Escaping the "hard-working trap" to prioritize well-being: Lu Ming

Leading urban economist on why China's manufacturing dominance has become a liability, calling for a decisive shift to a service economy powered by strict labor enforcement and social equity.

Today's issue of the newsletter features a reflection on the next stage of China's economic development by Ming LU 陆铭.

Lu is a Distinguished Professor of Economics, Director of the Shanghai Institute for National Economy (SHINE), and a research fellow at Shanghai Jiao Tong University's China Institute of Urban Governance. His work focuses on China's economy, urban–rural dynamics, and regional development.

To be frank, most of the arguments below are familiar, well-worn calls that surface again and again. But policy has inertia, and that is why these points bear, and indeed require, constant repetition.

Professor Lu offers a few particularly thought-provoking insights on the logic of "involution" and global trade:

• The Self-Sufficiency Paradox: If China achieves self-sufficiency across all industries while its global export share climbs, other nations will eventually lose the income-earning capacity required to purchase Chinese goods.

• A Clash of Lifestyles: If Chinese competitiveness is derived not just from technology but from extreme overtime, global trade becomes a "competition of lifestyles." Other nations face a dilemma: join the "involution" and abandon their way of life, or accept trade deficits and social instability.

• The Root of Involution: Put simply, China's manufacturing sector involutes because it produces too much, while the service sector involutes because it produces too little.

• The Tariff Trade-off: Rather than allowing foreign governments to capture value through tariffs, China would be better served by proactively raising domestic labor costs. This would improve worker welfare and stimulate the internal demand needed to break the cycle.

This piece was originally published on December 29, 2025, on the WeChat account of Tencent Finance. Please note the following translation is my own and has not been reviewed by the author.

陆铭：告别内卷陷阱，少加班、多消费事关中国经济下一程

Lu Ming: Saying Goodbye to the Involution Trap — Less Overtime, More Consumption, and China's Next Leg of Growth

This is not a feel-good New Year essay. It is closer to a field guide to what China's economy requires as it moves into its next stage.

The Two Faces of a Trillion-Dollar Trade Surplus

Let's first take stock of where China's economy stands today. China's manufacturing sector now accounts for roughly one-third of global output, and in 2024 its exports reached 14.2 percent of the world market.

In 2025, China's trade surplus hit a new record, topping US$1 trillion. At the same time, many other countries increasingly feel that they have little left to sell to China. Rapid technological progress and powerful supply chains are steadily raising the international competitiveness of Chinese products. In just a few years, China's automobile exports overtook Japan's, making China the world's largest car exporter. In more and more sectors, domestic production in China is also replacing imports from other countries, including agricultural products such as coffee and macadamia nuts, and even caviar has become something China exports.

On the positive side, strong technological progress, backed by supply chains supported by a unified national market, could become a long-term advantage for China. But the other side of the story deserves just as much attention. Has the current growth model translated into a genuine improvement in people's sense of well-being?

It is fair to say that many industries in China are operating under constant pressure to maximize efficiency. Relentless performance metrics, price undercutting, and long working hours all reinforce the price competitiveness of Chinese products. Yet they also create a striking gap between headline GDP growth and how workers actually feel in their daily lives.

At a moment like this, if we only keep our heads down and never look up, mounting difficulties are inevitable.

The logic is simple. If China achieves near self-sufficiency across most industries, if its imports shrink relative to its exports, and if its share of global exports continues to rise, then other countries will eventually lose income-earning capacity. In turn, they will lose the purchasing power needed to buy Chinese goods.

There is another possibility. Chinese exports may increasingly displace local manufacturers abroad. If this happens because Chinese products are genuinely superior and more technologically advanced, other countries have little ground for complaint.

But if part of the competitiveness comes from pushing efficiency through extreme overtime, then competition between Chinese and foreign products becomes, in essence, a competition between ways of life. Other countries would face a dilemma: either join China in "involution," abandoning their existing lifestyles, or accept large trade deficits and unemployment, which would inevitably translate into domestic social pressures.

Too Much Manufacturing, Too Little Services

Within China, involutionary competition is widespread, but its causes differ across sectors. Put simply, manufacturing involutes because it produces too much, while services involute because they produce too little.

