China’s manufacturing sector, a long-standing cornerstone of global production, has evolved into a sophisticated, innovation-driven ecosystem. As the country recalibrates its industrial policies and invests in next-generation technologies, businesses seeking to establish a manufacturing presence must navigate a dynamic landscape shaped by both opportunity and complexity. Offering a practical, strategic lens on these realities, Ting Zhang, Founder & CEO of Crayfish.io, recently addressed a Flanders-China Chamber of Commerce webinar. Her presentation distilled key insights on successfully launching operations in China today—from understanding local ecosystems and regulatory shifts to executing on-the-ground implementation with precision and foresight. Here’s the wrap-up.

The Evolving Landscape of China’s Manufacturing Prowess

China’s manufacturing prowess is, quite simply, undeniable. It has held the title of the world’s industrial powerhouse for an astonishing 15 consecutive years, with its industrial output topping global rankings. Last year, this figure reached a massive 40 trillion RMB, which is equivalent to approximately 4 trillion Euros.

Just look at the data my colleagues compiled, based on a CCTV report: VR equipment, Electric Vehicles (EVs), and EV charging equipment saw the highest growth last year. This isn’t surprising at all; you see daily news about the booming Chinese EV industry.

It’s interesting to consider the historical context. China hasn’t always held this manufacturing advantage. While China boasts the well-known Four Great Inventions—the compass, gunpowder, papermaking, and printing—dating back to the Han dynasty (around 100 AD) and the Song dynasty (before 1000 AD, stretching to the 13th and 14th centuries), it lost its manufacturing edge when the West initiated the Industrial Revolution, spearheaded by Britain. As a result, China faced a very backwards 19th century in terms of manufacturing.

However, over the last four decades, China has managed to catch up remarkably quickly. Now, it has not only drawn even with Western countries but has also exceeded them in many areas in terms of scale and capacity. This achievement is no mere coincidence. This rapid advancement wasn’t accidental; it was a deliberate outcome of the Chinese government’s long-term strategy to bolster its manufacturing sector. A key part of this strategy is the Made in China 2025 initiative, launched in 2015 under Xi Jinping’s leadership. The results, as we can see, have been incredibly encouraging.

Today, China’s manufacturing sector continues to lead the world, particularly in high-tech industries. This sector remains crucial for the country’s economic growth, employment generation, technological development, and global competitiveness.

New Policies and Strategies in 2023: The Dawn of “New Productive Forces”

In 2023, the Chinese government introduced new policies and strategies specifically designed to diversify China’s manufacturing base. The shift is away from traditional industries like toys and clothing towards smart, high-end, and green manufacturing.

A significant term you absolutely must be familiar with is “new productive forces” (in Chinese: 新质生产力 – xīn zhì shēngchǎnlì). Coined by Xi Jinping a couple of years ago, this slogan outlines China’s ambitious aim to transition to a new economic model driven by innovation, especially in advanced sectors. The goal is for China to lead the development of strategic emerging industries and future industries. This includes a strong embrace of technologies like AI, IoT, robotics, and, very importantly, green technology.

The Rise of Green Factories

Across China, there’s a strong push for green factories. While I won’t delve into all the intricate details, this initiative fundamentally focuses on:

• Reduced use of toxic materials.
• Increased recycling efforts.
• A decisive shift towards low-carbon energy sources.

Companies that meet these stringent standards receive a national-level green factory certificate or badge. Currently, there are 6,500 such factories in China, representing about 20% of the country’s total manufacturing capacity. This is a significant indicator of the direction of travel.

Designated Manufacturing Clusters: Beyond the Coast

Looking to the future, the Chinese government has designated numerous manufacturing clusters. These are not just the well-known hubs like Shanghai, Shenzhen, Beijing, or the Pearl River Delta and the Greater Bay Area. These clusters now extend to many Western, Central, and Northeastern provinces. 

This initiative directly reflects the Chinese government’s continuous drive to balance regional development across the country. While coastal regions still hold a significant concentration of manufacturing, particularly around the Tianjin and Beijing areas, there’s an increasing spread towards the West and central parts of the country. There isn’t “another China” in terms of scale and infrastructure globally.

However, in the wake of ongoing global supply chain disruptions, tariff wars, and geopolitical pressures, Western companies are rethinking their over-reliance on Chinese manufacturing as a sustainable long-term strategy. Consequently, some well-known foreign companies have already begun to shift production out of China. For example, Volvo has shifted some production to Belgium, and Signify has moved production to other emerging economies.

These decisions are primarily driven by geopolitical uncertainties and, in some cases, intense local competition (for example, within the EV sector itself). It’s important to note that while companies like HP have moved a significant amount of production out of China, they officially maintain a strong commitment to the country and still operate numerous factories there. These shifts are often part of a broader diversification strategy to ensure the company’s sustainability on a global scale.

