appConfigEntityId

bodyType

customContents

entityId

entityUuid

isVideo

articlePageQuery

article

articleSchemaContent

content

hooksArticlePageAdvertisementConfigArticle

hooksArticlePageFloatingButtonConfigArticle

appConfig

filter

json

liveArticle

Li Qiang

On July 9, a fire burned through a shoe factory in Jinjiang, Fujian province, killing at least 28 people. The accident signals a larger problem: firms operating under financial pressure often cut costs by compromising safety.
China’s low-cost business model needs reform, but why has change been so difficult?
The plant that burned employed hundreds of workers, yet company filings for 2025 indicate that only a handful of them were enrolled in pension and medical insurance plans. A fire-safety inspection two days earlier had flagged its blocked exits, but it didn’t stop production.
The problem is structural. Labour law is enforced largely by local governments, yet those same governments depend heavily on the jobs, tax revenue and growth that low-cost manufacturing brings. Strict enforcement means fiscal and political costs.
The low-cost model is not just a product of corporate behaviour. It is embedded in the fiscal incentives at the local and central government levels. The obstacle to reform is, therefore, this entire structure which not only discourages change, but reproduces the very conditions that stifle reform efforts.


There has not been a lack of such efforts. The Labour Contract Law took effect in 2008. In 2025, the Supreme People’s Court tightened the rules on social insurance obligations. Yet local economic and fiscal incentives have largely prevented these reforms from having an impact on enforcement in practice.
The Foxconn complex in Zhengzhou, Henan province, illustrates this pattern. The city competed for investment by providing subsidies and helping recruit workers. A New York Times investigation in 2016, drawing on confidential records, found it also reduced the social insurance contributions Foxconn owed by up to US$100 million a year.
In recent years, the plant has accounted for roughly 80 per cent of the city’s exports. I have investigated the factory for nearly two decades, and excessive overtime and delayed wages continued to be a problem when I last examined it in 2025. Foxconn is simply the best-known example of a practice repeated across the country.
The Jinjiang fire and Foxconn example reveal the same institutional contradiction. Even if incentives change, enforcement faces a second obstacle – the way in which China’s low-cost model has evolved to evade regulation rather than simply violate it. The Jinjiang factory reportedly registered fewer than 50 workers for social security, despite employing over 200 on site. It used piece-rate pay, suppressing wages and concealing actual working hours.
Foxconn relied heavily on temporary workers and staggered wage payments to discourage workers from leaving. Neither openly broke the law, yet both kept their actual labour practices hidden from regulators. Even a determined push by the authorities would be chasing a moving target.

China’s low-cost model once helped drive industrialisation. Today it increasingly undermines the three foundations of the next stage of development: domestic consumption, social stability and international competitiveness.
Local governments are in a bind. Strict enforcement risks driving businesses to relocate; weak enforcement only postpones the cost. In factories investigated by China Labor Watch, unpaid wages have become the most common labour dispute. When firms fail, they leave those wage obligations behind, and workers have little recourse but to turn to the local government. Local governments tasked with maintaining social stability must then take responsibility even as their own fiscal resources shrink.
Rather than address the cause, the state pays to contain the consequences while the wage suppression that produces them remains. The apparatus for that containment is large and growing. Domestic security spending more than doubled in the decade to 2022, reaching 1.44 trillion yuan (US$212.4 billion).
Labour grievances helped drive the increase. The costs of the low-cost model do not disappear. They shift from the wage bill to the security bill. The burden will only grow amid falling public revenues – the national public budget revenue fell 1.7 per cent in 2025, the first decline since 2020.


The deeper problem is stratification. In 2020, then-premier Li Keqiang noted that some 600 million people lived on about 1,000 yuan a month. The obstacle is not consumers’ willingness to spend. Households receive too small a share of the value they produce, and save heavily against a thin safety net. No economy can hold incomes down and expect consumption to drive its growth.
Abroad, the same model works against itself. In 2025, China’s trade surplus hit a record of nearly US$1.2 trillion. Washington is scrutinising the labour behind the goods. The European Union’s Forced Labour Regulation, which bars goods made with forced labour, takes effect in December 2027.
Weak labour standards once gave Chinese exports a price advantage. Today, the same practices generate growing costs. Abroad, goods produced under weak labour protections face rising tariffs, tighter import restrictions and regulatory scrutiny. At home, the same practices depress consumption, fuel wage arrears and labour disputes, and increase the fiscal burden of maintaining social stability. The costs of sustaining this model outweigh the benefits it once delivered.
Beijing has repeatedly emphasised common prosperity, stronger domestic demand and higher-quality growth. Better-paid, better-protected workers are essential to all three. Many of China’s pressures are not the cost of reform, but the cost of delaying it. The choice is no longer between reform and stability. It is between reform now and paying a much higher price later.


Why a Chinese farmer’s reunion with a US teacher moved me to tears

The unspoken reason my Chinese friends choose America

Record influx of university graduates pushes China’s youth unemployment rate to 18.9%

Why women in China are still at risk of abduction and forced marriage

China society

Why China’s low-cost business model resists reform

Firefighters work at the scene of a footwear factory fire in Jinjiang, Fujian province, on July 9. Photo: Xinhua News Agency via AP

Employees work at a Foxconn factory on September 4, 2021, in Zhengzhou, Henan province. Photo: VCG via Getty Images

Hong Kong finally moves to extend labour rights to the gig economy

A motorcycle delivery worker is seen on Nathan Road in Jordan on June 12, 2025. Photo: Jelly Tse

28 killed in factory blaze in the heart of Chinese shoe manufacturing hub

Firefighters attend a footwear factory fire in the township of Chendai in Jinjiang on Thursday. Photo: Xinhua

An ambulance is on standby at the footwear factory fire in Jinjiang on Thursday. Photo: Xinhua

US hearing weighs higher tariffs over alleged forced labour, targeting China

US Trade Representative Jamieson Greer released a report identifying 60 economies covered by the USTR’s investigation into goods linked to forced labour in global supply chains. Photo: Getty Images via AFP

Opinion

China Opinion

News

World

China

Economy

China Economy

Policy

Economic Indicators

Even as the model outlives its usefulness, built-in incentives continue to stifle efforts to protect the rights and interests of workers


Even as the model outlives its usefulness, built-in incentives continue to stifle efforts to protect the rights and interests of workers.


Jobs

China jobs

Regulation

China economy

Foxconn

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Why China’s low-cost business model resists reform

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Even as the model outlives its usefulness, built-in incentives continue to stifle efforts to protect the rights and interests of workers

Even as the model outlives its usefulness, built-in incentives continue to stifle efforts to protect the rights and interests of workers