Start with manufacturing. China's manufacturing share of GDP is higher than that of countries at similar stages of development. With vast productive capacity, rising household incomes lead to only diminishing marginal increases in demand for manufactured goods. Excess capacity can therefore be absorbed only through exports. To keep exports competitive, firms rely on involutionary competition to push prices ever lower, with overtime becoming one means of sustaining that edge.

At the same time, manufacturing employment has declined for ten consecutive years since 2015. Cut-throat competition has not translated into more jobs or higher incomes. Instead, capital, machinery, and increasingly AI have been used to replace labor.

When manufacturing can no longer generate jobs, workers cannot realistically return to lower-income agriculture. The only viable destination for new employment is the service sector, which grows on the basis of demand.

As development raises living standards, demand for services should naturally expand, creating more jobs. Yet China's traditional growth model relies heavily on capital-intensive manufacturing, where labor's share of income is inherently low. At the macro level, this appears as a low labor-income share in national income, which in turn constrains demand for services.

Meanwhile, services face restrictions on both the supply and demand sides. These include barriers to private entry into certain service industries and policies that limit service-consumption scenarios.

As a result, even when workers move into services, they end up competing fiercely for a limited number of jobs. Service-sector involution is therefore, at its core, a product of underdevelopment. If restrictions were relaxed, services could expand, create more jobs, and ease involutionary pressures.

Escaping the "Hard-Working Trap"

Involution in both manufacturing and services does more than suppress labor income growth. It steadily erodes leisure and holiday time.

Service consumption requires not only income, but also time. A lack of time becomes a binding constraint on service demand. By international comparison, Chinese workers rank near the top in average annual working hours. From one perspective, this reflects diligence and perseverance. From another, if such intensity persists, the release of service consumption will remain limited, narrowing the space for the next stage of growth.

Consider a simple example. Not long ago, I spoke with a childhood friend whose daughter now works at a major internet company in Shanghai. She works six days a week, twelve hours a day. Watching this, he feels heartbroken and cannot help recalling that when we graduated from university, work was not like this. With such overtime, there is not only no time to spend money; there may not even be time to date or have children.

So how can people have both income and time? When this question arises, some mock it as detached, unrealistic advice. Yet the very fact that such mockery exists shows how society has fallen into a collective blind spot. Escaping it requires consensus and action.

Government intervention is necessary. If a single firm unilaterally reduces overtime or pays proper overtime wages, unless its profit margins are high enough, it risks losing competitiveness.

Please note, more developed neighboring countries have already moved beyond involution!

Recently, I listened to a podcast about a Chinese student who studied in South Korea ten years ago and later returned there for work with a Chinese company. Over that decade, Koreans have become markedly less involutionary. Even when overtime is expected, Chinese employees may stay, but young Koreans are generally unwilling to work late.

I also spoke with Japanese colleagues during a recent business trip. Japan was once synonymous with overwork, with frequent reports of death from overwork during its high-growth era. In recent years, such stories have become rarer. Through its "Work Style Reform" legislation, Japan has imposed caps on overtime and strengthened labor inspections. Excessive overtime is now an explicit regulatory target.

China's level of development now closely tracks that of Japan and South Korea. At this stage, stronger labor enforcement through government coordination is also necessary. For those who do not want overtime, the right to leave on time and rest on holidays should be protected. Where overtime is required and voluntarily accepted, clear caps and lawful overtime pay must be enforced.

Generational change may also play a role. Online discussions frequently mention "post-2000s cleaning up the workplace." This may be a healthy development. If overtime does not raise income and family circumstances do not demand it, younger workers choosing a higher-quality lifestyle may become early movers in shifting social norms.

Another crucial task is improving the holiday system. In autumn 2025, provinces such as Zhejiang and Sichuan extended school holidays, with a positive effect on consumption. This again confirms that "no time to consume" is a real constraint.

Could extended spring and autumn breaks be introduced for university students? Could paid leave be more widely implemented and flexible leave more common? Could maternity leave be complemented by care-giving leave for spouses? At the micro level, large firms and government departments should take the lead in allowing employees to leave on time, protecting weekends, and giving people time to consume services and enjoy life.

