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China News: Industrial Modernization and Global Trade Dynamics
1. Impact of Foreign Technology Restrictions on Industrial Modernization
The Restrictions: The comprehensive export controls introduced by the United States in October 2022—and supported by the Netherlands and Japan in 2023—significantly restricted China’s access to advanced logic chips, state-of-the-art semiconductor manufacturing equipment (SME), and EUV (extreme ultraviolet) lithography systems.
The Paradoxical Outcome: Instead of stalling development, these restrictions unintentionally accelerated the localization and competitiveness of the domestic semiconductor ecosystem.
Key Milestones:
- Self-sufficiency in domestic SME rose sharply from 5% in 2020 to 35% in 2025.
- Domestic foundries achieved mass production of 7-nm chips by repurposing older deep-ultraviolet (DUV) equipment.
- Local artificial intelligence companies and technology providers circumvented hardware bottlenecks by combining computationally efficient models with domestic processors.
2. Progress Toward Self-Sufficiency in Advanced Manufacturing
Strategic Plans: Long-term industrial planning (such as the “Made in China 2025” framework program, launched in 2015 across ten key industries) aimed to increase the domestic supply of core components to 70 percent.
Areas of Global Leadership: Significant market leadership has been achieved in the fields of electric vehicles (EVs), lithium batteries, solar panels, drones, and high-speed trains. Furthermore, the country has transformed itself from a net importer of cars into a major automotive exporter, competing with traditional industry leaders.
Persistent Weaknesses: Significant gaps remain in commercial aircraft, cutting-edge semiconductors, and the commercialization of intellectual property (IP).
Next-Generation Policy: The focus has shifted to “new high-quality productive forces,” with the goal of modernizing traditional labor-intensive industries through advanced technology and increasing the number of patent applications.
3. Evolution of Roles in Global Value Chains
From the “World’s Factory” to the “Factory for Factories”: Rather than merely importing components for the final assembly of low-end products, the country has evolved into an upstream supplier of capital goods, industrial robots, machine tools, and intermediate components.
Embedding in the Supply Chain: Efforts by multinational corporations to relocate their assembly centers to countries such as India or Vietnam have not reduced structural dependence on Chinese suppliers, as over 80% of major suppliers maintain production facilities in mainland China.
Complexity of Exports: Technology exports requiring medium- to high-skilled labor account for about 20% of the global total, while the share of imported components in exports has halved over the past decade.
4. Vulnerable Economies in the Wake of Industrial Modernization
Japan and Germany: These advanced industrialized nations have experienced the greatest losses in market share. Japan, in particular, has lost significant global market share in high-value industrial goods, automobiles, machine tools, and batteries. European automakers are also under intense pressure from lower-cost imported electric vehicles.
Korea’s Position: Korea remains relatively unaffected in the memory chip sector and has seen moderate growth in motor vehicles and machine tools. However, the rapid progress of domestic memory manufacturers in the DRAM and NAND sectors poses a growing competitive challenge to the traditional memory giants.
5. Regional Beneficiaries (The ASEAN Opportunity)
Rising Outward Direct Investment (ODI): Driven by trade barriers and the push for localization, outward direct investment reached a record high of $213.6 billion in 2025.
Integration with ASEAN: ASEAN has established itself as a leading destination for foreign direct investment in the manufacturing sector (with a volume of approximately $30.8 billion).
Spillover Effects and Modernization: Economies such as Vietnam and Thailand are seeing a rising share of value added in their exports, increasing complexity of exports, and growing investment in data centers. Long-term economic gains will depend on the development of local expertise, workforce skills, and the establishment of domestic supplier networks.