Millions of small firms, not state giants, form the backbone of China’s manufacturing

PARIS – China’s industrial dominance is driven by a massive, dense network of small businesses rather than the large, state-subsidized corporations often cited by Western observers.

By the end of 2023, the country recorded 4.1 million manufacturing firms employing approximately 105 million people. The vast majority of these—3.6 million companies—report annual revenues under 20 million yuan ($2.85 million).

These small-scale operations typically employ about 10 people and possess limited fixed assets. Another 18.4 million self-employed individuals support the sector's periphery, and most of these smaller entities receive no government subsidies.

Technological integration remains a challenge, with 58% of these firms currently at the lowest tier of "smart manufacturing" development. While this figure has improved significantly since 2019, only 17% of Chinese manufacturers have achieved advanced or integrated technological levels.

The findings suggest that trade measures, such as tariffs targeting major corporations, may be ineffective at dismantling China's entrenched industrial influence.

Western trade policies, characterized by aggressive tariffs targeting China’s massive State-Owned Enterprises (SOEs), are fundamentally misaligned with the reality of Chinese industrial power. While Washington and Brussels focus their sights on "national champions," the true engine of China’s manufacturing dominance is not a handful of state-backed giants, but a sprawling, hyper-resilient ecosystem of millions of Small and Medium Enterprises (SMEs).

This decentralized network functions as a highly adaptive organism, far more insulated from broad economic sanctions than the lumbering SOEs traditionally targeted by trade hawks. These smaller firms operate with a level of agility that allows them to pivot rapidly to market shifts while maintaining a lower dependency on direct state subsidies, making them an elusive target for conventional trade enforcement.

This dynamic carries profound implications for Vietnam, often touted as the primary winner of the "China Plus One" strategy. Current data suggests that China’s manufacturing base is significantly "stickier" than Western policymakers realize. While Vietnam has successfully captured final assembly lines, replicating the sheer density of China’s component and raw material suppliers remains an insurmountable hurdle in the near term.

Consequently, a significant portion of "Made in Vietnam" exports remains deeply tethered to Chinese upstream inputs. Rather than achieving true decoupling, Western trade barriers have largely succeeded in inserting an intermediary step in the supply chain, leaving China’s essential role in the global manufacturing architecture fundamentally intact.

For Vietnamese-American small business owners—particularly those in the retail and e-commerce sectors—this analysis suggests that the flow of affordable goods from China is unlikely to be derailed by tariffs. China’s vast network of small, agile manufacturers ensures that consumer products remain competitively priced. While many in the community may consider shifting their supply chains to Vietnam, the "home country" may not yet match China’s sheer variety, speed, or cost-effectiveness for small-batch shipments. For local importers looking to protect their profit margins, these sourcing dynamics remain a critical factor in staying competitive.