AI Empowering China’s Small Factories: A Practical Look at Digital Transformation

China’s industrial landscape has long been dominated by its vast network of small, unassuming factories. These operations — often equipped with outdated machinery and run on handwritten schedules — exist far from the headlines about “smart” or “lighthouse” factories. Yet, they play a crucial role in China’s manufacturing success, providing agility and flexibility that anchor global supply chains. Now, the digital revolution is reaching even these smaller players, enhancing their competitiveness and enabling them to adapt to new economic realities.

A Resilient Backbone
While highly automated factories attract attention for their efficiency, China’s millions of smaller factories — typically employing 50 workers or fewer — fill a different niche. Known for their quick adaptation to small, custom, or rush orders, these factories excel in meeting demands that mass production cannot. Their contributions underpin much of China’s reputation for manufacturing versatility, acting as essential nodes in the larger industrial system.

For many of these operations, flexibility and ingenuity compensate for a lack of modern infrastructure. Owners often rely on personal networks and creative problem-solving to secure business, while labor is distributed across highly specialized roles. This fragmentation may seem chaotic but allows the system to adapt quickly to shifting demands, both domestically and internationally.

The Role of Digital Tools
The integration of AI, big data, and digital platforms is offering these smaller players tools to modernize, without requiring the capital investment of a full-scale automation overhaul. Haizhi Online, an industrial internet platform, connects small manufacturers with global buyers by matching production capabilities to detailed order requirements. Its database, which profiles 700,000 factories and millions of component designs, creates a bridge between China’s manufacturing expertise and overseas demand.

Take Suzhou Borrett Precision Technology, a 15-employee factory specializing in machine processing. By partnering with Haizhi Online, Borrett boosted its annual revenue from ¥6 million to ¥10 million in just a few years, with most of the growth driven by international orders. In one notable case, the company collaborated with Haizhi to redesign a key component for a foreign client, reducing the part’s thickness from 6mm to 4mm over six months. The effort transformed a trial order into large-scale production, showcasing how digital platforms can amplify even small-scale operations.

Beyond Production: Digital Marketing Goes Global
Another critical development has been the use of AI to enhance marketing efforts for exporters. Platforms like Feishu Technology enable small and mid-sized enterprises (SMEs) to tap into global markets by providing real-time insights into customer behavior and campaign performance. This allows companies to shift their focus from generating “clicks” to cultivating long-term customer relationships.

For example, the activewear brand Yvette, based in Nanjing, expanded its global footprint with the help of Feishu. By setting up a North American-focused website, supported by AI-driven analytics and targeted advertising, Yvette grew its daily orders by 200% within a month. Such tools allow SMEs to compete with established players in international markets, while also reducing reliance on intermediary platforms like Amazon or Zalando.

Efficiency Gains in Traditional Sectors
Even in labor-intensive sectors like textiles, digitalization is yielding tangible improvements. Zhijing Technology, for instance, has digitized operations across 9,000 textile factories, improving loom utilization rates to 70%. For small workshops like Guangdong Xinwei Textile, this has reduced downtime and improved inventory management, addressing long-standing inefficiencies in the sector.

Xinwei’s experience highlights how incremental changes can lead to significant gains. By adopting a digital management system, the factory reduced payroll errors, streamlined machine handovers, and increased output by 25%. Such results demonstrate that digital tools do not need to displace workers or demand extensive retraining to deliver value.

A Pragmatic Path Forward
The success of digital platforms in China’s small manufacturing sector reflects the broader adaptability of its industrial base. Rather than seeking to replace these operations with fully automated facilities, platforms like Haizhi and Feishu enhance their existing strengths, enabling them to remain competitive in an increasingly globalized and technology-driven market.

As global supply chains become more fragmented, the ability of these smaller factories to integrate into complex networks will be critical. Their agility and willingness to embrace targeted digital solutions, rather than wholesale modernization, may offer a blueprint for other emerging economies facing similar challenges. The question, then, is whether these models can sustain their momentum as global competition — and expectations for sustainability and precision — continue to rise.