Talk of global decoupling from China has persisted for years, as has speculation that emerging economies such as India and Vietnam could soon replace it as the “world’s factory”.

But for Indian hardware engineer Neeraj Arora, the growth of India’s electronics manufacturing industry has not eliminated the need to source components from China. Instead, it has changed the nature of those imports.

A decade ago, Arora imported finished phone chargers from the world’s second-largest economy. Today, more of these products can be made in India, even as manufacturers there still rely on Chinese parts for assembly.

“They don’t have a single industry; they have created an ecosystem,” said Arora, who has travelled repeatedly to Shenzhen, Dongguan and Guangzhou – southern China’s manufacturing hubs that offer a wide range of competitively priced parts, from power-switching transistors to charging chips.

Arora’s experience, together with broader economic data, illustrates the challenge facing countries seeking to diversify their supply chains: shifting production out of China does not necessarily mean reducing reliance on Chinese industry. A recent report by investment bank Morgan Stanley examined this pattern, arguing the country had strengthened its role in global supply chains despite trade tensions.

“China has continued to deepen its presence in global supply chains by capturing value-added content in global imports and increasing exports to [emerging markets],” the bank’s analysts, including chief Asia economist Chetan Ahya and chief China economist Robin Xing, wrote in the note, published earlier this month.

The world’s second-largest economy was “well-positioned” to deepen that presence, the analysts argued, citing its focus on high-growth sectors, integrated supply chains, a financial system aligned with strategic goals and a large pool of skilled workers.

The upstream advantage The challenge facing the likes of India and Vietnam is whether they can develop the industrial expertise and networks required to make more inputs at home. But a closer look at the data suggests that as manufacturing expands in these economies, Chinese supplies remain essential.

These developments indicate broader regional supply-chain integration, centred around ChinaMorgan Stanley analysts“While India has made significant headway in electronics manufacturing, it still imports a large part of its intermediate and capital goods from China,” the Morgan Stanley analysts wrote, noting that 52 per cent of India’s imported Chinese content went into domestic investments.

Looking beyond where products are finally assembled, they tracked “value-added content” – the value contributed by a country through the goods and services used along the chain. A product assembled in Vietnam, for instance, may still contain Chinese parts or rely on Chinese machinery.

Using this measure, the analysts found that China’s share of value-added content in global imports rose from 12.6 per cent in 2017 to 14.3 per cent in 2024. The report also found that Chinese inputs are playing a growing role in Asian economies often touted as manufacturing rivals.

In Vietnam, 55 per cent of imported Chinese content is channelled towards exports, according to the analysts. “We also find that Chinese value-added content has not just increased in the rest of Asia’s exports to the US, but also to non-US markets as well,” they wrote.

“Overall, these developments indicate broader regional supply-chain integration, centred around China.”Arora’s experience illustrates how difficult mainland China’s manufacturing ecosystem is to replace. Taiwan’s higher-end products, he said, were less suited to the low-cost goods his Indian customers needed while Vietnam offered fewer options. “Only China has that ecosystem,” he said.

Nevertheless, Arora said he believed India was making headway. He cited the expansion of home-grown electronics giant Dixon Technologies into television and phone assembly, as well as the growing ability of Indian firms to design and develop circuit boards and prototypes that once required trips to Shenzhen. Despite the progress, however, local manufacturers continue to rely on China’s extensive network of component suppliers.

Arora estimated that China had gained 20 to 25 years of electronics manufacturing experience, compared with India’s push that gathered pace only around 2015. He argued India could reach the current capabilities of the world’s second-largest economy within five to seven years, although he expected China to have moved further ahead by then.

New Delhi is also pushing to develop more of its inputs at home. The government’s Electronics Component Manufacturing Scheme, launched in 2025 and expanded to 400 billion rupees (US$4.2 billion) in the 2026-27 budget, supports local production of parts and partially assembled products. By August, 106 projects had been approved and 38 plants had begun production, according to the Indian government.

But the government also acknowledged that India remained dependent on imports for critical components, including printed circuit boards, camera and display modules, connectors and capacitors.

Vietnam is pursuing a similar goal of strengthening its domestic supplier base. A revised industrial policy that took effect in September 2025 provides support for technology transfer, training and certification, as well as programmes intended to help local companies supply multinational manufacturers.

