When Western firms pursued a boost in shareholder value by outsourcing manufacturing to lower production costs, it rewired global competition. In searching for higher profits, these firms hollowed out domestic manufacturing and helped create competitors in China that now compete with them directly. Today, Chinese brands are no longer catching up, they are setting the pace in cost control and expansion.
Take Labubu, the wide-eyed collectible plush toy as an example. In the past two years, Labubu has rapidly gained popularity in Europe and the United States, with some of its products in retail and secondary markets priced close to $100 or even more. China Labor Watch investigations show that Labubu’s production relies on an extremely low-cost labor model. At a factory in Jiangxi, roughly 4,500 workers produce about 180,000 toys per day, with the direct labor cost per toy at this facility amounting to less than $0.70.
More critically, the factory producing Labubu is operated by a parent company with vast experience in global supply chains, built through years of manufacturing for multinational toy brands. Labubu’s success draws on capabilities derived from Western branding and advertising practices over the past two decades. From visual design, IP development, marketing, and social media engagement, its competitiveness extends beyond cost. In addition, sustained pressure within China’s competitive domestic market has enhanced the firm’s capacity to adapt, iterate, and rapidly translate these capabilities into speed, scale, and market responsiveness.
By 2025, Labubu’s global sales had reached a scale of several hundred million units, sufficient to exert competitive pressure on established Western toy brands.
The manufacturing model behind Labubu is not fundamentally different from the sweatshop toy factories producing for Western brands that China Labor Watch has investigated over the past two decades. The working conditions in terms of labor intensity, working hours, and labor protection are worryingly similar. What has changed is not the system itself, but the function it serves: in the past, it primarily supported the profit growth of Western companies; today, it has enabled Chinese consumer brands to compete globally.
Within the toy industry, Western companies have begun shifting production out of China as tariffs rise and geopolitical risks intensify. Yet the management practices, quality control systems, and supply chain organisation developed through decades of outsourcing did not follow the factories that relocated. Instead, these capabilities were absorbed by Chinese companies who transformed it into their own competitive strengths.
Across other industries – sectors such as green energy vehicles, consumer electronics, and retail chains – Chinese firms are no longer confined to the role of contract manufacturers in global supply chains. Instead, after absorbing managerial and technical experience from multinational companies, they increasingly serve as formidable competitors to Western firms, not just as outsourced manufacturers but brand owners.
In China’s domestic market, the institutional environment has increasingly tilted competition in favor of local firms. At the same time, state policy and enforcement practices are shaping labor arrangements, providing Chinese companies with stable, long-term institutional backing in order to sustain cost and scale advantages in international markets.
Domestic and international conditions increasingly reinforce one another, amplifying China’s advantages in cost and speed when combined with its strengths in mineral resources, infrastructure, power generation capacity, and talent reserves.
This outcome is not the result of moral or cultural differences, but reflects an institutional reality: within a global product outsourcing system shaped by Western companies, Chinese firms now enjoy a favorable competitive position. Failure to confront this as institutional competition will leave Western firms increasingly exposed, as cost, speed, and scale in global manufacturing are set by systems willing to push labor protections aside.
