The question of how China can maintain its status as the world’s factory over the next decade is, in many respects, already outdated. Rather than merely preserving a scale-based manufacturing role, China is rapidly transitioning toward a “smart, systems-based world manufacturing hub,” integrating advanced technologies, industrial depth, and platform-level coordination. This shift reflects a broader ambition to evolve from mass production to intelligent manufacturing, standards setting, and system definition across global value chains. By leveraging its combined strengths in technology, industry, and geopolitics, China is positioning manufacturing not just as an economic function, but as a strategic fulcrum for reshaping global productivity paradigms. Understanding this upgrade—from scale-driven factory to smart-system leader—is central to assessing China’s role in the next global productivity order.
From Contract Manufacturing to System Leadership: Reclaiming Control of the Global Value Chain
For decades, China’s integration into the global economy has been anchored in manufacturing outsourcing, with ODM and OEM models positioning the country as the “world’s factory.” While this model delivered scale and efficiency, it also left China structurally exposed. Heavy dependence on external brands, standards, and system architectures makes manufacturing capacity vulnerable to geopolitical shocks and decoupling efforts, as illustrated by attempts to relocate high-profile supply chains. The core risk is not the loss of orders, but the replaceability of China’s role within a value chain defined elsewhere.
The strategic upgrade path lies in shifting from production execution to system definition. Rather than competing primarily on cost or speed, China aims to shape the technical and institutional frameworks within which global production operates. This includes accelerating the international adoption of Chinese-led standards across next-generation communications (5.5G/6G), AI large-model interfaces, industrial internet protocols (such as F5G-A and TSN), new energy infrastructures like battery swapping, and integrated vehicle–road–cloud systems. Once embedded, such standards create powerful path dependencies, compelling global firms to align with Chinese architectures in order to remain competitive.
Equally important is the construction of tightly integrated ecosystems that are costly to replicate. Platforms such as Huawei’s HarmonyOS, Euler, and Ascend; BYD’s Blade Battery, e-Platform 3.0, and Skyrail; and CATL’s EVOGO are not isolated products, but system anchors. Together, they bind hardware, operating systems, AI capabilities, and energy solutions into closed-loop ecosystems. For overseas manufacturers, “de-Sinicization” would no longer mean switching suppliers, but rebuilding an entire technological stack at several times the cost and risk.
The Mate 60 Pro’s full-stack domestic production breakthrough exemplifies this shift. Beyond its technical significance, it signals systemic resilience: the ability to sustain high-end, complex systems under extreme external pressure. This capability carries greater strategic weight than low-cost manufacturing alone, as it demonstrates continuity, autonomy, and deterrence within global competition.
Ultimately, the transformation underway seeks to redefine China’s position in the global value chain. The objective is to move from a replaceable manufacturing base to an indispensable system infrastructure—one that shapes standards, ecosystems, and technological trajectories, and thereby reconstructs durable control over global value creation.
Intelligent Automation as a Source of Super Marginal Cost Advantage in Advanced Manufacturing
Intelligent automation is redefining the foundations of manufacturing competitiveness. The erosion of low-cost labor advantages—often exemplified by countries such as Bangladesh—does not automatically follow from the mere substitution of humans with robots. Instead, it hinges on whether leading manufacturing economies can achieve endogenous intelligence within their production systems. The strategic objective is not automation for its own sake, but the creation of a structural advantage driven by engineering-grade artificial intelligence tightly integrated with industrial robot clusters. This approach shifts competition away from wages toward speed, yield, and system-level efficiency.
A central pillar of this transformation is scenario-driven AI deployment in high–return-on-investment industrial domains. Rather than pursuing generalized or experimental intelligence, manufacturers prioritize concrete use cases such as quality inspection, production scheduling, energy optimization, and predictive maintenance. By developing lightweight, transferable industrial AI models—exemplified by platforms like Huawei’s Pangu Industrial models or Alibaba Cloud’s ET Industrial Brain—large firms and small-to-medium enterprises alike can lower the barriers to intelligent manufacturing. This model-driven approach accelerates diffusion, standardizes best practices across industries, and ensures that intelligence compounds over time rather than remaining locked within isolated factories.
Equally critical is the emergence of collaborative industrial robot clusters. Integrated domestic solutions that combine mobile platforms, robotic arms, machine vision, and intelligent scheduling systems enable rapid, minute-level reconfiguration of production lines. This capability allows manufacturers to respond dynamically to surges in small-batch, multi-variant orders—an operational flexibility that labor-intensive manufacturing hubs in Southeast Asia struggle to replicate. The advantage here is not lower unit labor cost, but the ability to compress adjustment cycles, sustain high utilization, and maintain quality consistency under volatile demand.
