Innovation required to offset labor costs

China's manufacturing industry has a problem with rising labor costs. In recent years, the country's labor force has shrunk as the population has aged. This has driven up costs in China's traditionally labor-intensive manufacturing industry.

Rising labor costs have gradually dulled the industry's competitive edge. Some manufacturing enterprises have either closed down or edged closer to bankruptcy. Meanwhile, wealthier enterprises are planning to move their factories to countries where they can hire workers for lower wages. The resulting rise in unemployment will undermine the sustainable development of the economy and the stability of society.

To rescue China's manufacturing industry, the government first needs to reform its administrative institutions to encourage enterprises to accelerate technological innovation. Such innovation would allow manufacturing enterprises to reduce their reliance on labor.

That would still leave the country with an unemployment problem, so the government has work to do to ensure economic and society stability. To begin with, the government needs to focus on reforms that will improve the livelihoods of ordinary people, such as closing the wealth gap between the rich and the poor. It would also help to accelerate reforms to the country's household registration system to create a more mobile labor force.