China is the world's factory because it combines scale with density. It produces close to 30 percent of the world's manufacturing value added, and most of the suppliers a product needs sit within a few hours' drive of each other. Cheap labor started it in the 1990s. Supplier clusters, a deep pool of engineers and fast automation keep it there today.
I'm Thomas Derksen. I have lived in China for more than twelve years, and with Asiabits I spend most weeks in Chinese factories and robotics companies, often with a European management team. The question in the title comes up on almost every one of those trips, usually on the drive back to the hotel. This is how I answer it.
In April we spent a day on the floor of the Canton Fair in Guangzhou. The exhibition complex covers 1.55 million square meters, and Phase 1 alone had around 32,000 exhibitors. Humanoid robots walked the aisles of their own area, and a dozen quadruped brands competed for export buyers. Around half the buyers we saw came from Africa, the Middle East, South Asia and Latin America. I wrote up that day in our Canton Fair guide.
The fair shows you the size. The reasons behind it sit in the industrial parks around Shenzhen, Suzhou and Hangzhou, where the products on those booths get made.
How big is China's share of world manufacturing?
China produces roughly 28 to 29 percent of global manufacturing value added, more than the United States, Japan and Germany together. That figure comes from World Bank data and UN statistics for 2023. Value added counts what a country contributes on top of the parts it buys in.
Gross output gives an even larger number. Richard Baldwin, an economist at IMD in Lausanne, worked through the OECD's trade data and found that China made 35 percent of global gross manufacturing production in 2020. That is more than the next nine countries combined. Germany's share in the same data was 4 percent.
When I show these numbers to German executives, the reaction is rarely surprise. Most of them buy from China already. What surprises them is the speed at which the share grew. In 2004, China's share of manufacturing value added was in the single digits.
Is cheap labor still the reason?
Labor explains how China started, and today it explains only a small part of why China stays on top. Our guest in episode 16 of the Asiabits podcast, who runs the international fund of the Tsinghua-linked VC TH Capital, described this well. He splits modern China into periods. The first was the decade of the Chinese worker, when the West pictured factory halls producing at low cost. The second, from the mid-2000s, was the decade of the Chinese consumer.
The worker picture is the one most Western boards still carry. On the ground it no longer fits. Wages in Shenzhen and Shanghai have risen for twenty years, and a good engineer costs serious money.
Tuo Liu grew up in Shenzhen, spent ten years building robotics labs at American universities, and now connects hardware founders with the city's supply chain. On episode 8 of our podcast he put a number on it: a good engineer in Shenzhen costs around 50,000 US dollars a year, and in the US you pay about three times that. His bigger point was the size of the pool, because Chinese universities graduate so many engineers every year.
Why does the supply chain matter more than wages?
Because a product is only as cheap and as fast as the slowest part in it, and in China most parts are close by. Shenzhen grew from the electronics assembly of the 1990s into a place where motors, batteries, sensors, molds and circuit boards are all made within a short drive. When a founder there needs a new gearbox design, the supplier can often deliver a sample the same week.
Tuo Liu described how his home city changed. When he was a child, Shenzhen made things for the rest of the world. Later, founders came to build their own products on top of the same supplier base, and companies like DJI, Insta360, Bambu Lab, BYD and Huawei grew out of it. He also pointed to Apple: it took years to train enough skilled staff to build the iPhone, and once that supply chain was good enough, Chinese phone brands followed on the same lines.
The same pull works on foreign founders today. According to Tuo, hardware startups from the Bay Area come to Shenzhen because the US no longer has the suppliers to build their prototypes quickly. They design in California and build in Shenzhen.
McKinsey's April 2026 report on humanoid supply chains puts a price on this density. According to McKinsey, the bill of materials for Tesla's Optimus Gen 2 would rise from about 46,000 dollars to about 131,000 dollars without Chinese suppliers. The same report puts China's share of permanent magnet processing at around 90 percent. Every electric motor depends on those magnets.
Our own data shows how concentrated this is. At Asiabits we keep a database of more than 7,000 robotics companies, and 2,217 of them are in China. Two regions hold two thirds of those: 737 sit in the Pearl River Delta around Shenzhen, Guangzhou and Dongguan, and 749 in the Yangtze River Delta around Shanghai, Suzhou, Hangzhou and Nanjing. Shenzhen alone has 571.