The key takeaway here is that companies heavily reliant on Chinese manufacturing should consider diversifying their production locations. Despite these shifts, many foreign companies, including European ones, continue to invest significantly in China. As Gwen mentioned, European investment in China is now at a similar level to Chinese investment in Europe. This continued investment is particularly evident in sectors like pharmaceuticals, electronics, and EVs.

Given that Chinese EV production now leads the world, many Western companies are leveraging this to reduce costs and stay close to the market, thereby maintaining their competitiveness.

Case Study: Setting Up a Manufacturing Plant in China – A Real-World Blueprint

A real case is shared to illustrate the practicalities of setting up your own factory or manufacturing operation in China –  a work plan Crayfish.io developed for one of our clients, which is actually nearing completion of its six-month period as this goes live online. This client already had a sales office in China when they approached us for help in setting up their manufacturing plant.

Initial Evaluation and Strategic Decisions

The first critical decision they faced was whether to expand their existing sales entity into a manufacturing entity within the same city or establish a completely new factory in a different location. After our evaluation, they opted for the latter.

Another key consideration was whether to pursue subcontracting or establish their own manufacturing facility. These are typical steps you need to consider when planning manufacturing in China. While outsourcing might seem more cost-effective, having your own manufacturing facility could better suit your strategic goals.

In this specific case, our client’s product is high-quality but low-volume. They found it incredibly challenging to find manufacturers qualified to produce the required quality at their desired volume. Therefore, it made much more sense for them to set up a small assembly operation that could meet their precise needs.

Reasons for Localised Production

The primary reason for a company’s move into manufacturing in China is normally the country’s strategic importance to their business. This UK tech company currently generates about 30% of its revenue from China, but previously, China accounted for 50% of their revenue, so they want to grow their sales in China by another 10% in the next couple of years.

To achieve this ambitious growth, some of their products needed to be accepted in China at local pricing points. The only viable way to accomplish this was by localising manufacturing for those particular models. Higher-end models could continue to be manufactured in the UK. This localisation extended to the supply chain as well, seeking local components.

The Work Plan: Planning and Execution – A Six-Month Sprint

Our work plan broadly encompassed two phases:

1. Planning: This involved comprehensive evaluation and decision-making.
2. Execution: This covered the practical steps of setting up the entity, hiring personnel, and preparing the site.

Alongside these steps, a cultural workshop was conducted for the client’s entire China product and project team (around 15 individuals) covering manufacturing, materials, supply chain, and production. The aim was profoundly practical: to help the team better understand how to effectively communicate with their Chinese colleagues and counterparts and, crucially, how to better protect their intellectual property (IP).

Choosing the Right Location in China: A Calculated Search

Given the vastness of China and the numerous cities that claim manufacturing capabilities, selecting the right location is absolutely crucial. While there are established manufacturing clusters, you’ll often find multiple cities that could potentially meet your requirements.

We undertake a detailed exercise, shortlisting several cities and evaluating them based on:

• Economic Profile: This includes assessing industry alignment to ensure the city truly supports your specific manufacturing needs.
• Local Supply Chain: Proximity to your supply chain is incredibly important for manufacturers, minimising logistics headaches and costs.
• Logistics: Especially if some of your products will be exported outside China, for example, to India and ASEAN countries. (For this particular client, the goal isn’t to export back to the UK, Europe, or the US, as their UK manufacturing already serves those markets well. Their focus is squarely on China and the broader Asia, Southeast Asia, and ASEAN regions.)
• Operational Expenditure (OpEx): This includes looking at salaries for different employee levels. For instance, Dongguan generally offers significantly lower overall costs for both workers and managers compared to first-tier cities. It’s vital to remember that in China, social insurance and welfare costs are substantial add-ons, so you must factor in the full figures, not just base salaries.

Once a city is chosen, the next step is to evaluate the various industrial zones within that city, as they often compete fiercely for investment. You’ll need to shortlist zones and then assess their:

• Logistics infrastructure.
• Overall feel of the industrial park – is it vibrant or still largely empty?
• Types of neighbouring businesses – are they complementary or unrelated?

When choosing a factory space, if you have heavy, weight-bearing equipment, you’ll generally want a ground-floor location. However, the Chinese government is now actively promoting a concept called “manufacturing goes upstairs.” This initiative encourages light manufacturing to operate on higher floors. You can often find better rental costs on, for example, the 4th or 5th floor. We’ve seen facilities designed specifically for manufacturing on these upper levels, complete with very wide lifts (e.g., 3 meters wide) to accommodate equipment. Renting upstairs is significantly cheaper, and it offers more choices as ground-floor spaces are always in high demand.

