Why China Is Still Your Largest Long-Term Supply Chain Risk

Article Highlights:

• The scale of China’s manufacturing infrastructure also drives many of its advantages, creating a vast ecosystem that individual suppliers all benefit from. 
• Over the course of two decades as the “world’s factory,” China has matured into a unique landscape for sophisticated supply chain clusters across various industries. Whether it’s the electronics manufacturing clusters in Shenzhen and Dongguan and Shanghai, Suzhou, and Wuxi, or the textile manufacturing cluster in Guangdong and Fujian, Chinese suppliers are able to draw on geographical proximity to establish highly efficient production processes across multiple manufacturing stages.
• Despite these clear manufacturing advantages, many companies are growing more cautious about sourcing from China. This is because, hard as it may be to fathom, the country now poses what is arguably an equal number of supply chain disadvantages.

Following U.S. President Donald Trump’s visit to China in May 2026, a flurry of potential changes to the trading relationship between the U.S. and China were announced. While many of the specifics surrounding these new diplomatic developments have yet to be fully communicated or formalized, they appear to cover everything from rare earths access to AI export controls to tariff de-escalation. 

But nothing coming out of President Trump’s recent diplomatic visit to China has meaningfully altered the nation’s status as a major threat to global supply chains. And as geopolitical risks stemming from the country expand beyond the U.S. and cascade across manufacturing centers in Europe and Southeast Asia, it’s worth evaluating the current status quo. Despite the myriad supply chain hazards it carries, businesses all over the world continue to utilize China as a manufacturing hub. Let’s take stock of the ways that China’s risk profile has evolved over the past few years. 

China Maintains a Manufacturing Advantage in 2026

China is either the first or second largest economy in the world, depending on the form of measurement. Regardless of the ranking, however, what’s much less disputable is China’s position as a global manufacturing powerhouse. In addition to the renowned cost benefits, or “China price,” that’s so difficult for foreign suppliers to compete with, Chinese manufacturers are known for an unrelenting pace and a consistent output. The scale of China’s manufacturing infrastructure also drives many of its advantages, creating a vast ecosystem that individual suppliers all benefit from. Below, we outline some of the more prominent advantages that China continues to offer as a manufacturing fulcrum for original equipment manufacturers (OEMs) all over the world. 

Manufacturing Speed

Due to both the size of its own domestic economy and decades of growth supporting the rest of the world, Chinese manufacturers have become highly proficient at optimizing production lines to turn out as many goods as possible. Many businesses benefit from the tighter feedback loops, faster product iterations, and more efficient product launch cycles enabled by Chinese suppliers. 

The speed at which Chinese manufacturers produce goods is also driven by the economies of scale that have been realized in the country over the past few decades, which will be discussed in a later section. One example of the incredible speed of Chinese manufacturers is the electric vehicle (EV) industry in the country. Companies like Xiaomi can produce one EV every 76 seconds—a level of efficiency and productivity that’s largely unmatched throughout the rest of the world. 

But Chinese manufacturers are also faster when it comes to larger, more challenging projects that require design, engineering, and ingenuity: Chinese automakers can develop new car models in as little as 18 months—in contrast to the three-to-five-year cycles it often takes for established automakers in other nations.

Supply Chain Clusters

Over the course of two decades as the “world’s factory,” China has matured into a unique landscape for sophisticated supply chain clusters across various industries. Whether it’s the electronics manufacturing clusters in Shenzhen and Dongguan and Shanghai, Suzhou, and Wuxi, or the textile manufacturing cluster in Guangdong and Fujian, Chinese suppliers are able to draw on geographical proximity to establish highly efficient production processes across multiple manufacturing stages.

When supply chains are spread out across the globe, suppliers often need to wait weeks to receive the right materials from sub-tier manufacturers and extraction firms. Companies in these Chinese clusters, on the other hand, can integrate materials from nearby sub-tier suppliers, creating finished goods in a matter of days. In addition, these clusters help to facilitate more rapid prototyping, helping companies to quickly actualize their designs when developing new products.

These manufacturing clusters can save customers days and sometimes even weeks of production time, shrinking lead times and getting products to warehouses and stores faster.

These manufacturing clusters can save customers days and sometimes even weeks of production time, shrinking lead times and getting products to warehouses and stores faster.

Economies of Scale

Relative to their global competitors, Chinese suppliers also benefit from economies of scale. Because relatively large quantities of goods are already produced to support China’s substantial domestic market, many companies have the infrastructure and expertise to effectively produce high volumes of parts and products, leading to better quality control and lower costs. 

To cite one recent example, Chinese companies shipped around 71 million smartphones in the first quarter of 2025, while American companies shipped 120 million smartphones during the entire year. China’s manufacturers, manufacturing clusters, and production ecosystems are now accustomed to turning out quantities of products at a scale that few if any other countries can reliably compete with. 

Another powerful example of Chinese production volume appears in the beer industry. Chinese brands Snow Beer and Tsingtao Beer appear as the top two brands by volume in the world, despite both being primarily marketed and sold almost exclusively in mainland China. Whether it’s a car, a smartphone, or a keg of beer, China’s economies of scale can offer OEMs a level of speed, efficiency, and cost-effectiveness that’s hard to find elsewhere.

