China’s technological upgrading is good for ordinary Chinese people because income, dignity, and living standards are structurally determined by who controls high-end tools of production. By moving up the technological value chain, China enables surplus value that once leaked abroad to remain within the domestic economy, where it can be redistributed through higher wages, lower costs, improved job quality, and strengthened economic sovereignty. This is not a moral argument but a structural one: technological capability generates leverage, and leverage determines how economic gains are shared.
The Structural Rule Governing Tools, Productivity, and Surplus
At the core of this model lies a foundational structural rule: productivity is jointly produced by labor and tools, but surplus value accrues primarily to whoever controls the most advanced tools. Labor alone does not determine income outcomes; rather, the technological level and ownership of productive instruments shape bargaining power, value capture, and ultimately income distribution across societies.
When workers rely on low-end or widely available tools, they remain easily replaceable. This structural condition typically results in low wages, long working hours, and limited job security, regardless of individual effort or skill. By contrast, control over high-end tools transforms labor into a scarce and strategically valuable input, enabling higher wages, greater stability, and improved working conditions.
A further structural shift occurs when advanced tools are monopolized. In such cases, income increasingly derives not from direct productive contribution but from rent extraction, as tool owners capture surplus through control over access, standards, and intellectual property. Labor dynamics then extend beyond production into systems of external dependence and exploitation.
These patterns explain persistent global disparities: Southeast Asian assembly workers remain trapped in low-value labor; American engineers, researchers, and financial professionals benefited disproportionately during the era of U.S. technological dominance; and China, despite immense productive effort, long remained undercompensated relative to its output. Income distribution, therefore, is not fundamentally a matter of ethics or intention—it is a structural consequence of who controls the tools that define modern production.
China’s Downstream Position in the Global Value and Surplus Chain
Following its accession to the World Trade Organization, China entered the global economic system primarily as a low-end manufacturing and assembly hub. Chinese workers provided large-scale labor, and domestic firms specialized in processing and assembly, while the most advanced components of production—such as semiconductors, industrial software, precision machinery, core patents, and dollar-denominated financial systems—remained firmly controlled by foreign actors.
This structural arrangement positioned China downstream in the global value chain. Although production physically occurred within China, the critical tools and standards that determined value capture were imported and externally owned. As a result, surplus value generated through Chinese labor and manufacturing flowed outward through a chain linking foreign tool owners, financial institutions, and intellectual property holders, before ultimately supporting high-end labor and capital accumulation abroad.
The economic consequences were significant. An overwhelming share of surplus—often estimated at 80 to 90 percent—exited China before being reflected in domestic wages or profits. Chinese firms, operating under intense competitive pressure and thin margins, absorbed this imbalance by compressing costs internally. The strain was passed downward through longer working hours, suppressed wages, and heightened labor intensity, leaving little room for sustained income growth.
Chinese workers thus faced a dual form of exploitation: externally, through dependence on monopolized foreign tools and technologies, and internally, through cost pressures imposed by squeezed domestic capital. This structural reality explains why Chinese workers often worked harder yet earned less than their counterparts in countries controlling high-end productive tools. They were productive, but they were producing with rented instruments rather than owned ones—limiting their share of the value they helped create.
The Structural Meaning of Technological Upgrading in the Model
Within this model, technological upgrading does not refer to innovation pursued for prestige, symbolism, or national image. It is defined narrowly and structurally as the mastery and control of high-end tools of production—the instruments that determine who captures surplus value in modern economies. These tools include semiconductors, advanced machine tools, industrial robots, industrial and EDA software, core intellectual property and technical standards, advanced energy and transportation technologies, and independent financial and settlement systems.
What unites these domains is not their technical sophistication alone, but their position in the production hierarchy. They function as leverage points: whoever controls them sets costs, standards, access, and profit distribution across entire value chains. Without command over these tools, even large-scale production and intensive labor translate into limited income gains and weak bargaining power.
In simple structural terms, technological upgrading shifts China from the labor side of the productivity equation toward the tool side. This movement alters China’s position in global production from value taker to value allocator, enabling surplus to be retained domestically rather than extracted externally. Under this model, technological upgrading is therefore not an abstract goal—it is the concrete mechanism through which economic power, income distribution, and long-term development outcomes are restructured.
