Beyond Embodied Intelligence and Fusion Energy, China 15th five-year plan contains a segment that can be neglected: the so-called traditional industries. This code name represents the low-tech industries that helped China industrialize in the past, including the iconic Made in China textile industry. The fact that traditional industries remain at the top of the new priorities suggests that China intends to continue making low-tech products while embracing high-tech.
The question this raises is whether there is still room for other countries. If China competes simultaneously with advanced and developing economies, is there room for the rest of the world?
Why China continues to make everything
As countries move up the value chain, they typically move from labor-intensive to more capital-intensive industries. For example, Britain no longer exports large quantities of textiles as it did in the 19th century, having shifted its economy toward knowledge-intensive, consumer-focused service sectors such as finance.
Anyone expecting this transition in China is still waiting. As expressed Xi Jinping China’s strategy itself is not to downgrade these industries to the “low-end” category or abandon them, but to transform and modernize them so that they remain relevant on the global stage. This reflects Beijing’s broader desire to avoid deindustrialization.
Moreover, China aims to modernize these industries rather than simply retain them. Two ministries and three state institutions recently published an action plan to help companies accelerate their transformation towards the upper end of the value chain, from “Made in China” to “Chinese brands”.
Although China now has the capital and expertise to develop capital-intensive industries, Beijing is simultaneously pursuing labor-intensive manufacturing. A probable explanation is that the scale of China’s economy and uneven development among its provinces allows Beijing to move these industries domestically rather than abroad – something no previous industrialized country could have done on a comparable scale.
When it comes to textiles, China continues to dominate globally, both in terms of production and exports, accounting for more than 35 percent of global market sharethe largest share held among Chinese manufacturing sectors. There are not many signs of a loss of interest from Beijing, as the National Bureau of Statistics (NBS) recorded a decline of 4.3% year-on-year. increase in investments in the textile industry, 5.2 percent in the clothing industry and 12.3 percent in the chemical fiber industry. This growth outperformed all other manufacturing sectors.
The end of the virtuous cycle
As countries move up the economic ladder, wages rise and labor-intensive industry becomes uncompetitive. Industries eventually migrate to low-wage countries, where the same process repeats itself. Over time, as these countries become richer and their costs increase, they shift to more advanced production. In East Asia, this cycle has defined development since the 20th century and has been called “the cycle”.flying geese” paradigm. The region’s industrialization has long been led by Japan as leader. As Japan grew wealthy, its labor-intensive industries migrated first to the Asian Tigers, then to China and Southeast Asia.
This virtuous cascade of industrialization and development now appears to be complete, as China’s light industry has generally expanded in recent years and migration is not occurring on the scale expected. Light industry in China still accounts for a quarter of all exports, remaining largest export sector. Thus, China’s continued competitiveness in exports of low-tech manufactured goods harms established manufacturers in Southeast Asia, rather than supporting industrialization.
The Financial Times reported that labor-intensive manufacturing companies in Malaysia and Indonesia bankrupt due to strong competition from Chinese exports. In Indonesia’s textile industry, this has led to the loss of 250,000 jobs since 2021. In the case of Malaysia’s plastics industry, even the Malaysian government’s protective trade measures have not helped the struggling sector. Southeast Asia is also increasingly addicted on China, both for industrial inputs and for finished products such as electric vehicles and green technologies.
The two shocks
It appears that the “first” China shock, which describes low-cost, low-tech Chinese exports destroying manufacturing in China, advance economies (mainly the United States) during the 2000s, continues to shock economies – but not advanced ones.
In addition, industrialized and advanced economies are currently experiencing the second China shock, which is impacting the mid- and high-tech manufacturing sector due to China’s production advantage and scale. This prevents industrialize economies to modernize their industrial base and displaces established industries in advanced economies. The result is a double China shock – hitting developing and advanced economies alike, at opposite ends of the value chain.
THE European Union and ASEAN were the most affected. For Europe, which was less devastated by the first Chinese shock than the United States and managed to retain its industrial base, the second became a “moment of life or death“, said French President Emmanuel Macron. The second Chinese shock mainly affects Europe. the automobile industry, but also green industries such as solar and wind energy. EY reported that Germany, Europe’s largest economy and industrial core, has lost 1 in 20 industrial jobs since 2019 – a consequence felt beyond Germany’s borders, as Central and Eastern European economies deeply integrated into German supply chains absorb the repercussions.
The first challenge of this shock lies in the fact that China is becoming more self-sufficient, which means that it imports less from advanced economies. In the case of Germany, exports to China have abandoned by 23 percent since 2022, mainly due to the 66 percent decrease in car exports during the same period. The second problem is growing Chinese competition in the automotive sector. third-party marketplaceslike Southeast Asia. The last problem is the arrival of Chinese competition on the internal market, where Europe is facing an unprecedented crisis. overvoltage in Chinese imports of electric vehicles. Together, these three pressures leave European industry with few secure markets.
Could change come from China?
The pressure could ease if China invested in overseas manufacturing and supported localization, which would have the effect of migrating some of its industries. Chinese overseas direct investment (FDI) has doubled since then 2020and greenfield investments in Europe hit a record in 2025. However, Rhodium Group research showed that, counterintuitively, the recent expansion of FDI in China does not support the industrialization of the countries receiving its investments. Rather than bringing the advantages of localization, FDI increases their dependence on Chinese inputs, technologies and other high-value-added activities that Chinese multinationals keep at home.
China’s domestic trajectory could also change the outlook. Last week, Beijing announced that it relax the hukou system which has long hindered the workforce in less developed provinces. Facilitating the migration of Chinese workers to higher-wage areas could ultimately raise wages in low-tech industries and erode their competitiveness. Whether this will come to fruition, however, is uncertain as Beijing is already investing heavily in automation, which could offset rising labor costs and still keep the low-tech manufacturing sector competitive.
Shared problem, shared solution: the case for a Europe-ASEAN partnership
The very fact that China’s double shock affects almost everyone creates unexpected common ground. Europe and Southeast Asia find themselves facing a version of the same problem, and this shared pressure opens up a space for cooperation that neither side has previously prioritized.
First, Europe must understand what the China shock means for Southeast Asian countries. The region has long been a low priority for the EU, as evidenced by low number free trade agreements between the countries of the bloc. China’s twin shocks create a policy window to accelerate free trade negotiations with affected ASEAN countries, such as Thailand and Malaysia, and open new ones with other potential partners.
But trade deals alone are not enough. Through direct investment in local production capacities using European technology, Europe can support a genuine strategy of mutual diversification: ASEAN gains an alternative to Chinese products and a more stable export destination, while Europe benefits from diversified supply chains and a new market.
Timing matters. Southeast Asia long dependency about the United States as an export destination is becoming increasingly uncertain due to the Trump administration’s tariffs – and those same tariffs are redirecting Chinese exports towards ASEAN, thereby adding to the pressure the region is already facing. The window will not stay open indefinitely. Recognizing that Europe and Southeast Asia face different expressions of the same shock is the first step toward transforming a common problem into a common strategy.