South-South Ideas: From Trilemma to Triple Wins – Creating Synergies among Chinese Labour-intensive Manufacturers, Global Buyers and Low-wage Southern Countries

July 21, 2021

South-South Ideas paper by Wen Chen, Jiajun Xu and Jia Yu, from the Institute of New Structural Economics at Peking University.

Prompted by fast-rising wages, the graduation of China from labour-intensive manufacturing has opened up a golden window of opportunity for the other low-wage Southern countries to kick-start industrialization by attracting Chinese labour-intensive light manufacturing sectors.

This paper aims to diagnose challenges faced by Southern countries to seize the opportunity presented by Chinese industrial transfers to kick-start and speed up their industrialization process. It will then draw on China’s development experiences to propose concrete policy recommendations on how to use special economic zones and triangular cooperation to better seize the opportunity from the perspective of new structural economics.

To successfully take advantage of this window of opportunity, host Southern countries need to resolve the following trilemma: (a) global buyers lack confidence in them to deliver high-quality goods on time; (b) Chinese labour-intensive manufacturers tend to be highly risk-averse when venturing into those uncharted investment destinations; and (c) low-wage Southern countries suffer from inadequate infrastructure and poor business environments. Drawing on the development experiences of China from the perspective of new structural economics, this paper proposes to use the establishment of industrial parks as key leverage to turn the trilemma into triple wins among all the stakeholders and forge triangular cooperation. After reviewing the current state of industrial relocation, promising practical cases and the potential of industrial relocation from China, the paper proposes concrete policy recommendations to help policymakers in partner Southern countries to better seize this great opportunity of industrialization enabled by China’s industrial relocation.

In the midst of the COVID-19 pandemic, it is difficult to shy away from the damaging impacts that the pandemic is having on the world economy, global value chains and millions of lives around the world. Nonetheless, it is a matter of time before the pandemic will be kept under control and the collective efforts of the global community will help to combat it. The trend of international industrial transfers is irreversible and this crisis may even help to accelerate this process in the post-COVID-19 era, since multinational manufacturers are increasingly looking into diversifying the production bases as a shock absorber. While challenging, dynamic growth and economic structural transformation in Africa may finally be set in motion.