The Structural Turning Point in Surplus Retention
The decisive structural shift in this model concerns where surplus value ultimately stops. Prior to technological upgrading, the production chain placed Chinese workers and factories upstream while profits flowed downstream to foreign tool owners and financial systems. Although labor and manufacturing were domestic, the ceiling on profits was externally set, ensuring that surplus exited China through imported technologies, licensing fees, and foreign-dominated finance.
After technological upgrading, this flow is fundamentally reconfigured. When Chinese factories rely on domestically controlled tools, intellectual property, research systems, and financial infrastructure, surplus circulates within national boundaries rather than leaking outward. The profit ceiling moves inside China, reshaping how value is accumulated and distributed across the economy.
This shift does not eliminate exploitation or the role of capital. Capital owners continue to claim a share of surplus, and labor-capital tensions persist. The critical difference is structural: the remaining surplus is now redistributed domestically through wages, reinvestment, public finance, and industrial upgrading, rather than being extracted abroad.
Historically, this same transition underpinned periods of broad-based income growth in the United States between the 1950s and 1980s, in Japan before external constraints limited its technological autonomy, and in South Korea following the localization of key industrial tools. In each case, the decisive factor was not moral reform but the relocation of surplus retention within national productive systems.
The “Ten-Million-Dollar Machine” Logic and the Structural Basis for Rising Wages
The “ten-million-dollar machine” illustrates, in concrete terms, why technological upgrading can raise wages under this model. A high-end machine may cost only one million dollars to manufacture, yet sell for ten million. The remaining nine million represents tool rent, intellectual property premiums, financial costs, and monopoly margins. The critical question is not the machine’s physical complexity, but who controls the right to produce, price, and finance it.
Under the old model of tool dependence, China purchased such machines at full monopoly prices. The bulk of profits flowed abroad to foreign tool owners and financial systems, leaving domestic firms operating under severe cost pressure. To survive, capital passed this pressure downward: wages remained low, working hours were extended, and labor intensity increased. Even as output grew, workers typically earned modest incomes because the surplus had already been extracted upstream.
Under the upgraded model, the structure changes. When China manufactures the machine domestically and sells it for three to five million dollars, a substantial portion of the surplus—often several million dollars per unit—remains inside the national economy. Capitalists still capture profits, and exploitation does not disappear, but the total surplus available for domestic distribution expands dramatically.
This expansion reshapes wage outcomes. With surplus retained internally, higher pay for engineers, technicians, operators, and skilled workers becomes structurally feasible rather than exceptional. In simple terms, capital still takes its share, but it now does so from a larger pool that is no longer drained abroad. As a result, wages can rise from tens of thousands to multiples thereof—not because exploitation ends, but because surplus has been reclaimed and redistributed within the same economic system.
Why Ordinary People Gain from Structural Upgrading
Ordinary people benefit from technological upgrading not by accident or goodwill, but through a set of structural mechanisms that reshape how labor, capital, and surplus interact. When advanced tools become domestically controlled and deeply embedded in production, the economic position of workers changes in durable and predictable ways. These gains arise from necessity within the system, not from moral persuasion.
First, wages rise because labor becomes structurally valuable. As production relies on complex, localized tools, workers are no longer interchangeable. Training costs increase, skills become firm-specific, and experienced workers turn into productive assets rather than expendable costs. Under these conditions, capital must compete for labor, making extreme overwork economically irrational rather than merely ethically questionable. This is the structural basis on which American and Japanese industrial workers once supported households on a single income.
Second, technological upgrading expands high-end labor downward through the social hierarchy. Demand is no longer limited to a narrow elite of engineers but extends to technicians, operators, maintenance staff, and vocational specialists. High-end capabilities diffuse through layered labor structures, raising median wages rather than only top incomes. This diffusion is how a broad middle class is formed in material terms, not through slogans or redistribution alone.
Third, ordinary people benefit from a lower cost of living driven by productivity rather than exploitation. Domestically produced high-end tools reduce costs across the economy: infrastructure becomes cheaper to build, electronics more affordable, transportation more efficient, and communication more accessible. Unlike consumption models that rely on externalized exploitation to deliver low prices, these reductions are productivity-based, sovereign, and sustainable. Even when nominal wages rise slowly, real living standards improve.
