MADISON, WISCONSIN – Chinese overcapacity is raising concerns worldwide. It is easy to see why: China accounts for nearly one-third of the world’s manufacturing value-added, and one-fifth of global manufacturing exports. But there is good reason to believe that the decline of China’s manufacturing sector is imminent.

To understand what is happening now in China, it is worth recalling Japan’s recent history. After World War II, Japan’s manufacturing sector grew rapidly, thanks largely to access to the massive U.S. market. But the 1985 Plaza Accord (which boosted the yen’s value and weakened Japanese exports), together with an aging population and a shrinking labor force, reversed this trend.

From 1985 to 2022, the share of Japanese goods in U.S. imports dropped from 22 percent to 5 percent, and Japan’s share of global manufacturing exports declined from 16 percent to 4 percent. Moreover, Japan’s share of global manufacturing value-added fell sharply, from 22 percent in 1992 to 5 percent in 2022. And the number of Japanese companies on the Fortune Global 500 list dropped from 149 in 1995 to just 40 today.

As the chart shows, China has followed a similar upward trajectory in recent decades, but China’s manufacturing rise was even more dependent on the U.S. market. Japan’s imports from the United States equaled 51 percent of its exports to the U.S. in 1978-84, compared to a 23 percent share for China in 2001-18.

Chinese family-planning policies are largely to blame for this imbalance. Typically, household disposable income would account for 60-70 percent of a country’s GDP, in order to........

© The Korea Times