Some worry that more holidays might encourage "lying flat," or that shorter working hours could worsen labor shortages and erode competitiveness. These fears are overstated. Chinese manufacturers primarily compete with domestic peers, not foreign ones. Internationally, Chinese products are already so competitive that many countries resort to tariffs.

Rather than allowing foreign governments to capture tariff revenue, China would be better served by adjusting proactively at home: improving worker welfare, allowing labor costs to rise moderately, and stimulating domestic demand. Even if some firms face pressure, the main contradiction is clear. China's more urgent task is to raise workers' incomes and consumption capacity, not to suppress labor costs for low-price exports. Where costs rise, adjustment should come through technology and management, not by sacrificing workers' time and well-being.

The Economic Meaning of Improving Migrants' Welfare

Another critical area is social welfare for migrant populations. Beyond fairness and well-being, improving migrant welfare increasingly makes economic sense as services become more important.

Manufacturing revolves around machines; services revolve around people. In a manufacturing-led phase, workers can move frequently with limited impact. But services require familiarity with local environments and stable social relationships. This stability raises incomes and improves service quality.

Research I conducted with Wei Dongxia confirms that for migrants, entering a city earlier helps them accumulate city-specific experience and improve non-cognitive skills. This, in turn, helps them work in services and earn higher incomes.

Yet what we see in reality is the opposite. The more developed a city's service sector is, the harder it is for migrants to obtain local registration. Moreover, under the existing system, migrants often cannot be covered by the local social-security system or public rental housing, which further increases their mobility.

From the perspective of urban residents, the result is that service workers keep changing, trust is hard to build, and even tensions and conflicts can arise. If migrants cannot settle, improving service quality lacks long-term returns, and workers lack incentives to invest in raising that quality in one place.

At this point, helping migrants settle down and build stable lives in urban areas becomes increasingly important. Accordingly, the key pain points migrants face must be identified clearly.

For some time, public discussion has focused heavily on social security for migrants, especially highly mobile workers. But if national social-security integration is not complete, migrants may hesitate. If they participate in the current system and later leave the place where they paid in, they may be unable to take with them a small portion of the pension contributions made by employers on their behalf. Either way, that is a loss.

This is why national social-security integration and the full urban integration of migrants have become more urgent than before. Only then can migrants participate more fully in the social-security system. With social-security coverage, migrants are also more likely, and more willing, to settle locally and develop for the long term.

Compared with social security, however, even bigger pain points for migrants are children's education and housing. Take housing first. More and more cities have realized that the housing-support system should cover migrant long-term residents. This is not only about social justice, but also about stabilizing local employment by helping migrants stay.

Not long ago, I worked with Duan Yige and Huang Weichen on a study of public rental housing for migrants. We found that compared with delivery riders who could not move into such housing, those who successfully did so saw a clear rise in both the number of orders they took and their incomes. Migrants living in public rental housing could share work experience more effectively with housemates, and they also showed a stronger willingness to give back to society and to settle locally.

This gives strong confidence that friendlier housing policies can help migrants settle in line with the needs of a service-led economy. If future policies further enable left-behind children to move to cities with their parents, that could, in the short term, promote family reunion and resolve parent–child separation. In the long term, it would also help children accumulate urban life experience and adapt to the needs of urban development. Society as a whole should recognize that in the age of AI, today's children will increasingly need to rely on the service sector to find work and raise their incomes.

Happiness Is the Purpose of Development

China is now at a critical moment of structural adjustment. By 2025, measured by GDP per capita, it has entered the ranks of high-income countries. The ultimate purpose of economic development is not ever-longer working hours, but a happier life.

At this stage of development, a happier life increasingly comes from service consumption. Yet in China, service consumption accounts for only 46% of total consumption, far below the roughly 70% seen in some developed countries. That makes service consumption a key source of momentum for the next stage of growth. Especially in the age of AI, as machines increasingly replace assembly-line work in manufacturing, services become the final destination for ordinary people's employment. The pursuit of a happy life and the requirements of economic development will therefore become more and more aligned. Enditem