, they accounted for two-thirds of defensive trade measures.

Which countries are these?

First and foremost, emerging economies that are in intense competition with China. Brazil, Argentina, Turkey and India stand out. India is the player with the most defensive trade measures. However, low-income countries are also taking defensive trade measures against China, primarily through the imposition of simple tariffs. The more developed the countries are, the more complex legal instruments they typically resort to; for example, they can demand that production occur within the country with localization requirements. Or imposing anti-dumping tariffs. The interesting thing is that these protective measures are taken across all sectors, meaning that very different branches of industry are being protected.

While the Chinese leadership is courting the countries of the Global South, which are becoming increasingly important for its political and economic strategy, it is also losing sympathy there due to its industrial policy. How does this go together?

China has consistently made offers to the Global South over the past twelve years, for example, through the Belt and Road or the Global Development Initiative. The countries have a high demand for Chinese infrastructure. But this also benefits China. For example, more Chinese exports flow into countries with Chinese ports. They help to reduce overcapacity.

Something that is very clear right now is that the countries of the Global South are also demanding more from China. They are not afraid to criticize and take countermeasures, as can be seen by the defensive trade measures. Remarkably, China hardly retaliates against the countries of the Global South. This is very different from the EU, the USA or other developed countries.

Why is that?

China cannot afford to start a trade war with these countries. On the one hand, it imports a lot of raw materials from there, and on the other hand, China is specifically turning to the countries of the Global South in light of the trade and tech war with the US. They are also becoming important markets for China's exports. The United States punishes these countries for trading with China, while China presents itself as generous. It is vital for China to continue trading with these countries while also maintaining trade with the US through third countries.

How do countries in the Global South use this leverage?

China has gradually been meeting their demands to relocate more production to these countries. However, there is also a calculation behind this, due to the trade war. For example, during the first Trump administration, China began producing solar panels in Vietnam, which meant they were no longer "Made in China." And so they ended up in the United States.

But for countries like Vietnam, this is a double-edged sword. They benefit from new investments and production capacities. However, they are also caught up in a complex dependency structure: They are simultaneously dependent on Chinese primary products, foreign capital and export markets such as the USA – in other words, on players between whom there are considerable tensions.

Aya Adachi is an Associate Fellow at the Center for Geopolitics, Geoeconomics and Technology at the German Council on Foreign Relations (DGAP). This interview draws on a study conducted by the author and funded by the Federal Chancellor Helmut Schmidt Foundation.