For a buyer this means you can visit a robot maker, its actuator supplier and its sensor supplier in one day. I do that with clients regularly. It is the fastest way to understand where a product's cost comes from.
If you source from China, ask your supplier where its own suppliers sit. A factory in the middle of a cluster can switch a part in days when something breaks. A factory that ships its components in from another province carries more risk, even if its quote is lower. In my experience this question tells you more about delivery reliability than a certificate on the wall.
Are China's factories automating?
Yes, faster than anywhere else. According to the International Federation of Robotics, China installed 295,000 industrial robots in 2024, 54 percent of all installations worldwide. For the first time, Chinese robot makers sold more units in China than foreign brands did. I covered those numbers in more depth in Is China Ahead in Robotics?
This changes the old argument about the world's factory. Once a line is automated, wages matter less and service matters more. The robot suppliers, integrators and spare parts need to be close, and more and more of them are in China.
We currently work with a German automotive supplier that runs plants in China. We introduced the team to several Chinese robotics companies, and they are now running proofs of concept. The robot is trained first in the robot maker's lab, then moves into the client's factory. I expect to see this pattern more often.
Can Western companies still compete?
Yes, where they bring something China is short of, and in robotics that list is longer than headlines suggest. This summer I spent two weeks in Germany visiting robotics companies and suppliers. I came back more optimistic about both countries. Germany still has decades of engineering depth in automotive parts, precision and certification, and Chinese humanoid makers are looking for exactly that.
Standards for humanoid interfaces, sensor specifications and modules are still open. A European supplier that designs its part into a Chinese robot now will ship inside every unit built afterwards. A German supplier that joined one of our tours this summer came for exactly this reason: to see where its components fit into the Chinese robot supply chain.
Politics matters as well. Chancellor Merz's visit to Beijing brought trade questions back to the top of the agenda, as covered in our piece on that trip. Tariffs and export controls can change the price of a part overnight. Moving a cluster takes decades.
What are the limits of this picture?
The estimates differ. Depending on the method, China's share of manufacturing value added comes out between 26 and 30 percent, and gross output gives a higher figure. I use the World Bank number because it is the most widely cited.
Our database started in Asia and covers Chinese companies more completely than American or European ones. It counts companies. It does not measure output or profit, and many of the Chinese firms in it are small.
Scale also says nothing about any single supplier. The world's factory has excellent plants and poor ones in the same industrial park, and price wars in sectors like electric vehicles and robotics squeeze margins hard. That is why I always recommend seeing a factory before signing with it.
How Asiabits helps
Asiabits takes European and international leadership teams into Chinese factories, robotics labs and supplier clusters, and puts them at the table with the founders. In one day you meet a robot maker and the suppliers behind it. If you want to understand where your own product or supplier base fits, start with our China Robot Supply Chain Map, then talk to us about a bespoke tour.
Frequently asked questions
Why is China called the world's factory?
China produces close to 30 percent of global manufacturing value added, according to World Bank and UN data for 2023. It makes more than the United States, Japan and Germany combined, and most of the parts a product needs are made within a few hours of each other.
Is China still the world's factory in 2026?
Yes. Its share of manufacturing has stayed close to 30 percent, and it installed 54 percent of the world's new industrial robots in 2024, according to the International Federation of Robotics. Automated lines tend to stay near their robot suppliers, which keeps production in China.
Is Chinese manufacturing cheap because of low wages?
Low wages started China's rise in the 1990s, but they explain little today. A good engineer in Shenzhen costs around 50,000 US dollars a year. The advantage now comes from supplier density, a large pool of engineers and heavy automation.
Where are most factories in China?
Most are concentrated in two coastal regions. The Pearl River Delta around Shenzhen, Guangzhou and Dongguan, and the Yangtze River Delta around Shanghai, Suzhou and Hangzhou. In the Asiabits robotics database, these two regions hold two thirds of China's 2,217 robotics companies.
Can you visit factories in China?
Yes. Many Chinese manufacturers welcome serious buyers, especially when the visit is arranged in advance and someone on your side speaks Chinese. Asiabits organizes factory and robotics company visits for leadership teams in Shenzhen, Shanghai, Suzhou and Hangzhou.
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