2025 JULY ISSUE
CHINA SHOCK 2.0
Written by ANDREW SIA
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From the Desk of the Publisher
Napoleon Bonaparte once said, “Don’t wake the sleeping China, for when she wakes up, she will shake the world.” Napoleon Bonaparte (August 15, 1769, to May 5, 1821) could never have any encounter with China, and it makes us wonder how he could had made such a comment. It could probably be not authentic, but it is a powerful metaphor that captures the fear about China’s rise.
On the international scene, you hear more about China than the United States. You have seen its campaigns one after the next. First it was the “Belt and Road Initiative,” then “Made in China 2025,” followed by “China Standards 2035.”
We are not ruling out the next summit for China to capture will be AI and robotic which can be most powerful for the country’s going forward.
Going forward, if China can be more open and more receptive to the western nations, hopefully that it can bring the value closely with the free world.
Introduction
During China’s heyday from 1990 to 2010, its abundant supply of cheap labor and highly developed supply chains made it a dominant force in the low-end manufacturing. The country’s market share of global clothing exports reached a peak of 38.8% in 2014. It has been the world’s largest apparel exporter for more than a decade. In 2022, China’s share of global clothing exports was 31.7% still making it the largest apparel exporting country.
The Progress
China’s clothing exports boomed after the lifting of textile quotas due to the WTO agreement. Its market share in clothing exports has been decreased in recent years due to factors of rising labor costs and geopolitical tensions. This have driven away the bigger fashion companies to source from alternative production locations. Despite of these challenges, China continues to be a significant player in the global apparel business, and it is still the world’s largest exporter.
We can refer to the following for the current textile imports from the U.S. from China as the following, and the numbers U.S. textile import figures of 2024:
- Total import from China total value – $36.1 billion
- Apparel import share – 54%
- Home textiles – 26%
- Industrial textiles – 20%
China’s share of global footwear exports hit more than 70% just over a decade ago. This figure was according to the World Footwear Yearbook.
From American Apparel & Footwear Association (AAFA), it is showing the U.S. imported the following footwear in according to their data:
- China’s share – 61.9%
- Vietnam – 21.4%
- Indonesia – 6.9%
- Cambodia – 3.9%
- India – 1.3%
It has been noticed that in the last decade, China competitiveness has gradually eroded due to competitions from the neighboring countries in the Southeast Asia. The trade war with the U.S. and the weak domestic demand has also weakened the apparel industry.
With the ongoing trade war, the U.S. tariffs on China imports have prompted Nike to reconsider its sourcing strategy. It started to shift some of its manufacturing to countries like Vietnam, Indonesia, and Mexico. Take clothing as imported by Nike, Vietnam is accounted for 28%, China for 16%, and Cambodia for 15% of total Nike brand apparel. For Nike’s footwear from China, it has dropped to 18%, while Vietnam is accounted for 50%, and Indonesia for 27%.
Unlike clothing, footwear requires a certain degree of vertical integration, and it has the readily available of skilled workforce, supportive business regulations, and logistics networks. It takes a lot of consideration to make any geographic moves.
Cost of manufacturing in China has been increased steadily, and it is losing to rivals in its neighborhood. We can see that employment in most of the China’s labor-intensive manufacturing sectors have been declining. We can refer to the following:
Factories in China at the low-end manufacturing are facing the dilemma—either they invest in automation, or they will slowly wither away. The labor-intensive production that would leave millions of older, both skillful and unskillful workers behind. Employment has been shrinking across China.
China brought to the world the “China Shock 1.0” by flooding the market with cheap goods in 2000 after it was admitted into the WTO. This time it has backfired and “China Shock 2.0” is on China itself due to the change of the world’s circumstance.
Chinese leader Xi Jinping made it clear that China is entering “new quality productive forces” or better explained by advanced manufacturing by adding values to become the core of the country’s growth model. But China already announced its “Made in China 2025” which seemed like their grandiose plans in its ten segments, and now we have noticed that they have succeed in many of those arenas.
China will need to know that those days of hiring a lot of labors for the low-end production is over. We must learn that the onetime “sweatshirt capital of the world” in Martinsville, in the state of Virginia in the U.S. where as many as 45% of its working-age adults were involved in manufacturing in 1990. Those jobs just disappeared as the town failed to reposition its economy. Today its poverty rate has doubled because it failed to change.
Going Forward
China is still an authoritarian country and its ruling party, the Chinese Communist Party, has its grasp on everything and the planned economy is still being applied. The country is taking the two-prongs in its manufacturing routes, the high valued-added and the cheap production can both be put into practice.
It can still dominate the AI and the labor-intensive production but also develop something in between to improve the efficiency and consistency to compete for leading-edge manufacturing. China is not going to see that their export business is slipping from them, except to increase its competitiveness of its sprawling garment industry. It can introduce its “cutting-edge manufacturing” to boost its export.
To see that its neighboring countries, like Vietnam and Indonesia, are snatching businesses from China have hollowed out a range pf manufacturing industry. The labor-intensive products like electronics, home fixtures, furniture, luggage, toys and others were once peaked at 40% in 2013. It had fallen to less than 30% in recent years. Tariffs applied by the U.S. have since accelerated the process.
Because of the geopolitical conflicts, importing countries are derisking their supply chains and decrease their dependency on China in recent years. The major beneficiaries have been countries in Southeast Asia and South Asia. We have even seen Chinese factories setting up in Bangladesh for instance. We can see labor-intensive industries are moving away and the typical example is the job loss to those countries like Indonesia, another populous country, and Vietnam as favored by others.
