Investment Institute
Macroeconomic Research

Decoding China’s regulatory paradigm shift

  • 01 October 2021 (5 min read)

Key points

  • China’s status as the world’s factory and top exporter has come under intense pressure from the Sino-US trade war and a global pandemic that has disrupted supply chains
  • But instead of weakening its position, these adversities have been turned into advantages, with China actually gaining market share by broadening its export scope and strengthening its supply chain network
  • The growing resilience of the “world’s factory” follows a transformation of China’s domestic production system from cost-based competition to skills-and-technology-based
  • The rapid emergence of China as a manufacturing and export powerhouse has reshaped the landscape of global trade. Developed countries, led by Japan – and to a lesser extent the US – have lost market share to China in medium-and high-skilled segments
  • Yet, rising production costs have eroded China’s competitiveness in some labour-intensive industries in recent years, where Vietnam has made the most gains
  • However, constrained by its small size and reliance on China’s provision of critical inputs, Vietnam is unlikely to fully replace China as the world’s factory, but could continue to thrive as a partner in China’s supply chain ecosystem
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