But the Risks of Sourcing From China Are Multiplying 

Despite these clear manufacturing advantages, many companies are growing more cautious about sourcing from China. This is because, hard as it may be to fathom, the country now poses what is arguably an equal number of supply chain disadvantages. To be clear, China’s risk profile has evolved substantially over the past two decades. Gone are the days where language barriers and cultural issues posed barriers to successful sourcing. And issues like foreign investment, poor logistics networks, and high import tariffs on goods entering China have largely been resolved or greatly improved. 

But while these longstanding risks have grown less disruptive in recent years, several new threats have emerged to take their place. Some of these newer risks are more complicated and dangerous than those that preceded them, too, justifying strong caution from any business considering adding Chinese suppliers and sites to their supply chains.

Unpredictable Geopolitics

While not directly applicable to all countries worldwide in the same way, the fast-changing and often unpredictable nature of China’s geopolitics can mean that on-the-ground realities around sourcing goods from the country can change virtually overnight. Today’s geopolitical risks posed by China often manifest themselves as high tariffs, export controls, supply chain disruptions, and reputational risks. 

Moreover, while the geopolitical relationship between China and the U.S. may capture the most headlines, many smaller countries have their own tensions with China—strains that can trigger their own supply chain disruptions. For example, China’s ongoing territorial dispute with the Philippines could eventually impact trade flows between the two nations if the conflict were to escalate. Given the depth of the supply chain ties between China and the Philippines, this could reverberate across global manufacturing networks, setting off disruptions for businesses that source from either China or its smaller South Asian maritime neighbor.

The geopolitical risks associated with China can be mitigated by good multisourcing practices, as well as thorough contracts that clearly designate responsibility during crisis scenarios. The reality, however, is that every company must carefully evaluate the geopolitical risks introduced by Chinese suppliers for themselves, regardless of their industry or the specific goods they’re sourcing.

Mineral Risks

Since the latter days of the COVID-19 pandemic, China has transformed the way it approaches the critical minerals and rare earth elements (REE) mined and refined in the country. 

First instituted on a limited scope for antimony, gallium, and germanium, China’s mineral export controls have since expanded to cover most rare-earth minerals, as well as associated products that contain these minerals. While some of the most severe export controls have been suspended thanks to a trade agreement between the U.S. and China, the threat across many supply chains remains. Since 2024, a number of companies have reported disruptions stemming from China’s various export restrictions. 

Unlike manufacturing, however, there are currently few alternatives for businesses sourcing critical minerals and REEs from China: the country controls up to 99% of mining and/or processing for some minerals. To mitigate the risks associated with sourcing these materials from China, some organizations are assessing ways to design new, alternative products that do not rely on minerals and rare earths. But this is a long, arduous path, one that requires extensive experimentation and redesigns. In the meantime, innumerable businesses all over the world have to accept the reality that their supply chains depend on China at the raw material level and thus are highly vulnerable to the country’s recent history of geopolitically motivated export controls. 

To mitigate the risks associated with sourcing these materials from China, some organizations are assessing ways to design new, alternative products that do not rely on minerals and rare earths. But this is a long, arduous path, one that requires extensive experimentation and re-designs.

Cost Increases

While China has had a longstanding reputation as a cost-effective manufacturing hub, production costs in the country have steadily risen over the last twenty years. These increases have compelled companies operating in industries like apparel, footwear, toys, and furniture to relocate their manufacturing to lower-cost nations. 

In addition, Chinese manufacturers have had little choice but to pass on the recent increases in raw material costs to their global customers. And the country’s labor costs have tripled over the past quarter-century. For many low-margin industries that rely on large amounts of manual labor, the factory costs in neighboring countries are now sometimes half of those found in China. This price disparity remains a compelling dynamic to follow—especially given the fact that plenty of Chinese companies are setting up their own manufacturing bases in those other nations. 

This all adds up to a manufacturing nation that’s not nearly as cheap as it was when globalization was first ascending in the 1990s and early 2000s. 

Drill Down on All Your Chinese Suppliers With SCRM Tool Z2

For companies trying to evaluate the risks of utilizing China for either manufacturing or input materials, monitoring suppliers’ overall risk profile is critical. Supply chain risk management (SCRM) platform Z2 offers a tool that provides actionable insights for manufacturers across production networks. Whether it's identifying potential risky sub-tier suppliers deep in your supply chain, monitoring suppliers for financial red flags, or receiving alerts on real-time events that impact key manufacturing sites, Z2 provides a 360-degree view of all the threats that could be impacting your supply chain. 

Z2’s supplier risk tool includes a geopolitical risk score that evaluates how exposed a company is to Chinese manufacturing sites and suppliers. This datapoint could be combined with other Z2 intelligence and your own supplier data—such as on-time delivery, quality, and other metrics—to create a custom supplier risk score. Managing suppliers is tedious work, and it often leaves few opportunities for higher-level risk analysis. But with Z2 leveraging its databases and expertise to carry out that analysis, companies can focus their attention on the largest risks, confident that Z2 will alert them when critical issues materialize. 

To learn more about Z2’s supplier risk intelligence, schedule a free trial with one of our product experts.