China's factories are in another world
Bullets:
China's industrial proficiency is shocking to manufacturing experts. Their degrees of automation, of engineering expertise, and supply chain domination have no close peer across other modern economies.
China's latest innovation is "dark factories", massive production centers that produce complex products with no humans involved. In an absurd example, a Chinese factory in Guangdong builds robots, exclusively by other robots.
Also astonishing is these factories' capability to manufacture highly customized product lines, fast, and at low minimum order quantities.
Chinese smart manufacturing is likely the largest in the world, today. It is growing at a CAGR of over 18%, and will more than double in size by 2030.
Deep challenges remain for other economies to challenge China in smart manufacturing. Chinese Artificial Intelligence systems are already in place, cost little, and its engineers are strongly proficient in their applications. Chinese electricity costs far less than peer countries. And, here again, China's monopolistic control over the global raw materials and logistics chains is probably an insurmountable hurdle for North America, Europe, and other Asian countries.
Report:
Good morning.
There is an old joke, about the factory of the future. The modern factory will be staffed by a machine, one man, and a dog. The machine runs the factory. The man feeds the dog. And the dog is trained to attack the man if he tries to touch the machine.
China is already there. Here is news from Xiaomi. Xiaomi is a manufacturer of smartphones, and they’ve opened a smart factory that will produce a smart phone every second—that’s over 30 million phones a year—with no people. This is what’s known as a “dark factory.” It’s a $330 million plant.
This is the press announcement from Xiaomi, which will use this factory to produce their Fold 4 and MIX Flip phones. There’s a big dog in that place somewhere.
And here is an announcement that sounds like the script for the Terminator. China’s got a factory of robots building other robots. One every 30 minutes, 30,000 per year. The supply chain is right there in Shunde, in Guangdong province. Over 80% of the products to build those robots come from nearby suppliers. Production costs have been cut by a third and delivery times cut by 75%--from months to weeks.
The level of automation in China’s industrial sector needs to be seen to be believed. I visited a factory two months ago. Our US company, Direct Equipment, is looking hard at having Chinese factories build houses here, that we’ll ship over and have our crews erect, on site. Low-cost quality housing is a serious problem in North America, and our property developers are busy building homes at $300,000 and up so nobody bothers to make them for less. It’s an opportunity cost problem there. New houses are snapped up at $400,000, so why should developers bother with homebuilding for buyers with a budget of only $150,000? So we are trying to solve that by having Chinese factories build most of the house here, and shipping it over.
There’s a factory in Shangqiu, in Henan province. This factory builds high-end recreational vehicles for the Australian market, campers, and what are called “capsule houses” and other small modular housing units for luxury resorts and hotel properties in Asia. I called Jon, my partner in the US, the night before my visit to this factory. I told him it was probably a waste of my time. I was very skeptical that a factory of that kind could build houses for the United States, because the production process must be different, and we need larger houses anyway, and built to US residential housing codes. There is variability in those codes, from region to region: a home built for a coastal area needs to have high tolerances for flooding and wind. A house in Northern climates would need a roof that supports snow loads. And so on.
But this factory visit was arranged by a friend of mine and so I agreed to go out of politeness, even though my expectations were low. I spent the day there with their teams and took a tour of their plant, and went back to my hotel, and called Jon again, and said, forget everything I said yesterday. Pretty sure now these guys can do whatever we want, that if we just give them EXACTLY what we need on your side, the Shangqiu people will get the machines set up, press a button, and 6 hours later our house is ready.
On the supply chain side, everything they need is right there, locally, within 50 miles of their main plant. Now that sounds a lot like how Just-In-Time (JIT) manufacturing processes work, the same system that Toyota built to blow up Detroit. But here it’s with a far higher degree of manufacturing efficiency, because of the AI systems they use to speed up all the planning and design and in the manufacturing itself. Also, Just In Time requires a highly standardized bill of materials, and huge volumes of production with only minor variations product-by-product, like color, for example.
JIT cannot work if there is customization involved. But these Chinese factories are different. A Toyota plant running a Just-in-time system that builds Camry’s are making a thousand Camry’s today. And tomorrow. The Camry is the only model that particular Toyota plant will build. But these Chinese factories can do different sizes and layouts, no problem, at low order quantities.
