China’s manufacturing sector — long regarded as the backbone of the nation’s economic rise — is facing a wave of wage cuts, reduced working hours, and increased job insecurity as the ongoing trade war with the United States continues to strain industrial output and profitability.
Industry insiders and economists warn that China’s manufacturing sector once-thriving export factories are now in “survival mode,” with many slashing payroll costs by up to 30 per cent just to stay afloat in an increasingly competitive and tariff-hit global market.
Cartia Global Manufacturing, a mid-sized factory in the manufacturing hub of Foshan, Guangdong Province, is a stark example of the crisis. Company owner Mike Chai revealed that his firm has already halved its workforce since the COVID-19 pandemic and has now been forced to shorten shifts, cut overtime, and request workers to take unpaid leave.
“We’re barely breaking even,” Chai told reporters. “The trade war has forced more Chinese companies out of the U.S. market, and now we’re all competing for the same alternative markets, like Australia, where price competition is brutal.”
Chai’s struggle mirrors a wider trend across China’s industrial heartlands. With U.S. tariffs making exports less profitable, many firms are shifting focus to Southeast Asia, Australia, and Africa — but this has triggered a race to the bottom on prices, directly hitting workers’ pay packets.
Officially, China’s unemployment rate has held steady at around 5 per cent, but economists caution that this figure masks a deeper problem: underemployment. Many workers are now in part-time or temporary roles, with reduced shifts replacing full-time employment.
“The statistics don’t capture unpaid leave or reduced hours,” said Alicia Garcia-Herrero, Chief Asia-Pacific Economist at Natixis. “Workers are being hammered by intense competition and falling prices. To survive, companies cut costs — and wages are the first target. It becomes a vicious cycle.”
This hidden job insecurity is compounded by falling consumer confidence, sluggish retail sales, and flat inflation rates, which paint a subdued picture of China’s short-term economic outlook.
One of the most alarming trends is the decline in pay for temporary factory workers. According to industry reports, hourly wages for short-term manufacturing roles have dropped from 16 yuan to 14 yuan in the past year — a significant reduction in a country where living costs have continued to rise.
In Guangzhou, factory worker Alan Zhang said he now struggles to cover basic living expenses, often relying on multiple short-term contracts to make ends meet. “I used to have steady overtime, which made up a third of my income. Now, overtime is gone, and shifts are unpredictable,” Zhang explained.
Factories are increasingly hiring on short-term contracts to avoid the costs of pensions and social insurance contributions, giving employers more flexibility but leaving workers without long-term job security.
Harvard Kennedy School fellow Richard Yarrow warns that suppressed manufacturing wages could have wider macroeconomic implications. “If manufacturing wages are squeezed, it exerts deflationary pressure across the economy,” he noted. “China’s domestic consumption growth — already weak — could slow even further.”
For now, many Chinese manufacturers are taking drastic measures to stay competitive. Chai, for instance, has already lost two major Australian clients to rival Chinese firms and is planning to slash prices by 10 per cent to retain the rest. This strategy, however, means cutting overtime hours and scaling back production — moves that further reduce workers’ earnings.
The U.S.-China trade war, now in its seventh year, has forced structural changes in China’s export economy. Many manufacturers have shifted operations to Vietnam, Thailand, and other low-cost regions, while those that remain in China face both tariff pressures and industrial overcapacity.
The combination of reduced demand, high competition, and lower prices is creating a challenging environment for both employers and employees.
Economists suggest that without targeted government support, the situation could worsen. Policy measures such as wage subsidies, retraining programs, and domestic consumption incentives could help buffer the impact on workers.
China’s manufacturing sector is at a crossroads. While official figures suggest stability, the reality on the factory floor tells a different story — one of falling wages, unstable work, and shrinking opportunities.
If the current trajectory continues, the country’s vast manufacturing workforce — the engine that powered decades of economic growth — may face prolonged hardship, with potential knock-on effects for the broader Chinese and global economies.