Dragoman Digest

China’s aging migrant workers expose limits in its development model

Inadequate pensions and demographic shifts will inexorably strain China’s economic foundations

China’s 300 million migrant workers face an increasingly precarious future as the economic transformation they enabled leaves them behind. The workforce’s average age has surged from 34 in 2008 to 43.2 in 2024, with nearly one-third over 50. As 100 million of these rural migrants approach retirement over the next decade, they are confronted with a harsh reality. Despite decades labouring in cities, their rural household registration status (hukou) means they receive just 123 yuan (US$17) monthly in pensions versus 3,000-6,000 yuan (US$417-834) for urban-registered workers. This meagre amount places them below the World Bank’s US$3.65 daily poverty threshold.

This vast disparity stems from China’s hukou system, which has traditionally tied social benefits to birthplace rather than workplace and place of residence. The household registration system has effectively subsidised rapid industrialisation by limiting the social benefits that local governments and employers of migrant workers must pay. Beijing’s massive state investment in “new productive forces” like semiconductors and AI is a marked contrast with the decision in March 2024 to raise pensions by a derisory 20 yuan (US$2.78) per month. This is the latest manifestation of China’s supply side bias at the expense of social safety nets and redistribution.

Migrant workers face a particularly precarious future. Between 2011 and 2023, China lost 7.4 million jobs in labour-intensive industries to automation and offshoring – the very sectors employing migrant workers. The share of migrant workers in construction has fallen to a 16-year low of 14.3 percent, though remaining workers are now experiencing steep wage increases. As displaced workers increasingly move to lower-paying service jobs, this creates a policy bind. These dynamics threaten Beijing’s ability to oversee economic rebalancing towards consumption – if indeed the top leadership has any intention of doing this. China’s export-led model required cheap, disposable labour while its consumption-led future needs prosperous retirees. Beijing thus risks creating a permanent underclass precisely when it most needs domestic demand to drive growth.

EU targets Chinese medical devices in first use of new trade tool

The EU is reluctant to jettison its trade defence agenda as part of any possible rapprochement with China

On June 2, the EU moved to restrict the import of Chinese medical devices in response to what it argues are discriminatory procurement policies in China. This is the first time that the EU has used the International Procurement Instrument since it was adopted in 2022. Chinese firms will now be banned from bidding on EU public contracts exceeding €5 million for five years. Between 2015 and 2023, EU imports of Chinese medical devices doubled. In 2024, EU countries bought €5.2 billion worth of Chinese medical devices. Medical devices have been targeted under Beijing’s “Made in China” industrial policy, which aims to aggressively reduce imports and eventually achieve global dominance in key technologies. China has set a target to localise up to 70 percent of its medical device usage by 2025, and 90 percent by 2030. The European Commission’s investigation concluded that 87 percent of public Chinese tenders for medical devices contain explicit or implicit barriers for foreign firms, with some outright banning imported devices. Of the 380,000 procurement tenders the European Commission looked at, less than 10 percent contained readily accessible information on eligibility criteria for prospective bidders.  

This latest action marks a deepening rift in EU-China trade relations. Relations soured in mid-2024 when Brussels began deploying an arsenal of trade defence tools, including tariffs of up to 45 percent on Chinese EVs and a suite of anti-subsidy probes affecting wind turbines, PV and rolling stock. Beijing retaliated in kind, slapping duties on European brandy and launching probes EU pork and dairy exports. China has attempted to court Brussels by lifting sanctions on four EU lawmakers as part of its attempt to revive the moribund EU-China Comprehensive Agreement on Investment. EU officials have since responded saying that they have “no interest” in reviving the pact. With these efforts proving fruitless, Beijing appears to be focusing more on engaging member states individually, with Spain emerging as a clear target.

Indonesia’s investment climate undermined by entrenched corruption

Prabowo Subianto has launched an anti-extortion taskforce to help mollify investor concerns

Indonesia continues to struggle with institutionalised corruption. One growing manifestation is the unchecked actions of civil society organisations, locally known as ormas. Ormas take many forms, business associations, religious and cultural associations, and labour unions. As of March 2024, the Ministry of Home Affairs recorded 554,692 registered ormas. While many are legitimate, a growing share have been implicated in extortion and industrial disruption. Ormas-linked actors have staged coordinated protests and blockades around key industrial zones including Bekasi and Karawang in West Java, Batam, and East Java, halting the flow of goods and paralysing factory operations. In one case, individuals claiming to represent the Cilegon branch of the Indonesian Chamber of Commerce and Industry demanded US$308.3 million in untendered contracts from China Chengda Engineering, which is constructing a US$950 million chemical plant in the region. VinFast, the Vietnamese EV manufacturing, had its construction efforts disrupted by local ormas in West Java.

Systemic corruption threatens to damage Indonesia’s investment appeal. The country ranks 99 out of 180 on Transparency International’s Corruption Perception index, trailing several of its regional peers. Major global firms, including Nvidia, Apple, and Microsoft, have notably overlooked Indonesia in favour of more business-friendly environment like Vietnam. Apple and its suppliers, for instance, have committed nearly US$16 billion to Vietnamese projects. Apple’s US$320 million investment into Indonesia, including US$150 million for an AirTag factory, only came to fruition after Indonesia enforced a sales ban on the latest iPhone 16.

In an effort to address the problem and restore investor confidence, President Prabowo Subianto established a dedicated task force to address the issue in May 2025. Since its inception, the Indonesian National Police have reported more than 3,000 extortion cases and arrested over 2,000 individuals nationwide. While this marks a significant operational response, it falls short of addressing the inherent issues in Indonesia’s political economy which allows such extortion to occur.  

Chinese battery glut emerges as unlikely hero in Pakistan’s energy crisis

Plummeting storage costs help drive exit from Pakistan’s buckling power grid

China’s battery and solar overcapacity is inadvertently helping to solve Pakistan’s energy crisis. Battery units from Chinese manufacturer BYD have fallen over one-third year-on-year to Rs275,000 (US$984) for a five-kWh system. Solar panels have become equally affordable, with Pakistan importing 1-3 GW of capacity monthly – enough to power millions of homes. With payback periods under two years, companies are now looking at abandoning the national grid entirely and switching to off-grid battery and solar systems.

Although welcome for households and consumers who can afford it, renewables threaten Pakistan’s existing power sector with a “death spiral”. Since 2015, the government has secured billions in sovereign-backed loans for new Chinese-built power plants and signed long-term LNG contracts with QatarEnergy and Italy’s Eni. While these investments have partially resolved widespread blackouts, they left the country with US$18 billion in mounting debts. These deals require payment to producers even for unused electricity, with all costs built into consumer bills. These soaring electricity prices have driven wealthier customers and businesses to abandon the grid for solar-battery systems. Pakistani conglomerate Lucky Cement’s Karachi plant already generates over half its power from Chinese sourced solar panels and is installing the country’s largest battery system, a 20.7MW unit from China’s CATL. It is just one of many companies across Pakistan exiting the grid, eroding the system’s revenue base. Pakistan’s ten-month electricity demand through April fell below prior year levels.

Government interventions appear increasingly inadequate. Extreme measures like deploying the military and intelligence services to renegotiate rates with power companies has had little effect in halting the current feedback loop. Fewer grid customers mean higher bills, which in turn increases incentives to purchase solar and other off-grid solutions. Subsidising electricity would deepen fiscal strain in a state that already has notoriously parlous finances. A grid exodus by those who can afford battery systems leaves millions shouldering debt payments for infrastructure they increasingly cannot afford to use. There is a danger that Pakistan’s poorest customers will be saddled with ever higher bills, creating a real risk of energy poverty.