The American Interest
Analysis by Walter Russell Mead & Staff
Rust Belt Growing in China

Abandoned factories, shuttered businesses, young people fleeing for better opportunities elsewhere: It sounds like a scene from the American Rust Belt, but it’s increasingly becoming a reality in China as well. A new report in the Washington Post paints a bleak picture of the once-bustling industrial towns that are quickly hollowing out as China’s manufacturing slowdown kicks in:

This city on China’s Pearl River Delta was once a manufacturing boomtown, a place that made so many different things, from toys to shoes to furniture, that it became known as “the world’s factory.” Migrant workers came from all corners of the country to work here, often taking jobs that used to be in the United States. . .

“I’m leaving,” said Frank Lin, a Taiwanese businessman who is shutting down his factory in Dongguan. “There’s no future for this place.”

Lin, 55, sat in a cavernous dining room at the Haiyatt Garden Hotel where only two tables had diners. This room used to be packed every night, Lin said.

Naturally, this is a serious problem for the cities that are affected, but it bespeaks a larger problem affecting China as a whole. After years of growth driven by low-wage manufacturing, wages are quickly rising and China is now caught in an unhappy midpoint. Labor prices are now too high in much of China to compete with low wages elsewhere in Southeast Asia, but Chinese technology and innovation are still too weak to compete with America and Europe at the higher end.

The task facing China now is daunting: It has to shift from a low-tech to a high-tech industrial base—a process that took over a century in the West—and it has to do it immediately:

“China has to change its manufacturing strategy to be more innovative in technology and compete with a ‘reviving’ U.S.,” wrote Zhang, the researcher, this summer in an op-ed for the China Daily titled “Wake-Up Call for Industry.” “China is expected to face fiercer-than-ever competition from the United States in the manufacturing sector, making it all the more urgent for Beijing to expedite its industrial upgrade.” . . .

“If Dongguan does not start to transform its industrial structure today,” he warned, according to the South China Morning Post, “it will be transformed [and lose out] tomorrow.”

As much as we worry about our own economic woes—and they are serious—China’s economic crisis is more profound and considerably more difficult to resolve than the one we are facing in the U.S. Too many people have been hypnotized by the impressive and even inspirational growth of China’s economy and have failed to realize just how fragile the foundations of the country’s stability and continuing growth really are. China’s new president has a big job ahead of him.

Published on November 25, 2012 12:00 pm