The limits of Western decoupling For the United States and Europe, where the decoupling narrative has arguably been most pronounced, efforts to reduce dependence on China have transformed where products are sourced and how they reach their destinations. But the Morgan Stanley analysts found that lower direct imports from the world’s factory do not necessarily translate into less Chinese content in those goods.

They estimated that the US and EU together accounted for about 80 per cent of the increase in global reliance on Chinese value-added content. While China’s share of direct US imports plunged from 22 per cent in 2017 to about 8 per cent currently, the share of Chinese value-added content in US imports has remained broadly stable in recent years, standing at 15.4 per cent in 2024.

The analysts found that more US sectors had increased their reliance on China than reduced it, with only five of 13 manufacturing sectors recording a material decline in the share of Chinese value-added content in their imports since 2016.

“The US is still importing just as much value-added content from China, just not directly,” they wrote.

The report identified extensive re-routing of goods. About 25 per cent of Chinese content in US imports now reached the country indirectly through third economies, up 10 percentage points from 2017, according to the analysts. Nearly half of this indirect value passed through just three economies: Mexico, Taiwan and Vietnam, with the latter standing out for a much higher share of Chinese content in its exports to the US.

The analysts said the greater use of indirect channels, particularly from 2022 onwards, was “unique to US-China trade” and consistent with production moving to other countries to serve the American market while continuing to rely on Chinese inputs.

“We do not observe a similar shift towards indirect channels in imports of the rest of the world outside the US, nor for EU imports,” they said, estimating that the share of Chinese value-added content in Europe’s imports had edged up from 6.9 per cent in 2017 to 8.3 per cent in 2024.

Why China’s manufacturing machine endures The stubborn persistence of Chinese inputs in overseas supply chains reflects the country’s unrivalled strength across a wide range of industries.

The Morgan Stanley report found that China’s share of value-added content in global imports increased in 10 of 13 manufacturing sectors over the past decade, with gains in both lower-value-added industries such as textiles, leather and footwear and more technologically advanced sectors.

In 2024, for instance, China accounted for 33 per cent of the value-added content in global imports of electrical and optical equipment, 24 per cent in machinery and equipment and 10 per cent in transport equipment.

“These patterns are consistent with China retaining higher-value production processes even as final assembly moves elsewhere, while China continues to supply the equipment and inputs needed by new manufacturing hubs,” the analysts said.

Meanwhile, China’s exports surged 36.3 per cent year on year to US$447.18 billion last month, customs data showed on Wednesday. The momentum – driven by strong global tech demand and a pre-holiday shipping rush ahead of the “golden week” break – logged a monthly high for its trade surplus in 2026 and put the country on course for another record gap this year.

A separate report from Goldman Sachs last week examined China’s rising proportion of global exports. According to the bank’s analysis, that share increased from 4 per cent in 2000 to 15 per cent in 2025, outpacing the peaks previously reached by Germany in the 1970s and Japan in the 1980s.

“Our benchmarking exercise implies that robust real export growth [in China] can continue over the next few years,” the bank’s analysts said. “The runway is therefore clear for now – but eventually will depend on stronger economic growth in importing economies.”The Morgan Stanley report also highlighted emerging technologies as a potential source of further growth. “China is increasingly playing a critical role in global supply chains, not just in low-cost component supplies but also in high-end capital goods as well,” the analysts wrote.

“Our China team also believes China’s advantage in global manufacturing will be strengthened as it enters a new phase of industrial development in the form of ‘Industry 5.0’”, they added, referring to manufacturing enabled by artificial intelligence and robotics.

An earlier report by Morgan Stanley released in May argued humanoids and other robotics technologies could help China consolidate its dominance over global manufacturing, building on its decade-long expansion in electric vehicle manufacturing.

The bank’s analysts projected that China’s share of global exports would reach 16.5 per cent by 2030, up from about 15 per cent at the time of the report.

For countries pushing to become alternative manufacturing hubs, the findings suggest they would also need to develop the suppliers, expertise and networks that China has spent decades building. “Diversification is achievable, but decoupling will be challenging,” the analysts argued.