A crucial piece of advice: don’t just rely on presentations. We attended several presentations for various industrial parks that looked amazing, with grand visions of future manufacturing hubs designated by the government. However, when we visited these sites, most were still empty. If you were to move in, you’d likely be one of the only factories operating in a quite undeveloped area in terms of amenities. While this might be suitable for a very large operation or a five-year strategic plan, if you’re looking for a small factory, it’s far better to opt for more established industrial parks. This is precisely what we chose for this particular client.
Building Local Government Relationships (Guanxi): Elon Musk’s Playbook

It’s widely known that building Guanxi (关系) – strong relationships and connections – with the local government is incredibly important in China. My advice is to establish this relationship right at the beginning of your project, not after your factory is already set up and operational.

You’ve likely heard of Elon Musk’s success in building government relationships in China.. For instance, his strong connection with the then-Shanghai Party Secretary (now China’s Premier Li Qiang) was instrumental in Tesla’s ability to build its Shanghai Gigafactory in less than a year, even amidst challenging COVID-19 lockdowns. This would simply not have been possible without massive support from the Shanghai government, including funding and policy backing.

For a smaller manufacturer, however, you might not choose a city like Shanghai, as it’s now very costly, and securing government attention requires a very large scale and advanced operation. Instead, consider a smaller city, like Dongguan. Most Chinese cities are eager for foreign investment, especially in manufacturing, as it significantly boosts employment for manufacturing workers.

In our client’s case in Dongguan, we leveraged our network to get the mayor’s office involved early on. The local government officials were incredibly responsive, almost 24/7. When our client’s CEO visited Dongguan to view the sites, the mayor even took time out of his very busy weekend schedule to treat us to lunch, emphasising the importance of manufacturing to Dongguan city and his government’s strong commitment to support it. The factory is scheduled to open in early autumn, when the mayor and local government will be present. This kind of personal engagement and visible support is invaluable for getting a new China operation up and running smoothly.

Assembling the Right Team: Speed and Strategy

No matter how impressive the facility, the most crucial element is the people and the team. How do you ensure you get the right people from the very beginning, especially when you’re aiming for a very short timeframe, like our client’s six-month plan, to get operations running?

We actually started the hiring process even before the official incorporation process began. Following our six-month plan, we allocated three months for hiring the most critical initial hire: the factory manager. We started this process in March, and by May, the person was in place, ready to begin preparing the manufacturing site and working with the industrial park to get everything ready for production.

There are various channels available in China for sourcing personnel. For senior-level managers and directors, platforms like BOSS Zhipin (Boss直聘) are commonly used. For workers, local job centres and other specific channels are more effective. It’s crucial to act quickly once you identify a suitable candidate, especially for senior roles. Top talent doesn’t remain available for long. In our client’s case, they were able to verbally express their intent to hire the best candidate within two days and extended a full formal offer within a week.

While China is currently facing a significant youth employment problem, this typically pertains to recent university graduates or unskilled workers. At the senior level, the supply of qualified candidates is much tighter, making quick action even more important.

It’s also worth noting that Chinese labour contracts have specific regulations regarding probation periods. For example, if your contract is for one month, your probation period can only be one month. For a contract between one and three year, you can have a two-month probation. Understanding these specific details is vital to avoid future legal headaches.

Finally, training and cultural integration are key. Bringing key staff to the UK or Europe for training is highly recommended. This not only prepares them thoroughly for their roles but also helps them immerse themselves in your company’s culture from the outset, building stronger bonds and understanding.

Further reading:

The EV market in China and the UK: trends and opportunities – Crayfish.io

Supply Chain related eService – Crayfish.io

Licensing and Compliance: The Non-Negotiables

While the typical business license application process applies, it’s crucial for a manufacturing business to specify all potential product parts you intend to manufacture. These must all be explicitly listed on your business license. If an item isn’t on this list, you cannot manufacture it without undergoing a lengthy, separate amendment process. Therefore, think through all manufacturing possibilities and include them in your initial application to get them approved from the beginning. It saves immense time and frustration later.

Regarding the timeframe for this process, while it might appear to take only about two months, the preparation of documents by the parent company (your headquarters) is often severely underestimated. Chinese local registration authorities are incredibly thorough in their compliance checks. Even minor non-compliance or discrepancies can lead to rejection or significantly prolong the application process. Patience and precision are paramount.

We strongly advise seeking preliminary consultation to understand the tax implications, especially concerning your supply chain. For instance, exploring the use of bonded warehouses can be crucial for optimising logistical flow and potentially securing tax advantages, avoiding the need to re-export and re-import for certain tax benefits. Planning this in advance is critical because correcting errors later can be very, very costly.

Conclusion

Establishing a manufacturing presence in China today demands a clear-eyed understanding of its rapidly evolving landscape. As Ting Zhang highlighted, success hinges on a combination of strategic foresight and meticulous execution. From aligning with China’s “new productive forces” and green manufacturing initiatives to navigating the complexities of site selection, fostering critical government relationships, and building a high-performing local team, every step is vital. While challenges like supply chain diversification and stringent compliance remain, China continues to offer unparalleled opportunities for businesses that approach the market with a well-planned, adaptable, and locally informed strategy.