The China Syndrome 2.0 : A Misdiagnosis ?

Overview & Synopsis

China's growing dominance in manufacturing exports has given rise to concerns about a new "China Syndrome," this time focused on its impact on developing rather than industrial countries. However, emerging explanations of China's export exceptionalism and its consequences suffer from three shortcomings. First, attributing China’s large and increasing share in manufacturing exports primarily to its industrial policy obscures more fundamental factors: the scale of its economy, the diversity of its provincial endowments, and the pace of its automation. Second, focusing on the low-skilled export dimension of China’s economic expansion overlooks its positive impact on growth and its heterogeneous effects on structural transformation in developing countries. Finally, blaming foreign industrial policies distracts attention from the often more damaging trade and investment restrictions imposed by developing countries themselves, many of which could be reformed unilaterally. This misdiagnosis matters because the already narrow window for labor intensive industrialization in many developing countries may shrink further if the cost of automation falls faster than wages in China rise.