China's manufacturing sector "premature deindustrialization" warning: High-level officials set the tone to "maintain a reasonable proportion"

China's Manufacturing Sector "Premature Deindustrialization" Alarm: Top-Level Tone Set to "Maintain a Reasonable Share"

In November 2025, the journal *Qiushi* published a signed article by Xiao Guiyu, Vice Chairman of the Shanghai Municipal Committee of the Chinese People's Political Consultative Conference, who bluntly stated that "maintaining a reasonable share of manufacturing in our country is a major issue." This article, unusually issued by a senior local official in a Party theoretical publication to "endorse" manufacturing, is seen by outsiders as an important barometer of China's industrial policy. Combined with the statement in the communiqué of the Fourth Plenary Session of the 20th Central Committee—"maintaining the share of manufacturing in the national economy basically stable"—it can be judged that China is now correcting its policy on the multi-year decline in manufacturing's share.

Manufacturing Share: A Decade from "40%" to "30%"

The data are the most direct evidence. The share of industrial value added in China's GDP fell from 40% in 2011 to 30% by 2024; the manufacturing share fell from 29.3% in 2017 to 24.9% in 2024. This declining trajectory conforms to the general rule of a rising service sector share in the middle and late stages of industrialization, but the pace of decline has been notably fast. By comparison, Germany's manufacturing share remained stable between 20% and 23.5% during 2000–2023, while Japan and South Korea also maintained around 20% over the long term. Although China's manufacturing is the world's largest by scale, its current share is already close to the levels of these developed countries—yet China's per capita manufacturing value added and degree of industrialization completion remain far below theirs.

Even more alarming is that this decline has not been entirely driven by industrial upgrading. Rising labor costs, environmental pressures, and the outward transfer of some low-end manufacturing are important drivers of the falling share. If this trend continues, China may enter a stage of "premature deindustrialization" before per capita income has reached the high-income threshold—this is precisely the "trap" warned of in Xiao Guiyu's article.

International Mirrors: No Winners in Deindustrialization

Xiao Guiyu's article reviews the experience of multiple countries: the U.S. manufacturing share of global output exceeded 20% for a long period between 1930 and 2000, but during 1990–2010, manufacturing's share of U.S. GDP plunged from 22% to 13%, accompanied by a widening trade deficit, worsening income inequality, and the decline of the "Rust Belt." In the United Kingdom and France, manufacturing shares have fallen below 10%, and their economies have been mired in low growth for a long time. Germany, by contrast, maintained its manufacturing share and demonstrated greater economic resilience during the European debt crisis.

These cases reveal a common-sense truth that mainstream economics has largely overlooked: manufacturing is not only the source of material wealth, but also the foundation of technological innovation, employment stability, and national security. For a major country like China, manufacturing is the "ballast stone"; its reasonable share cannot simply be analogized to small countries or post-industrial economies.

Policy Shift: From "Law" to "Regulation" For a long time, China's economic policy has followed the narrative of "industrial structure upgrading," and tolerating the decline in manufacturing's share was seen as an inevitable step toward a service economy. However, recent intensive statements by senior leadership have changed this expectation. In May 2025, Xi Jinping emphasized "maintaining a reasonable share of manufacturing" during an inspection in Luoyang, Henan; in October, the communiqué of the Fourth Plenum stated for the first time that "the share of manufacturing in the national economy should be maintained at an appropriate level." Xiao Guiyu's article in Qiushi clearly received political endorsement.

This means that the 15th Five-Year Plan (2026–2030) may set the manufacturing share as a binding target, supported by a series of policy tools. Possible measures include: increasing fiscal and tax support for manufacturing, optimizing the supply of industrial land, guiding financial resources toward the real economy, and curbing excessive competition through "anti-involution" to prevent resources from idling in inefficient segments.

Industrial Upgrading Is the Only Way Out

"Maintaining a reasonable share" does not mean artificially inflating the scale of manufacturing, but rather achieving balance in a dynamic process. The competitiveness of China's manufacturing will determine whether this share can stabilize. Currently, the "new three items"—new energy vehicles, photovoltaics, and lithium batteries—are growing rapidly, and industrial robots and AI-driven manufacturing are reshaping production methods. China's manufacturing is shifting from "scale expansion" to "quality improvement," which in itself will change the value-added structure and thus support the share of manufacturing in GDP.

However, technological upgrading does not happen automatically. There are still shortcomings in key components, industrial software, and high-end equipment; breakthroughs in these areas will be a top priority for the 15th Five-Year Plan. Whether the manufacturing share can be stabilized depends on whether China can surmount the "technological ceiling."

Supply Chain Perspective: Strategic Implications of the Manufacturing Share

In the context of global restructuring, the manufacturing share is not only an economic indicator but also strategic leverage. The West is promoting "China+1" supply chain diversification in an attempt to reduce dependence on Chinese manufacturing. If China allows manufacturing to shrink, it will accelerate the outward migration of supply chains and weaken its autonomy in key areas. Maintaining a reasonable share is both a necessity for economic security and the foundation for sustaining global influence.

For multinational supply chain managers, this policy signal means that China's manufacturing will receive longer-term support, but the policy focus will shift from cost advantage to technological advantage. When making location decisions, enterprises need to give more consideration to the cluster effects of China's high-end manufacturing rather than simply relocating capacity.

Conclusion

The decline in manufacturing's share of China's economy is the result of economic laws, cost changes, and global competition working together. The concerns of the leadership are not unfounded. In fact, the experience of the United States and Europe has shown that once deindustrialization gains momentum, revitalization becomes extremely difficult. China's decision to intervene proactively at the conclusion of the 14th Five-Year Plan is a bet on its industrial competitiveness for the next fifteen years.

For manufacturing practitioners and investors, this shift is both a warning and an opportunity. Manufacturing will not disappear, but outdated manufacturing will exit faster. Those who can find a place in technological upgrading and supply chain restructuring will share in the next round of growth dividends.