China faces one of the most significant economic challenges of the last 20 years, with a development model lagging behind due to the blockade of US semiconductors and a post-pandemic economy that is unresponsive to stimuli and showing serious signs of exhaustion.

Added to this economic landscape is the manufacturing and social crisis, with employees demanding better working conditions to work in their factories and brands moving their production lines out of China to avoid falling into the trap of the blockade. Faced with such a complex workforce, demographic and economic situation, Chinese officials made a Solomonic decision: If workers do not come to the factories, the factories will go to the workers.

The key to China: cheap labor. One of the pillars of China’s growth over the last two decades has been to become the most populous country in the world with no workers’ rights; Therefore, cheap labor was guaranteed to achieve profitable production at its low cost.

These workers have been displaced from the hinterland for decades, impoverished and lacking communications infrastructure. Their aim was to achieve prosperity by working in factories in wealthy coastal provinces such as Guangzhou and Shenzhen, where merchant ships loaded with their products left international trade ports.

Factories need workers. The Chinese development model was effective until its own prosperity allowed the children of workers who began working in conditions of semi-slavery to graduate from university. Currently, the majority of the population in the most industrialized regions has a minimum level of education, and an average of 11 million new graduates graduate each year, demanding higher salaries and better working conditions.

These claims undermine one of the advantages of manufacturing in China and increase costs. For this reason, many companies have closed their factories in China to look for cheap labor in countries such as India, Vietnam, Thailand, Indonesia or Cambodia.

Solution: Moving factories to the interior of China. If one of the main problems of factories is to find workers, then they will go and look for workers wherever they are. Therefore, instead of taking production to other countries, the Chinese government managed to move them to less industrialized provinces such as Sichuan or Henan; Labor costs here are still affordable and salaries are up to 30% lower than in surrounding countries. They serve as a shelter against the US blockade of China.

Foxconn, the main assembler and supplier of Apple, Dell and Asus, has already made the move by moving one of its factories from Shenzhen to Chengdu, the capital of Sichuan, and opened another production line in Henan province, which will employ 100 people. Up to 300,000 employees. Foxconn’s expansion in mainland China has accelerated greatly, expanding new production centers to other offshore regions such as Hubei or Chongqing.

Minimum wages are determined by province or city.. Unlike other provinces, minimum wages in China are set not at the national level, but at the provincial level and even on a city basis in major cities such as Beijing. In this case, the difference between the salaries in factories in big cities such as Shanghai or Beijing and the salaries in factories in the inner regions is serious.

According to the National Bureau of Statistics, the average salary in Shanghai is 132,802 yuan (about 17,160 euros) per year, while in the hinterlands it barely reaches the annual average of 89,941 yuan (about 11,621 euros at the exchange rate).

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*An earlier version of this article was published in October 2023.