We have to know that manufacturing is far from disappearing from China as it has moved so much in advance with the new technology that we can’t ignore. We can refer to the following chart:
Like all countries, China has the same problems, such as the aging problem. Also, the new workers are not willing to take up work that are dirty, hard and tiring, eventually this can all be solved as the country has to move forward to support its growth and the inflation that it is facing like all leading economies.
Without question, China has to deal with all these challenges, and we are not saying that they are easy but will need the leaders who can be more balanced in the country’s foreign policies. Once when China can come to terms with the world, it can continue to grow and prosper. We have to know that the world is getting smaller, more challenging, and without coming together and obtain the common consensus, no one can win. Without saying, we need better leaders today than what are out there.
China Shock 3.0
While we are still talking about “China Shock 2.0” unknowingly, we are entering into “China Shock 3.0” already. We are referring to open AI model from China. The U.S. has been tightening its grip on advanced artificial intelligence technologies in January of this year to block China’s access to advance AI chips and block proprietary models behind trade barriers, China is giving away its most AI models to the world.
We have noticed that recently Chinese tech groups including Alibaba, Baidu, and Tencent have been flooding the market with powerful AI models. These models are free to download, modify, and integrate. Since January, DeepSeek R1, its answer to OpenAI ‘s o1 series. Alibaba’s latest AI QwQ-32B, rival of DeepSeek R1has performed well in official benchmark tests.
China has made it as a statement that AI should be open to the world, but under the business and geopolitical circumstances, it is very rare and without any strategy. Open sourcing of China’s AI is something that has caught everyone unguarded.
The U.S. tech companies have treated AI as an exclusive resource, restricting access to their most powerful models behind paywalls. For instance, OpenAI, Google Deep-Mind and Anthropic limit full access unless through plans such as paid subscriptions and enterprise deals. The U.S. government treats open-source AI as a security risk. Its lawmakers are pushing to ban DeepSeek AI software from government devices citing national security concerns.
Instead of acting as a sitting duck, China tech groups are taking a different approach by open-sourcing AI. In this way, they not only sidestep U.S. sanctions but also decentralize development and tap into global talent to refine their models. Even when they are restricted on Nvidia’s high-end chips become less of an obstruction when the rest of the world can train and improve China’s models on alternative hardware. By open-sourcing AI models, Chinese tech groups created an ecosystem where global developers continuously improve their models without shouldering all the development costs. Every new release build upon the last, refining weaknesses, expanding capabilities and improving efficiency. This approach can fundamentally reshape AI’s economic structure and make it more available. This is totally different than the U.S. approach as its AI companies is building on monetization through enterprise licensing and premium service. They will hit against the wall.
When AI is freely available, foreign companies will take China’s model, refine them and outcompeting Chinese companies. Over time, companies like Alibaba, Baidu, and Tencent may face the same pressure as their U.S. counterparts. Eventually it will force them to restrict access to protect intellectual property and generate revenue.
The Chinese government is known for its control over key technologies and may push for stricter AI regulations to manage misinformation, maintain oversight, and ensure compliance with state policies. But for now, China is applying the open AI policy to compete without access to the latest chips that can allow them to lead in the tech world. China’s most effective strategy is to flood the market with speed and scale and to tilt the monopolizing of AI.
OpenAI, Google, and Microsoft have already won the AI race, but China’s approach is to allow all players in the open platform of AI. This is like letting Genie out of the bottle and how to put it under control is another challenge eventually.
Latest About Its Popular Social Media Platform – TikTok
TikTok is a popular social media platform owned by ByteDance that allows users to create, share, and discovery short-form videos, typically ranging from 15 seconds to 10 minutes in length. It was launched internationally in 2017-2018, combined with the original Chinese app Douyin.
TikTok has 1 billion active users worldwide, and it is one of the most downloaded apps ever. It is especially popular with Gen Z and younger Millennials. It is available in 150+ countries and 75+ languages.
Earlier on, the U.S. and some other governments are worried about the data security and potential Chinese government access. This has led to censorship for contents accused for suppression for political reasons. It has also been criticized for highly engaging algorithms for encouraging compulsive use among young users.
This has also led to some Western countries restricting their government employees having TikTok on their work devices. India went further to ban TikTok in India since 2020.
TikTok has provided consumer information, promoting trends, and entertainment. It is also used for activism, political messaging, and new snippers.
Over the year, the U.S. has tried to force TikTok to sell its major stock to the U.S. to ensure the national security, and under the proposed structure of the deal, ByteDance would retain a minority stake and obtain a licensing fee for its algorithm use. The U.S. has made it so clear that if the deal can’t come through, the U.S. could force a shutdown on TikTok in the U.S. In this case it would cut off a major revenue and influence source and lose its U.S. presence completely. TikTok has become part of the U.S.-China Tech competition and trade diplomacy. China realized that if the deal can come through, it can facilitate a better position in broader trade, tech, and geopolitical negotiations.
In this deal China has to comply with the U.S. requirements and have to cut back certain lines of control from its operations to prevent any legal or trade retaliation. With ByteDance’s minority shareholding, it has minimum influence with economic return and have to lose its control in operations.
An executive order signed by President Trump in late September, a sale of TikTok’s U.S. operations to an American consortium has been valued at $14 billion. A consortium of the U.S. investors buying the 80% stake with the remaining to be held by Chinese parent company ByteDance.
The U.S. investment group included: Oracle, Dell Technologies, News Corp, and an Abu Dhabi royal family member.
It is also reported that Oracle will provide oversight of software dates.