Intelligent automation necessitates a new paradigm of human–machine collaboration. Rather than pursuing fully unmanned factories—often characterized by high capital costs and fragile robustness—leading systems cultivate “digital technicians”: frontline workers trained in programming, system understanding, and AI supervision. These workers act as trainers, orchestrators, and problem-solvers within intelligent factories, reinforcing adaptability and resilience. The resulting advantage is fundamentally systemic: faster iteration, higher yields, and lower total cost of ownership. In this sense, intelligent automation delivers a super marginal cost advantage—not by being cheaper, but by being structurally superior.
Strengthening Supply Chain Resilience Through Internal Redundancy and Global Integration
Modern industrial systems face growing exposure to supply chain shocks, particularly when production depends on single points of failure in critical technologies. For a manufacturing-centered economy, vulnerabilities in areas such as advanced photoresists, EDA software, and other high-end inputs highlight the strategic risks of overconcentration and external dependence. In this context, supply chain resilience is no longer a defensive concept but a core dimension of national and corporate competitiveness.
A resilient “dual circulation” framework begins with a strong internal security layer built on redundancy and self-sufficiency in key technologies. Through large-scale, long-horizon investment—such as the third phase of the National Integrated Circuit Industry Investment Fund and coordinated local financing—priority is placed on accelerating the industrialization of foundational capabilities. Progress in domestically produced lithography tools, EDA platforms, and aero-engine technologies is aimed not at immediate global leadership, but at ensuring operational continuity. The strategic objective is clear: maintain stable production capacity even during short-term external supply disruptions, thereby preventing systemic paralysis.
Beyond internal redundancy, resilience also requires outward-looking flexibility through global nesting. By combining cross-border logistics corridors, overseas warehousing networks, and localized assembly or KD manufacturing bases, firms can construct a “China-based R&D, regional manufacturing, and global delivery” model. This distributed architecture reduces exposure to trade barriers, tariffs, and geopolitical friction while preserving the advantages of centralized innovation and scale. Regional production nodes in Southeast Asia and beyond serve as adaptive buffers rather than substitutes for the core industrial system.
Crucially, these physical and organizational layers must be bound together by digital integration. End-to-end data connectivity—enabled by industrial identifier and resolution systems—allows real-time visibility, traceability, and dynamic scheduling across the entire supply chain. When disruptions occur at one node, resources can be reallocated from another with minimal delay, transforming supply chains from rigid linear structures into responsive networks.
Supply chain resilience represents a shift from cost-first optimization to continuity-first design. The ability to sustain production during periods of stress is itself a premium capability, reinforcing both economic security and long-term competitiveness. By combining internal redundancy with globally nested operations, the enhanced dual circulation system offers a practical and scalable pathway toward that goal.
Toward a New-Quality Productivity System Integrating Manufacturing, Energy, Data, and Space
A new generation of productivity infrastructure is emerging, one that fundamentally redefines manufacturing by embedding it within integrated systems of clean energy, digital networks, orbital space assets, and biological engineering. This paradigm moves beyond incremental efficiency gains and instead reshapes the underlying logic of industrial production. Breakthroughs such as carbon dioxide–to–starch synthesis and next-generation energy technologies signal a transition from resource-constrained manufacturing toward systems driven by scientific transformation and systemic integration.
At the core of this shift is the deep coupling of green electricity with manufacturing. By establishing integrated photovoltaic–hydrogen–synthetic fuel and materials bases in regions such as Northwest China, industrial production can be anchored to abundant, zero-carbon, and low-cost energy. These bases provide a structural advantage for energy-intensive sectors, including electrolytic aluminum and data centers, while offering intrinsic resilience against carbon border adjustment mechanisms imposed by Europe and the United States. Energy, once a cost and compliance constraint, becomes a foundational asset of industrial competitiveness.
This infrastructure is further empowered by low-Earth orbit satellite constellations. Systems such as the GW constellation and Hongyan enable centimeter-level positioning and millisecond-level communication across oceans, remote mining regions, and agricultural zones lacking terrestrial base stations. Persistent connectivity allows Chinese equipment, logistics, and industrial systems to operate as integrated digital entities on a global scale. Rather than exporting dependence, this model represents a reversal of digital dominance structures by embedding autonomy and continuity into physical operations worldwide.
Biomanufacturing forms the third pillar of this new productivity architecture. By advancing biosynthetic pathways—such as long-chain dicarboxylic acids and amino acid production—biotechnology is being integrated directly into chemical, materials, and food industry chains. This approach industrializes agriculture at the molecular level, reducing reliance on arable land, climate stability, and traditional resource inputs. Manufacturing thus expands into biological systems, transforming carbon, energy, and data into scalable industrial outputs.
Together, these developments point to the factory of the future: a physical production site inseparably linked to an energy network, a data and communication space, and a biological system. This integrated infrastructure represents a qualitative leap in productivity—one that aligns industrial growth with technological sovereignty, sustainability, and long-term resilience.
