This Export Achieved Contrarian Growth Exceeding 9%, China Transforms into "Factory of Factories"

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【Text / Observer Network 熊超然】In 2025, after U.S. President Trump launched a tariff war, trade between China and the U.S. was impacted. Recently, Fortune magazine pointed out that despite such unfavorable circumstances, China’s exports of intermediate products increased by over 9% last year.

On March 19, local time, Fortune magazine cited analysis by Jeongmin Seong, a partner at McKinsey Global Institute (MGI), who noted that although China-U.S. trade volume declined last year, China actively took measures to diversify its trading partners, mainly shifting toward emerging economies. Most of these new trading partners are manufacturing hubs with greater demand for cheap machinery and components from China, rather than expensive finished products.

The report describes China as increasingly becoming a “factory to the factories,” significantly increasing exports of industrial components such as smartphone parts, processors, memory chips, and lithium-ion batteries, which are mainly shipped to Southeast Asia and other economies for final assembly.

“Perhaps in the future, the ‘Made in China’ goods we buy will decrease, but more internal components of products will be manufactured in China,” Seong said.

In early 2026, on January 5th, in Handan, Hebei, at the start of the new year, enterprises in Yongnian District Industrial Park worked at full capacity, rushing to produce orders and striving for a good start to the year. IC Photo

At the beginning of 2026, amid ongoing global economic and trade shocks, China released its import and export data for the past year. Many people’s impression of China’s exports still focuses on the price advantage of terminal consumer goods. However, a deeper analysis shows that the resilience of exports is rooted in a fundamental shift in China’s role in the global industrial chain.

Ruo Zhi Heng, chief economist at Yuekai Securities Research Institute, analyzed that from January to October 2025, China’s exports of intermediate and capital goods increased by 9.7% and 6.0% year-on-year, respectively, cumulatively driving overall exports up by 5.6 percentage points. This indicates that the continuous expansion of intermediate and capital goods exports is the core driver of overall export growth.

Regarding regional changes in exports, from January to November 2025, China’s exports to Africa increased significantly by 26.3%, and to ASEAN by 14.6%. These increases mainly involved intermediate and capital goods.

According to a report titled “The Geopolitical and Global Trade Structure” by MGI, last year the U.S. also adjusted its trade partner structure, such as shifting to purchase smartphones from India and laptops from Southeast Asia.

Fortune magazine pointed out that the latest round of trade wars initiated by Trump could accelerate companies’ shift toward adopting the “China + 1” supply chain model.

“ASEAN has played the role of ‘matchmaker’ in the global supply chain, avoiding supply chain disruptions,” Seong added. “ASEAN’s export growth rate is about 14%, more than twice the global average.”

Notably, Southeast Asia has not only strengthened trade with China but also expanded trade with the U.S. Both ASEAN-China and ASEAN-U.S. trade volumes have increased. Data from MGI shows these two trade corridors are among the fastest-growing in the world.

The report states that despite concerns about the end of globalization after Trump’s imposition of the so-called “Liberation Day” tariffs last year, global trade did not truly decline.

Seong believes there is little evidence that countries are relocating manufacturing back home or to nearby countries. “Despite headlines about ‘reshoring,’ ‘nearshoring,’ and ‘onshoring,’ this phenomenon has not occurred globally,” he said. “More and more countries are building interconnectedness across long distances. In this sense, we can assert that globalization is still evolving.”

Conversely, the current trade landscape is being reshaped along the axis of geopolitical interests. Countries are increasing trade with allies and like-minded nations while reducing trade with perceived competitors or potential adversaries.

This trend is not limited to the U.S… As geopolitical tensions intensify, China is also expanding its trade with Southeast Asia, Europe, Latin America, and Africa.

Investment flows are similarly reconfigured along geopolitical lines. The U.S. is increasing investments in allied countries; at the same time, it actively attracts investments from Japan, South Korea, and the Middle East, especially in key sectors like semiconductors.

Meanwhile, China has become a net exporter of foreign investment, which is not only due to its expanding outward investment but also because U.S. investment in China has nearly dried up.

According to MGI, last year, the “geopolitical distance” of foreign direct investment dropped sharply by 13%, while in trade, this indicator decreased by only 7%. “Geopolitical distance” measures how closely aligned two countries are in diplomatic policies, political stances, and alliance relationships.

“Capital flows tend to be faster than the construction of physical networks,” Seong said. “Tariff barriers may come and go, but the deep structural shifts in ‘who trades and invests with whom’ are likely to persist long after the current trade war news fades.”

“Geopolitical events like tariffs may be short-term fluctuations, but the structural wave of geopolitical reorganization we are witnessing will continue,” he concluded.

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