This article is republished from アジア財経観察
By Wan Ge in Tokyo
In the first half of 2026, a trend many had regarded as “irreversible” began to reverse.
According to data from China’s General Administration of Customs, the country’s total trade in goods reached RMB25.47 trillion in the first half of the year, up 16.9% year on year. Exports amounted to RMB14.73 trillion, an increase of 13.4%.
More significant, however, is the structural return of manufacturing orders. What is coming back is not low-end production capacity, but orders that are more complex, higher in value and more demanding in terms of delivery times. The “safe-haven” advantage once enjoyed by Vietnam and other alternative manufacturing locations is beginning to fade.
This is not simply a matter of orders “moving back” to China. It reflects a new choice by global manufacturers after a harsh reassessment of costs, efficiency and supply-chain resilience.
The Return Is Not a Reversal, but a Correction
For much of the past decade, the outflow of manufacturing orders from China was widely regarded as a structural trend. Companies shifted part of their production capacity to Southeast Asia to avoid tariffs and diversify risk. In 2026, however, that logic is increasingly being corrected by economic reality.
The first change is the erosion of tariff advantages. An easing in China–US trade relations has narrowed the tariff gap between Chinese and Vietnamese exports to the United States. For electric fans, for example, the tariff differential between China and Vietnam has narrowed from 14.7 percentage points to 4.7 points. Combined with US Section 301 investigations into Vietnam, a 40% tariff on transshipped goods and a 46% reciprocal tariff, the cost advantage of the triangular trade model has largely disappeared.
The second change is the fading of Vietnam’s cost advantage. The minimum monthly wage in Vietnam’s highest-wage Region I has reached VND5.31 million. Labour groups have also advocated changes to the minimum-wage system and a reduction of the standard working week to 40 hours. Labour costs in Vietnam have risen by between 10% and 15% since 2024, while land costs have also climbed sharply. One Hong Kong manufacturer said labour costs in Vietnam had risen by 20% this year and that recruiting workers had become increasingly difficult.
The broader calculation is becoming less favourable. Labour is only one component of total manufacturing costs. Once supply chains, logistics, efficiency and infrastructure are included, hidden expenses can easily eliminate the wage differential. Labour productivity among Vietnamese manufacturing workers is estimated at only 60% to 70% of the level in China. In consumer-electronics assembly, a production task that can be completed in 18 hours at a Chinese factory may take 32 hours in Vietnam.
This is not a question of one country “beating” another. It is a stress test for the global relocation of manufacturing. The result suggests that relocating production purely to lower costs cannot substitute for systemic efficiency.
Systemic Advantages: The Foundation That Makes Chinese Manufacturing Difficult to Replace
The deeper logic behind returning orders lies in the systemic advantages accumulated by Chinese manufacturing over several decades. No single factor can fully explain them.
One advantage is the geographic density of industrial clusters. Xidian, a town in Ninghai County, Zhejiang Province, has a permanent population of only tens of thousands, yet produces more than 60% of the world’s flashlights. LEDs, circuit boards, casings and battery compartments are all available locally, creating a closed-loop supply chain from upstream components to final assembly. As local manufacturers put it, “Turn left outside the factory and walk a few hundred metres, and you can find a supplier.”
This type of industrial clustering is extremely difficult to replicate in Southeast Asia. Hundreds of supporting suppliers cannot simply be moved overseas at once.
Another advantage is full-chain supply coverage. Factories in Vietnam may appear to manufacture finished products locally, but more than 60% of their components still need to be imported from China. LED chips, circuit boards, aluminium materials and switches used in flashlights, as well as fabrics, zippers and dyes used in garments, largely come from the Pearl River Delta and Yangtze River Delta.
Logistics from Shenzhen to Vietnam take more than three times as long as freight movements within the Pearl River Delta. More than half of the world’s printed circuit boards are manufactured in China. Bypassing China’s supply chain entirely is therefore close to impossible.
A third advantage is the generational gap in infrastructure. Eight of the world’s ten largest ports by cargo throughput are in China. Vietnam’s largest port in Ho Chi Minh City handles less than one-third of the volume processed by Shenzhen. In northern Vietnam’s major industrial zones, electricity shortages have long remained at around 30%, with power rationing continuing to affect production capacity.
A fourth advantage is the systemic combination of quality and efficiency. An executive at a company operating a factory in Mexico said it took three years for the Mexican plant to reach 60% of the productivity level that the company’s Chinese factory had already achieved three years earlier. During those same three years, the Chinese factory improved again.
As one industry participant put it: “Manufacturing systems elsewhere are still some distance behind China. We need to recognise the advantages we already have.”
This is not simply a price advantage. It is a system advantage—one created not by a single factory, but by an entire industrial ecosystem.
A New Division of Labour in Asian Manufacturing: From Substitution to Flexible Coexistence
The return of some orders does not mean China will “take back” Southeast Asia’s manufacturing industry.
An analysis by Hong Kong’s Wen Wei Po noted that some returning orders may be temporary. If a new low-tariff manufacturing location emerges in Southeast Asia, orders could move again. A more accurate description of the emerging trend is the rise of a flexible “China plus Southeast Asia” supply model.
The division of labour is becoming more layered. Simple processes and low-value-added orders are likely to remain in Southeast Asia, while large-volume, high-quality and time-sensitive orders are returning to China. Chinese factories are increasingly functioning as the “central brain” of global supply chains, taking responsibility for research and development, advanced manufacturing and the export of technical standards, while Southeast Asian factories serve as complementary and backup capacity.
The positioning of overseas factories is also changing. Many Chinese companies that have already established production in Southeast Asia are shifting the role of those plants from “export bases for the US market” towards facilities serving local and surrounding regional markets.
Global buyers, meanwhile, are moving away from a singular pursuit of the “lowest cost” and placing greater emphasis on overall efficiency and certainty.
The future is therefore not about which country replaces another. It is about which location takes responsibility for which layer of production.
This latest return of orders reveals a deeper logic in global supply chains: a single cost advantage can be replicated, but a system built on complete industrial chains, dense manufacturing clusters and highly efficient infrastructure cannot be reproduced in the short term.
In the first half of 2026, China’s exports rose by 13.4%. Exports of high-tech and high-value-added mechanical and electrical products increased by 17.6%, accounting for 63.5% of total exports. The structure of growth is changing, and so is China’s role in global industrial chains.
From the “world’s factory” to the central brain of the global supply chain—that is the real story behind the return of manufacturing orders.
It is not that China has taken orders away from someone else. Rather, after a comprehensive reassessment of costs and efficiency, global industrial capital is once again identifying the node in Asia’s manufacturing system that remains the hardest to replace.
That node happens to be China.