Adaptive Institutions and the Innovation Flywheel: Aligning National Coordination with Market Dynamism
Western assessments often misread China’s political–economic system by reducing it to rigid state directives. This view overlooks a defining characteristic of the system: institutional adaptability. Rather than suppressing market forces, the evolving framework seeks to preserve an innovation flywheel in which national coordination and market competition reinforce one another. The result is a hybrid model that mobilizes resources for long-term technological breakthroughs while retaining the flexibility needed to compete in fast-moving global markets.
At the core of this approach is a renewed form of mechanism innovation. The upgraded “chain leader system” positions leading firms—such as SMIC in semiconductors or BYD in new energy vehicles—as anchors of entire industrial chains. The state plays an enabling role by providing application scenarios through procurement, sharing anonymized industrial data, and offering fault-tolerance mechanisms such as first-of-its-kind insurance. Enterprises define technological challenges, research institutes focus on problem-solving, and the market ultimately validates outcomes. This division of labor preserves competitive pressure while aligning efforts toward strategic objectives.
Institutional flexibility is further strengthened through deeper mixed-ownership reforms. Models like Changan’s “Chang’an Technology” illustrate how state capital can retain control over critical platforms—such as batteries and chips—while introducing strategic private investors and employee stock ownership. By binding core talent and long-term capital interests together, this structure mitigates the risks of state-owned enterprise inertia and private-sector short-termism, fostering sustained innovation capacity.
Beyond domestic reforms, regulatory experimentation is extended overseas. “China Standard Pilot Zones” in regions such as ASEAN and the Middle East provide controlled environments for testing autonomous driving, drone logistics, and AI-enabled healthcare. These external sandboxes transform international markets into laboratories for institutional learning, allowing regulatory and technological models to co-evolve. Taken together, these adaptations enable China to concentrate resources on conquering “technological Everest” challenges, such as advanced lithography, while simultaneously thriving in “blue ocean” markets exemplified by platforms like TikTok and SHEIN.
From Technical Capability to Narrative Authority: Cognitive Strategy and Global Rule-Making
In the contemporary international system, competition is no longer confined to markets, tariffs, or even technologies themselves. It increasingly unfolds at the cognitive level, where the power to define standards, interpret facts, and frame development paths determines long-term strategic advantage. Technological capability becomes decisive only when it is successfully translated into a widely accepted global narrative—one that shapes how costs, efficiency, sustainability, and modernity are understood.
At the core of this approach is the deliberate construction of rule-making power through openness. By releasing multilingual industrial white papers, promoting open standards, and selectively opening large-scale industrial model APIs, technological capacity is repositioned as a shared infrastructure rather than a closed national asset. This strategy converts “technological facts” into reference points for global developers, researchers, and firms, reducing the effectiveness of exclusionary containment by embedding these technologies into international ecosystems through participation rather than coercion.
A parallel pillar lies in redefining development pathways for the Global South. Instead of replicating the linear trajectory of traditional industrialization, integrated digital-industrial packages—combining renewable energy microgrids, private communications networks, intelligent agriculture, and cloud-based management systems—offer developing regions a chance to leapfrog directly into advanced productive systems. In doing so, technological adoption becomes synonymous with ecosystem alignment, subtly anchoring emerging economies within a broader digital and industrial framework.
Equally important is the reconstruction of industrial discourse. The legacy image of a low-cost “world factory” is strategically upgraded into that of a global partner in sustainable manufacturing. Measurable improvements in energy efficiency, emissions reduction, and the scaling of new-energy technologies are emphasized to counter narratives of inefficiency or excess capacity. Through consistent presentation of data and outcomes, sustainability and modernization are reframed as intrinsic characteristics rather than external corrections.
Ultimately, the deepest competitive advantage lies not in any single technology, but in shaping shared assumptions about progress itself. When global actors internalize the idea that participation in a given technological system is not only cheaper, but also more advanced and more sustainable, cognitive alignment precedes economic dependence. At that point, rule-making power is no longer asserted—it is quietly accepted.
Final Thoughts
To sustain its position as the “world’s factory” in the coming decade, China must transcend the notion of a physical manufacturing hub and instead become the underlying operating system of global industry. Much as Windows defined the PC era and iOS the mobile era, China is assembling a China-led yet open industrial OS—anchored in 5G/6G as the communication protocol, HarmonyOS and Euler OS as the device layer, Ascend and Cambricon chips as the computing foundation, advanced batteries as the energy standard, and AI-enabled industrial internet as the intelligent core.
If factories worldwide operate on this integrated system, the meaning of the “world’s factory” will fundamentally change: it will no longer refer to a location, but to the provider of the protocols, standards, and platforms that power global manufacturing.