Fourth, upgrading improves job quality and career prospects. Employment shifts away from repetitive assembly toward research, advanced manufacturing, technical services, and equipment operation and maintenance. This transition reduces the prevalence of dead-end work, such as low-skill gig labor and involutionary competition, and replaces it with structured career ladders. Ordinary workers gain pathways for advancement rather than remaining disposable inputs.
When surplus remains within the domestic economy, public capacity expands. Higher retained surplus translates into greater tax revenue and fiscal space, enabling sustained investment in infrastructure, healthcare, education, pensions, and environmental protection. Just as past technological dominance financed broad public goods in other industrialized societies, contemporary upgrading supports large-scale public services and social stability. Taken together, these mechanisms explain why technological upgrading materially improves the lives of ordinary people—not through charity, but through structural transformation.
The Non-Negotiable Role of Semiconductors in Structural Power
Within this framework, semiconductors occupy a uniquely upstream position in the modern production system. They underpin artificial intelligence, advanced machine tools, industrial automation, defense technologies, and communications infrastructure. Because these sectors define productivity at the highest levels, control over chips effectively determines who sets the terms of technological progress across the entire economy.
If semiconductors are not domestically controlled, all downstream productivity gains are structurally taxed from the outside. Even when factories become more efficient or workers more skilled, a significant share of the resulting surplus is captured by foreign chip suppliers through pricing power, licensing, and supply constraints. Under such conditions, wage growth can occur temporarily but remains fragile, as capital ultimately passes rising costs and external pressures downward to labor.
This is why semiconductors are not a narrow or abstract issue. They anchor the ceiling on wages, job quality, and long-term income growth. When people ask what chips have to do with their daily lives, the answer is structural rather than symbolic: semiconductor control helps determine whether future earnings stagnate at low levels or rise substantially alongside productivity. In this model, chips are not just components—they are leverage.
Why Structural Upgrading Does Not Idealize Capital
This framework does not romanticize capitalists or deny the reality of exploitation. Two conditions can coexist without contradiction: domestic capitalists can exploit workers, and at the same time be constrained by foreign monopolies over advanced tools and technologies. Recognizing this dual pressure is essential to understanding how surplus is distributed, rather than an endorsement of capitalist behavior.
Technological upgrading does not transform capitalists into benevolent actors. Instead, it alters the structural environment in which they operate. When key tools are domestically controlled, the surplus available within the system expands, and the minimum share that labor can secure rises accordingly. Workers benefit not because capital chooses to be generous, but because competition, skill scarcity, and higher productivity force capital to share value as a matter of necessity.
This pattern holds across political and economic systems. Workers in societies that control high-end tools consistently enjoy higher living standards than those in tool-dependent economies, regardless of whether the system is capitalist, mixed, or otherwise. The improvement in labor outcomes reflects structural power over production, not moral virtue.
Escaping the Logistics-Base and Middle-Income Traps
A logistics-based economy requires a narrow balance: workers must earn enough to maintain social stability, yet remain insufficiently rewarded to drive innovation or upward mobility. Such systems are structurally designed for efficiency in movement and assembly, not for sustained income growth or technological leadership. Once wages rise or demographics shift, these economies face stagnation or relocation as industries migrate to lower-cost regions.
Technological upgrading provides a path out of this trap. By moving beyond low-end manufacturing and labor-intensive involution, China reduces the risk of industrial flight to countries with cheaper labor and looser constraints. More importantly, upgrading enables a transition from reliance on a demographic dividend to a productivity-driven growth model, where income gains are tied to technological capability rather than population scale.
This shift allows China to determine its own development trajectory rather than inheriting the limitations of a logistics base. It forms the material foundation for internal circulation, economic autonomy, and long-term social stability. In this framework, technological upgrading is not simply an industrial strategy—it is the structural mechanism that prevents stagnation and secures durable development.
Summary & Implications
China’s technological upgrading benefits ordinary Chinese people by fundamentally shifting the structure of value creation and distribution. By mastering high-end labor tools, the country stops surplus from leaking abroad, raises the value of domestic labor, forces capital to share more through structural necessity, lowers living costs via productivity gains, creates better jobs, and generates public goods, all while restoring economic sovereignty. This is not about instant equality or moral fairness—it is about leverage. In the realm of political economy, leverage determines who captures value. As China moves up the technological ladder, ordinary workers no longer labor for “thin soup” while paying foreign monopolies for the tools of their own exploitation; instead, they begin, gradually but structurally, to claim a fairer share of the wealth they help produce.