Freeing China’s Manufacturing Sector to produce for the Domestic Market   By Henry C.K. Liu This article appeared in AToL on October 5, 2012.    In the past three decades, under the government's policy of promoting export with low wages, the Chinese manufacturing sector grew up depending on orders from large foreign wholesale buyers such as Wal-Mart and others to produce brand-name consumer goods familiar to US consumers in the US market. These foreign buyers have enjoyed a position of unequaled market power to squeeze Chinese suppliers to keep Chinese wages low and pollution high because Chinese suppliers have no other large-scale buyers. The Chinese manufacturing sector operates in a buyers market where suppliers have no market power.   For Chinese manufacturers to effectively produce for the domestic market, they need steady orders from large Chinese domestic wholesale buyers who operate a national chain of retails stores in the domestic market. But such large domestic wholesale buyers do not now exist in any significant way in the Chinese domestic market, forcing Chinese manufacturers to depend on orders from foreign buyers for survival.   To jump start the Chinese domestic consumer market, what is needed is a network of large-scale Chinese wholesale buyers to place large domestic orders in Chinese manufacturers to replace current export orders from foreign buyers.   To avoid the market risk and economic inefficiency of relying on private entrepreneurship to create a paradigm shift in the Chinese export market economy, these new Chinese large-scale domestic wholesale buyers with a national network of large retail stores selling brand name consumer goods familiar to Chinese consumers should be new state-owned enterprises with strong financial support from state-owned banks and regulatory support from local governments to keep the millions of Chinese small and large manufacturers operating profitably without having to rely on stagnant export orders from foreign buyers like Wal-Mart.   As soon as this structural market bottleneck is removed, with domestic demand growing rapidly under a new national policy of full employment and rising wages, a strong domestic market will take off to quickly constitute 70% of GDP to replace the current oversized export sector, and to raise rapidly the standard of living of people and to keep the profit in China.   October 1, 2012