The whole process is amazing, and also unsettling to watch. Just a handful of engineers – fewer than ten -- can take our specs, huddle around their table for a few days to get the conversions exactly right, then turn on their giant machines and build houses for Direct Equipment today, and tomorrow can build RV’s for Australia, and luxury hotel rooms for Japan the next day. And I’ll tell you, I have a lot of days like that, I’ve been here 13 years and I’m still shocked at what I see sometimes. It’s beyond belief, and we don’t know what to make of it.
And that’s what this report here is trying to make sense of too. This whole thing is awesome, it’s not paywalled, and their analysis here is similar to the reports we put together. They did a really comprehensive job, and we’ll be using it as a source for other pieces later.
Its focus is China’s robotics industry, and this section here involves Chinese smart factories. It’s not just robots to help humans carry stuff around or stock shelves, it’s getting the machines to do literally everything. This level of automation doesn’t exist at all in North America or Europe.
“This is not a statement that the United States is losing—it’s to demonstrate an absurd difference in manufacturing proficiency.” We are long past the days of China competing on the basis of low-cost labor. It’s now total domination of supply chain, of engineering, an industrial sector that builds machines that build other products entirely on their own.
This is happening across many industry sectors and product lines. The most extreme example is Dark Factories, which is just what they sound like. No lights, no people. They’re fully automated, powered by AI, and robots and sensors that do literally everything. Assembly, inspection, moving everything around—all by robotics. Not having people means energy savings—light, air conditioning, heat, all the activities that support people, like food preparation and parking and security and everything else—they go away.
The downside of building factories that don’t need people is obvious, what to do with the people who you once needed to do all those things before? So it’s going to be a problem there for over 10 million Chinese manufacturing workers now, getting them retrained to do something else.
But policy planners in China may see that as a rounding error, given a population of over a billion people and the new markets that are created by products coming out of their smart factories, like houses for North America, for example. And insiders with a strong understanding of what’s going on in China’s industrial sector estimate that China is probably already the world leader in smart manufacturing, but certainly will be in five years. Smart manufacturing in China is growing at a compound rate of over 18% per year.
And the report goes deeply into what this means for the United States, and for other manufacturing centers across the world. This is a major peeve of mine, that we tend to compare China and the United States with absolute dollar figures, instead of comparing what a dollar buys. China can staff an engineering department faster and far less expensively than any company in California, say, or Germany. Nevertheless, the growth rates are 18% in China, compared to 13% in the US. 18% compounded growth for the industry means that it will double here every four years. 13% growth in the US means a doubling every five and a half years. So no matter where things stand now, it’s just a matter of time.
China’s artificial intelligence models cost just a fraction of what our AI vendors charge. But the elephant in the room is the supply chains, again. Cheap AI would be great, and it would be great if electricity prices were the same back home as here, and it would be terrific if zoning regulators could get out of the way and allow us to build things at home again.
But smart factories need raw materials to feed into the machines, and China has them. “The United States is striving to reshore manufacturing, and we will struggle to replace the supply chain in China.” India and other countries in Asia have the same problem—they also want to be factories to the world, but all the world’s supply chains run through here.
Resources and Links:
Cost of Electricity by Country 2025
https://worldpopulationreview.com/country-rankings/cost-of-electricity-by-country
America Is Missing The New Labor Economy – Robotics Part 1
https://semianalysis.com/2025/03/11/america-is-missing-the-new-labor-economy-robotics-part-1
Xiaomi’s new «smart» factory will operate 24/7 without people and produce 60 smartphones per minute
Robots Build Robots at Kuka's Guangdong Facility, Producing One Every Half Hour
https://www.yicaiglobal.com/news/robots-build-robots-at-kukas-guangdong-facility-producing-one-every-half-hour
China will lead the world in smart manufacturing by 2030, report says
China Smart Manufacturing Market Size & Outlook, 2023-2030
https://www.grandviewresearch.com/horizon/outlook/smart-manufacturing-market/china
China enters new era of ‘Dark Factories’ with no lights, no workers
https://www.texspacetoday.com/china-enters-new-era-of-dark-factories-with-no-lights-no-workers/
U.S. Home Prices Continue To Climb
https://www.statista.com/chart/32922/median-home-sales-price-in-the-us-per-month/
I am skeptical of this. “Lights out” implies components and equipment never break, parts from suppliers are always within spec. As an engineer who spent 20 years of his life on an automotive factory floor this sounds unbelievable.
Thank you!